Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a 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)
The issuer’s revenues for the transition
period of June 1, 2019 – December 31, 2019 were $881,714.
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 June 30, 2019 was approximately $2,542,012.
The number of shares of the issuer’s
common stock issued and outstanding as of March 20, 2020 was 74,280,354 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 a guarantee of future performance and involve risk,
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 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 a 3% net smelter return 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.
On April 25, 2017, Provex and Canamex Resources
Corp. entered into a purchase and sale agreement whereby Canamex Resources purchased Patriot Gold's 30 percent 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 a wholly owned subsidiary, Patriot Gold Canada Corp (“Patriot Canada”), under the laws of British
Columbia, Canada.
On January 17, 2018, the Company designated
13,500,000 shares of the authorized and unissued preferred stock of the company as “Series A Preferred Stock” by filing
an Amended and Restated Certificate of Designation with the Secretary of State of Nevada.
On May 7, 2018, our wholly owned subsidiary,
Provex Resources Inc., changed its name to Goldbase, Inc. (“Goldbase”) under the laws of Nevada.
On June 27, 2019, the Company approved
a change in fiscal year end from May 31 to December 31.
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 three gold projects located in the southwest United States. In May 2016, we sold our interest in the Moss Mine
project and retained a royalty. In April 2017, we sold our interest in the Bruner project and retained a royalty leaving our project
inventory to consist of the Vernal project, the Windy Peak project and the Rainbow Mountain project.
Financing
There were no financing activities undertaken
by the Company during the seven months ended December 31, 2019. Due to the commencement of the royalties from the Moss mine, management
estimates that the Company will not require additional funding 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 a wholly owned subsidiary, Patriot Gold Canada Corp (“Patriot Canada”), under the laws of British
Columbia, Canada.
On May 7, 2018, our wholly owned subsidiary,
Provex Resources Inc., changed its name to Goldbase, Inc. (“Goldbase”) under the laws of Nevada.
On June 27, 2019, the Company approved
a change in fiscal year end from May 31 to December 31.
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 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 effect 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 may 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 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 December 31,
2019 consist of the Vernal Property, Windy Peak Property and Rainbow Mountain 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.
To date, the Company has paid the option
payments and made the expenditures necessary to satisfy the requirements of the BV Agreement and 100% interest in these two properties
was therefore transferred to Patriot, subject to MinQuest retaining a 3% royalty. All mining interests in the properties 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.
On April 16, 2010, the Company entered
into an Assignment Agreement with its wholly owned subsidiary, Provex Resources, Inc., (now Goldbase, 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.
In April 2017, Canamex Resources purchased
our interest in the Bruner properties for US$1.0 million cash, and we retained a two percent net smelter return 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.
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.
In September 2017, we released a National
Instrument 43-101 Technical Report on the Vernal.
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.
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 several times in 2017, 2018, and 2019.
The Windy Peak Property Location in
Nevada
Description and Location of the Windy
Peak Property
The Windy Peak Property consists of 114
unpatented mineral claims covering approximately 2,337 contiguous 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 5 ½ miles south
of Middlegate. The Property is a contiguous claim block. Access to the project area is by paved highway, followed by a short stretch
of gravel road.
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.
Annual maintenance fees paid to the BLM
and recording fees 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
Published information 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.
Exploration on and around the property
has included geologic mapping, rock chip sampling, sagebrush biogeochemistry, VLF-EM, VLF-resistivity and magnetic geophysical
surveys, and reverse circulation drilling. Various companies, including Terraco Gold Corp, Solitario Resources, Red Star Gold,
Pegasus Gold Corp, Rio Tinto, and Kennecott, have conducted drilling on and around the property, with more than 70 holes drilled.
Limited small-scale mining activities have been conducted by various private parties since the 1940's, including a small glory
hole mined during the 1970's centered on Hill 6483. Previous work on the property included many vertical reverse-circulation drill
holes, which are not suited to testing the high-angle structures known to host the gold- bearing veins. Some of the holes previously
drilled are inferred to be too shallow to properly test targets. The Company believes 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.
Current Exploration
The Company has been conducting an ongoing
exploration program to assess the potential for economically viable mineralization. The exploration program has been permitted
by the BLM. The Company initiated drilling in the summer of 2018, and this program extended into October 2018. Further drilling
was completed in December 2019. Exploration on the project is ongoing. The Company recognizes that Windy Peak is an early-stage
exploration opportunity and there are currently no proven or probable reserves.
Rainbow Mountain Property
Acquisition of Interest
In autumn of 2018, after conducting initial
reconnaissance of the Rainbow Mountain, the Company acquired the Rainbow Mountain Property, (referred to herein as the “Rainbow
Mountain Property,” "Rainbow Mountain” or the “Property”). This early-stage exploration project was
secured through staking and filing the associated paperwork and fees with the BLM and County. Rainbow Mountain has been visited
by directors and technical staff of the Company several times in 2018 and 2019.
The Rainbow Mountain Property Location
in Nevada
Description and Location of the Rainbow
Mountain Property
The Rainbow Mountain gold project consists
of 81 unpatented lode claims totaling approximately 1,620 contiguous acres, located approximately 23 km southeast of Fallon, in
the state of Nevada. Access to the project area is by paved highway, followed by a short stretch of gravel road.
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.
Annual maintenance fees paid to the BLM
and recording fees 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.
Geology of the Rainbow Mountain Property
Area
The claim area roughly encompasses nearly
the full extent of Rainbow Mountain, and specifically a prominent zone of northeast-striking faults which transect the central
part of Rainbow Mountain. This complex fault zone involves three discrete Tertiary volcanic units comprised of basalt, dacite,
and olivine basalt. Individual fault traces are well exposed locally and are often coincident with the contacts between the individual
lithologic units. Many of the fault traces exhibit prominent fault breccia and hydrothermal breccia, and surface samples of this
material returned anomalous gold and silver values up to 0.807 ppm and 1.6 ppm, respectively.
Based on observations recorded during field
reconnaissance, individual hydrothermal veins along the faulted contacts range in thickness up to 1.5 m, with associated strike
lengths of up to 1.7 km. The Company postulates that this locally intense faulting, in conjunction with the associated anomalous
assay values, is suggestive of a potential epithermal vein system within the footwall of the greater Rainbow Fault zone.
Current Exploration
The Company has conducted limited sampling
of the Property. The Company recognizes that Rainbow Mountain 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
DECEMBER 31, 2019
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 acquires,
explores, and develops natural resource properties. Currently the Company’s mineral operations are primarily focused in Nevada.
The Company’s common stock trades on the Canadian Securities Exchange under the symbol PGOL, and also on the Over-The-Counter
(“OTCQB”) market under the 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. Effective
May 7, 2018, Provex’s name was changed to Goldbase, Inc. (“Goldbase”).
Subsequent to the Company’s most
recent fiscal year-end of May 31, 2019, the Company elected to change its fiscal year-end to coincide with a calendar year-end
of December 31, 2019. All information related to the seven months ended December 31, 2018 are unaudited.
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, Goldbase and Patriot Canada. Collectively,
they are referred to herein as “the Company”. Inter-company accounts and transactions have been eliminated.
Reclassifications
Certain amounts related to the prior year financial presentation
have been reclassified to conform with the presentation as of December 31, 2019.
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. Management believes that all applicable
estimates and adjustments are appropriate. Actual results could differ from those estimates.
Going Concern
Management believes they will have sufficient
funds to support their business based on the following: (a) revenues derived from the Moss royalty, given the Moss mine is now
in production; (b) the Company's marketable securities are relatively liquid; (c) the Company believes it can raise additional
funds if needed to support our business plan, although there can be no assurance that the Company can raise any additional funds,
or if it can, that such funds will be on terms acceptable to the Company.
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 December 31, 2019.
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 has no cash equivalents as of December 31, 2019 or May 31, 2019 and 2018.
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 December 31, 2019, and May 31, 2019 and 2018, 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 reported in net income. Gains and losses from sales of investments classified as available for sale are determined
using the specific identification method. As of December 31, 2019, and May 31, 2019 and 2018, 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 Power Corporation (“Strata”)
stock. The Company acquired the Northern Vertex stock on May 26, 2016 as part of the Moss Property sale. The Company purchased
Strata common stock through multiple private placement offerings during the year ended May 31, 2018 (see Note 10).
Royalties Receivables
Royalties Receivables consist of amounts
due from Golden Vertex related to the net smelter return royalty on the Gold/Silver Mine in Arizona (see Note 4). An allowance
for uncollectible receivables is based on historical collection trends and write-off history. As of December 31, 2019, and May
31, 2019, and 2018, there was no allowance recorded.
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 December 31,
2019, and May 31, 2019, and 2018, there were no reclamation deposits recorded.
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.
As of December 31, 2019, and May 31, 2019,
and 2018, all of the outstanding stock options and warrants were excluded from the computation of diluted shares outstanding as
they would have had an anti-dilutive impact on the Company’s income (loss) from continuing operations.
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 December 31, 2019 and May 31, 2019 and 2018, 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 Accounting Standards Update (ASU) 2018-07, Compensation—Stock Compensation (Topic 718):
Under the new standard, the Company will value all equity classified awards at their grant-date under ASC718 and no options
were required to be revalued at adoption.
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.
Stock-based Compensation
We account for equity-based transactions
with nonemployees awards in accordance with the Accounting Standards Update (ASU) 2018-07, Compensation—Stock Compensation
(Topic 718): ASU 2018-07 establishes that equity-based payment transactions with nonemployees shall be measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The fair value of common stock issued for payments to nonemployees is measured at the market price on the date of grant. The fair
value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general,
we recognize the fair value of the equity instruments issued as deferred stock compensation and amortize the cost over the term
of the contract.
We account for employee stock-based compensation
in accordance with the guidance of FASB ASC Topic 718, Compensation—Stock Compensation, which requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their
fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in
capital over the period during which services are rendered.
The Company has granted Restricted Common
Stock, where the Restricted Common Stock is restricted for a period of three years following the date of grant. During the three-year
period the recipient may not sell or otherwise dispose of the shares. The Company has applied a discount for illiquidity to the
price of the Company’s stock when determining the amount of expense to be recorded for the Restricted Common Stock issuance.
The discount for illiquidity for the Restricted Common Stock was estimated on the date of grant by taking the average close price
of the freely traded common shares for the period in which the services were provided, and applying an illiquidity discount of
10% for each multiple that the total Restricted Common Stock is of the average daily volume for the period, to a maximum of 50%.
Fair Value of Financial Instruments
The carrying value of the Company's financial
instruments, including prepaids, accounts payable and accrued liabilities, at December 31, 2019 and May 31, 2019 and 2018 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
|
|
|
Fair Value Measurement at
|
|
|
|
|
December 31, 2019
|
|
|
May 31, 2019
|
|
|
May 31, 2018
|
|
|
|
|
Using
Level 1
|
|
|
Total
|
|
|
Using
Level 1
|
|
|
Total
|
|
|
Using
Level 1
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
158,282
|
|
|
$
|
158,282
|
|
|
$
|
112,272
|
|
|
$
|
112,272
|
|
|
$
|
333,620
|
|
|
$
|
333,620
|
|
Revenue Recognition
On June 1, 2018, the Company adopted Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
(“ASC 606”), which provides a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers. The Company receives a royalty from Golden Vertex of 3% of net smelter returns (see Note 3) and recognizes
revenue at the time minerals are produced and sold at the Moss mine. The Company’s revenue recognition policy standards include
the following elements under ASU 606:
|
|
1.
|
Identify the contract with the customer. The contract with Golden Vertex is documented in the Purchase and Sale Agreement dated 5/12/16 and the Royalty Deed dated 5/25/16.
|
|
|
2.
|
Identify the performance obligations in the contract. The performance obligation in the contract required Patriot to relinquish its 30% interest in the Moss gold/silver mine. 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.
|
|
|
3.
|
Determine the transaction price. The transaction price was C$1,500,000 plus 3% of the Net Smelter Returns on the future production of the Moss mine. See Note 3 for definition of Net Smelter Returns.
|
|
|
4.
|
Allocate the transaction price to the performance obligations in the contract. The Company only has one performance obligation, the transfer of the rights to the Moss mine, which has already been fulfilled.
|
|
|
5.
|
Recognize revenue when (or as) the entity satisfies a performance obligation. The C$1,500,000 was recognized as a sale of the mining rights in 2016, resulting in a gain from the disposition of the property. The 3% net smelter returns royalty will be recognized as revenue in the period that Golden Vertex produces and sells minerals from the Moss mine, which began in March 2018. The royalties that have been received to date have been highly variable, as the amounts are dependent upon the monthly production, the demand of the buyers, the spot price of gold and silver, the costs associated with refining and transporting the product, etc. As such, management has determined that the revenue recognition shall be treated as variable consideration as defined in ASC 606. Variable consideration should only be recognized to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Given the fact that royalties to date have been highly variable with a great degree of uncertainty, and any attempts to estimate future revenue would likely result in a significant reversal of revenue, royalty revenue will be recognized when payments and settlement statements are received from Golden Vertex, in the period for which the sales were made by Golden Vertex. It is at that time that any uncertainty related to royalty payments is resolved. The Company applied ASC 606 using the modified retrospective method applied to contracts not yet completed as of the date of adoption and resulted in the recognition of $46,504 during the year ended May 31, 2018.
|
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) an entity or person 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
The Company follow ASC 740-10-30, which
requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in
which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management
concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the fiscal 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 the Statements
of Income in the period that includes the enactment date.
The Company adopted ASC 740-10-25 (“ASC
740-10-25”) with regard to uncertainty of income tax positions. ASC 740-10-25 addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-25,
we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized
in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate settlement. ASC 740-10-25 also provides guidance on derecognition, classification, interest and
penalties on income taxes, and accounting in interim periods and requires increased disclosures. We had no material adjustments
to our liabilities for unrecognized income tax benefits according to the provisions of ASC 740-10-25.
New Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The pronouncement
revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The
guidance is effective for the Company beginning in the first quarter of fiscal year 2021 with early adoption permitted. The Company
is currently evaluating the potential impact of this guidance on it consolidated financial statements.
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise
disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might
have a material impact on its financial position or results of operations.
NOTE 3 - MINERAL PROPERTIES
Bruner and Vernal Properties
On May 28, 2010, the Company 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 Canamex,
and upon earning its initial interest, the parties agreed to negotiate a definitive joint venture agreement in good faith to supersede
the agreement.
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.
On April 25, 2017, the Company and Canamex
Resources Corp. entered into a purchase and sale agreement (“Bruner 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. The Company 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.
As of December 31, 2019, the Company has
incurred approximately $89,616 of accumulated option and exploration expenses on the Vernal property.
During the seven months ended December
31, 2019 and 2018, the Company incurred exploration expenses of $0 and $1,860 on the Vernal property, respectively. During the
years ended May 31, 2019 and 2018, the Company incurred exploration expenses of $1,860 and $2,008 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 a 3% net smelter return 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 prohibited the resale of the shares during the four-month
period following the date of issuance and thereafter, the Company agreed to not sell the shares in an amount exceeding 100,000
shares per month.
Windy Peak Property
The Windy Peak Property, (“Windy
Peak”) consists of 114 unpatented mineral claims covering approximately 2,337 acres, 3 miles NNE of the Bell Mountain and
7 miles east of the Fairview mining district in southwest Nevada.
As of December 31, 2019, the Company has
incurred approximately $687,209 of exploration expenses on the Windy Peak Property, and $161,367 and $358,610 were spent for the
seven months ended December 31, 2019 and 2018, respectively. For the twelve months ended May 31, 2019 and 2018, the Company spent
$392,365 and $32,444, respectively.
Rainbow Mountain Property
In the fall of 2018, after conducting initial
reconnaissance of the Rainbow Mountain, the Company acquired the Rainbow Mountain Property (“Rainbow Mountain”). This
early-stage exploration project was secured through staking and filing the associated paperwork and fees with the BLM and County.
The Rainbow Mountain gold project consists
of 81 unpatented lode claims totaling approximately 1,620 contiguous acres, located approximately 23 km southeast of Fallon, in
the state of Nevada. Access to the project area is by paved highway, followed by a short stretch of gravel road.
Annual maintenance fees paid to the BLM
and recording fees 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. As of December 31, 2019, the company has incurred
approximately $88,014 of fees and exploration expenses on the Rainbow Mountain Property, and $58,523 and $29,312 were spent for
the seven months ended December 31, 2019 and 2018, respectively. For the twelve months ended May 31, 2019 and 2018, the Company
spent $29,492 and $0, respectively.
NOTE 4 – ROYALTY INTERESTS
Pursuant to the Purchase and Sale Agreement
with Golden Vertex, the Company’s has a 3% net smelter return royalty on the Moss Gold/Silver Mine in Arizona. For the seven
months ended December 31, 2019 and 2018, the Company earned royalties of $881,714 and $436,033, respectively. For the years ended
May 31, 2019 and 2018, the Company earned royalties of $864,779 and $46,504, respectively. As of December 31, 2019, and May 31,
2019 and 2018, the Company had Royalties Receivables of $487,060, $290,216 and $46,504, respectively.
Pursuant to the Bruner Purchase and Sale
Agreement with Canamex Resources, the Company has a 2% net smelter return royalty on the Bruner Gold/Silver mine in Nevada. As
of December 31, 2019, no royalties have yet been earned.
In March 2019, the Company purchased a
Vanadium Oxide royalty interest from a related party. In exchange for a non-refundable payment of $300,000, the Company will receive
royalties based on the gross production of Vanadium Oxide (“Vanadium”) from a bitumen deposit covering 19 oil sands
leases in Alberta. For each barrel of bitumen produced from the specified oil sands until March 21, 2039, or upon termination of
mining, whichever is earlier, the Company will be paid a royalty equal to 25 grams of Vanadium per barrel of bitumen produced,
multiplied by the price of Vanadium Pentoxide 98% min in-warehouse Rotterdam published on the last business day of the month in
which the gross production of bitumen occurred. As of May 31, 2019, $220,000 had been paid, and the remaining $80,000 and was reflected
in Accounts Payable and Accrued Liabilities. The balance was paid in installments through December 31, 2019. As of December 31,
2019, no royalties have yet been earned.
NOTE 5 - STOCK OPTIONS
The Company’s Board of Directors
adopted the 2019 Stock Option Plan (the “2019 Plan”) in July 2019, 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 were $24,058 and $0 for the seven months
ended December 31, 2019 and 2018, respectively. For the twelve months ended May 31, 2019 and 2018, the combined compensation costs
were $21,142 and $273,185, respectively.
The 2019 Plan, 2014 Plan, the 2012 Plan
and the 2005 Plan reserve and make available for grant common stock shares of up to 9,500,000, 5,000,000, 3,900,000 and 2,000,000,
respectively. In November 2015, the 2005 Stock Option Plan expired so that no share may be 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 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 December 31, 2019, there were 9,500,000, 535,000 and 2,680,000
shares available for grant under the 2019 Plan, 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. No options were granted in the seven months ended
December 31, 2019 or the twelve months ended May 31, 2019. 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:
|
|
|
12/31/19
|
|
5/31/19
|
|
|
5/31/18
|
|
|
Risk-free interest rate
|
|
N/A
|
|
|
N/A
|
|
|
|
2.07% - 2.9%
|
|
|
Expected life in years
|
|
N/A
|
|
|
N/A
|
|
|
|
10
|
|
|
Volatility
|
|
N/A
|
|
|
N/A
|
|
|
|
425.9% - 438.5%
|
|
|
Expected dividend yield
|
|
N/A
|
|
|
N/A
|
|
|
|
$0
|
|
|
Exercise Price
|
|
N/A
|
|
|
N/A
|
|
|
|
$0.10
|
|
The following table summarizes stock option activity and related
information for the seven months ended December 31, 2019 and the years ended May 31, 2019:
|
|
|
Number of
Stock Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Balance May 31, 2017
|
|
|
7,015,000
|
|
|
$
|
0.10
|
|
|
|
8.6
|
|
|
$
|
0.00
|
|
|
Option granted
|
|
|
3,470,000
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Options cancelled / expired
|
|
|
(3,000,000
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2018
|
|
|
7,485,000
|
|
|
$
|
0.10
|
|
|
|
7.8
|
|
|
$
|
0.00
|
|
|
Option granted
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Options cancelled / expired
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(20,000
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2019
|
|
|
7,465,000
|
|
|
$
|
0.10
|
|
|
|
7.07
|
|
|
$
|
0.00
|
|
|
Option granted
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Options cancelled / expired
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019
|
|
|
7,465,000
|
|
|
$
|
0.10
|
|
|
|
6.48
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
|
|
7,465,000
|
|
|
$
|
0.10
|
|
|
|
6.48
|
|
|
$
|
0.00
|
|
The following table summarized information pertaining to unvested
stock options for the seven months ended December 31, 2019 and the years ended May 31, 2019 and 2018:
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Unvested at May 31, 2017
|
|
|
548,333
|
|
|
$
|
0.139
|
|
|
Granted
|
|
|
3,470,000
|
|
|
|
0.078
|
|
|
Vested
|
|
|
(3,343,333
|
)
|
|
|
0.081
|
|
|
Exercised / forfeited
|
|
|
–
|
|
|
|
–
|
|
|
Unvested at May 31, 2018
|
|
|
675,000
|
|
|
$
|
0.112
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
Vested
|
|
|
(325,000
|
)
|
|
|
0.110
|
|
|
Exercised / forfeited
|
|
|
–
|
|
|
|
–
|
|
|
Unvested at May 31, 2019
|
|
|
350,000
|
|
|
$
|
0.113
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
Vested
|
|
|
(350,000
|
)
|
|
|
0.113
|
|
|
Exercised / forfeited
|
|
|
–
|
|
|
|
–
|
|
|
Unvested at December 31, 2019
|
|
|
–
|
|
|
$
|
–
|
|
As of May 31, 2019, the Company had $24,058 of total unrecognized
compensation costs related to unvested stock options, which was recognized in July 2019.
The Company issues new stock when options are exercised.
NOTE 6 - COMMON STOCK
The Company may issue up to 400,000,000
shares of $.001 par value common stock. As of December 31, 2019, the Company had 74,380,354 of common shares outstanding.
During the seven months ended December
31, 2019, no shares of common stock were granted. During the year ended May 31, 2019 and 2018, the company granted 7,851,500 and
2,531,250 restricted shares of the Company’s common stock at $0.04 per share in payment for services provided to the Company,
for total non-cash expense of $174,060 and $101,239. The Restricted Common Stock is restricted
for a period of three years following the date of grant. During the three-year period the recipient may not sell or otherwise dispose
of the shares.
During the year ended May 31, 2018, the
Company bought back 100,000 shares of its stock. The shares have been credited to the treasury stock account at cost of $9,093.
NOTE 7 - WARRANTS
The following table summarizes warrant activity during the seven
months ended December 31, 2019 and the years ended May 31, 2019 and 2018. All outstanding warrants were exercisable during this
period.
|
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Outstanding May 31, 2017
|
|
|
35,611,204
|
|
|
$
|
0.09
|
|
|
Issued
|
|
|
–
|
|
|
|
–
|
|
|
Canceled / exercised
|
|
|
(2,601,747
|
)
|
|
|
0.09
|
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding May 31, 2018
|
|
|
33,009,457
|
|
|
$
|
0.09
|
|
|
Issued
|
|
|
–
|
|
|
|
–
|
|
|
Canceled / exercised
|
|
|
(8,000,000
|
)
|
|
|
0.09
|
|
|
Expired
|
|
|
(12,112,500
|
)
|
|
|
0.07
|
|
|
Outstanding May 31, 2019
|
|
|
12,896,957
|
|
|
$
|
0.11
|
|
|
Issued
|
|
|
–
|
|
|
|
–
|
|
|
Canceled / exercised
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
(1,236,957
|
)
|
|
|
0.05
|
|
|
Outstanding December 31, 2019
|
|
|
11,660,000
|
|
|
$
|
0.12
|
|
In April 2019, warrants for 8,000,000 shares were exercised
in exchange for a note receivable for $705,000. As a result of this transaction, the shareholder is now considered a beneficial
owner (see Note 10 – Related Party Transactions). The note is non-interest bearing and can be repaid at any time with 15
days advance notice to the Company. As this note remains outstanding as of December 31, 2019, in accordance with ASC 505-10-45-2,
it has been reclassified as a reduction of Additional Paid-In Capital.
The following tables summarizes outstanding warrants as of December
31, 2019, all of which are exercisable:
|
|
|
|
Warrants Outstanding and Exercisable
|
|
|
Range of Exercise Prices
|
|
|
|
Number of
Warrants
|
|
|
|
Weighted
Avg Exercise
Price
|
|
|
|
Remaining Contractual Life (years)
|
|
|
$0.05 - $0.08
|
|
|
|
2,340,000
|
|
|
|
$0.08
|
|
|
|
0.86
|
|
|
$0.09 - $0.14
|
|
|
|
6,320,000
|
|
|
|
$0.11
|
|
|
|
4.29
|
|
|
$0.15 - $0.21
|
|
|
|
3,000,000
|
|
|
|
$0.16
|
|
|
|
5.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outstanding December 31, 2019
|
|
|
|
11,660,000
|
|
|
|
|
|
|
|
|
|
NOTE 8 - PREFERRED STOCK
The Company did not issue any preferred
stock during the seven months ended December 31, 2019 or the year ended May 31, 2019. During the year ended May 31, 2018 the company
sold 290,000 shares of Series A preferred stock to a related party for total proceeds of $14,500. The holders of the Series A Preferred
stock shall be entitled to receive non-cumulative dividends in preference to the declaration or payments of dividends on the Common
Stock. In the event of liquidation of the Company, the holders of the Series A Preferred Stock shall receive any accrued and unpaid
dividends before distribution or payments to the holders of the Common Stock. Series A Preferred Stock carries the same right to
vote and act as Common stock, except that it carries super-voting rights entitling it to One Hundred (100) votes per share.
NOTE 9 - INCOME TAXES
As of December 31, 2019, the Company had
a net operating loss (“NOL”) carryforward for income tax reporting purposes of approximately $10,000,000 that may be
offset against future taxable income. The carryforwards of $10,614,000 generated prior to fiscal year 2019 begin expiring in 2024
and unless utilized, will continue to expire. Beginning in fiscal 2019, net operating losses can be carried forward indefinitely,
however they can only be utilized to offset up to 80% of taxable income.
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:
|
|
|
12/31/19
|
|
|
5/31/19
|
|
|
5/31/18
|
|
|
Loss carryforwards
|
|
$
|
2,100,000
|
|
|
$
|
2,205,000
|
|
|
$
|
2,163,000
|
|
|
Stock compensation expense
|
|
|
174,000
|
|
|
|
169,000
|
|
|
|
79,000
|
|
|
Mineral property amortization
|
|
|
44,000
|
|
|
|
31,000
|
|
|
|
4,000
|
|
|
Deferred tax asset
|
|
|
2,318,000
|
|
|
|
2,405,000
|
|
|
|
2,246,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(2,318,000
|
)
|
|
|
(2,405,000
|
)
|
|
|
(2,246,000
|
)
|
|
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 21% to net loss for the year. The sources and tax
effect of the differences are as follows:
|
|
|
12/31/19
|
|
|
5/31/19
|
|
|
5/31/18
|
|
|
Computed expected tax benefit (liability)
|
|
$
|
63,339
|
|
|
$
|
(59,103
|
)
|
|
$
|
(233,517
|
)
|
|
Permanent differences
|
|
|
9,102
|
|
|
|
30,259
|
|
|
|
63,492
|
|
|
Other
|
|
|
14,559
|
|
|
|
36,844
|
|
|
|
(2,833,975
|
)
|
|
Change in valuation allowance
|
|
|
(87,000
|
)
|
|
|
(8,000
|
)
|
|
|
3,054,000
|
|
|
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 2016.
NOTE 10 - RELATED PARTY TRANSACTIONS
For each of the years ended May 31, 2019
and 2018, Mr. Zachary Black, a Board Member, received 250,000 shares of restricted common stock, in lieu of cash, for services
provided to the Company. The Restricted Common Stock is restricted for a period of three years following the date of grant. The
shares were valued at $0.04 for total non-cash expense of $10,000. Mr. Black 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 seven months ended December 31, 2019 and 2018, Mr. Black was paid fees
in the amount of $58,350 and $51,894, respectively. For the years ended May 31, 2019 and 2018, Mr. Black was paid fees in the amount
of $53,298 and $0, respectively. In addition, for the seven months ended December 31, 2019 and 2018, the Company recognized stock-based
compensation expense in the amount of $24,058 and $0, respectively, related to the vesting of Mr. Black’s stock options.
For the twelve months ended May 31, 2019 and 2018, the Company recognized stock-based compensation expense in the amount of $21,142
and $0, respectively, related to the vesting of Mr. Black’s stock options.
For the years ended May 31, 2019 and 2018,
Mr. Robert Coale, Chairman of the Board, received 250,000 and 281,250 shares of restricted common stock, in lieu of cash, for services
provided to the Company. The Restricted Common Stock is restricted for a period of three years following the date of grant. The
shares were valued at $0.04 for total non-cash expense of $10,000 and $11,239, respectively. 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 seven months ended December 31, 2019 and 2018, Mr.
Coale was paid fees in the amount of $0 and $11,303, respectively. For the years ended May 31, 2019 and 2018, Mr. Coale was paid
fees in the amount of $11,303 and $7,586, respectively.
For the years ended May 31, 2019 and 2018,
Mr. Trevor Newton, President, Chief Financial Officer, Secretary, Treasurer and Director of the Company, received 2,101,500 and
2,000,000 shares of restricted common stock, in lieu of cash, for services provided to the Company. The Restricted Common Stock
is restricted for a period of three years following the date of grant. The shares were valued at $0.04 for total non-cash expense
of $84,060 and $80,000, respectively. Mr. Newton provides 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 seven months ended December 31, 2019 and 2018, Mr. Newton was paid fees in the amount of $127,464 and $69,300, respectively.
For the years ended May 31, 2019 and 2018, Mr. Newton was paid fees in the amount of $160,684 and $144,199, respectively.
During the year ended May 31, 2018, the
company sold 290,000 shares of Series A preferred stock to Mr. Newton for total proceeds of $14,500.
Prior to 2019, Board Members were not paid
directors’ fees. However, in an effort to keep expenses down and avoid hiring additional staff, Board Members have become
more active in the provision of services as the Company has become more active in developing its projects, vetting new properties,
and managing its corporate affairs. Based on the recommendation from legal counsel, and pursuant to a resolution adopted by the
Board, each director will now be paid fees of $70,000 per calendar year. Each director term is three years. As of December 31,
2019, the fees of $70,000 for Mr. Coale and Mr. Black are reflected in Accounts Payable and Accrued Liabilities – Related
Parties. In lieu of cash, Mr. Newton opted to receive his director fees in restricted shares of the Company, totaling 5,250,000
shares. The shares were valued at $0.04 for total non-cash expense of $40,833 for the seven months ended December 31, 2019 and
$29,167 for year ended May 31, 2019, recorded as Directors Fees Expense. The fees for the remainder of calendar years 2020 and
2021 are recorded as Prepaid Expenses, in the amount of $140,000. The Company recognizes these consulting fees as general and administrative
expenses in the Consolidated Statements of Operations.
In April 2019, warrants for 8,000,000 shares were exercised
in exchange for a note receivable for $705,000. As a result of this transaction, the shareholder is now considered a related party.
The note is non-interest bearing and can be repaid at any time with 15 days advance notice to the Company. As this note remains
outstanding as of December 31, 2019, in accordance with ASC 505-10-45-2, it has been reclassified as a reduction of Additional
Paid-In Capital. In addition, this shareholder provides consulting services to the company including claims administration of the
Moss mine royalties. For the seven months ended December 31, 2019 and 2018, consulting fees were paid in the amount of $35,631
and $0, respectively. For the years ended May 31, 2019 and 2018, consulting fees were paid in the amount of $32,450 and $0, respectively.
During the year ended May 31, 2018, the
Company acquired 2,000,000 shares of common stock of Strata Power Corporation (“Strata”) through a series of private
placements for a total cost of $197,442 (CDN $253,088) as an investment in lithium mining extraction technologies. The purchase
was accounted for as 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. Management has considered the guidance that is used
to evaluate whether the Company has significant influence over Strata and has determined that no such significant influence exists.
NOTE 11 - SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10)
management has performed an evaluation of subsequent events through the date that the financial statements were available to be
issued and has determined that it does not have any material subsequent events to disclose in these financial statements.