-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RhRQI3iCyq+aLYZ1DyPit/2uN20EtwWa7aC+9TKYTuiXEme5QRacMRxw3SmfBkNR Hmv+o3w7Cn/COD28wDHEUg== 0000909012-08-000655.txt : 20080520 0000909012-08-000655.hdr.sgml : 20080520 20080520162321 ACCESSION NUMBER: 0000909012-08-000655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080520 DATE AS OF CHANGE: 20080520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Gold Run Inc. CENTRAL INDEX KEY: 0001383290 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 204919927 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-139412 FILM NUMBER: 08848951 BUSINESS ADDRESS: STREET 1: 330 BAY STREET STREET 2: SUITE 820 CITY: TORONTO STATE: A6 ZIP: M5H 2S8 BUSINESS PHONE: 14163630151 MAIL ADDRESS: STREET 1: 330 BAY STREET STREET 2: SUITE 820 CITY: TORONTO STATE: A6 ZIP: M5H 2S8 10-Q 1 t304349.txt GOLD RUN UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2008 ------------------------------------------------- |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ---------------------- Commission File Number 333-139412 ---------------------------------------------------------- Gold Run Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 20-4919927 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 330 Bay Street, Suite 820, Toronto Ontario M5H 2S8 Canada - -------------------------------------------------------------------------------- (Address of principal executive offices) (416) 363-0151 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes|X| No|_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_| Smaller reporting company |X| (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes|_| No|X| APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes|_| No|_| APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 27,185,134 shares of Common Stock, par value $.000001 per share - -------------------------------------------------------------------------------- GOLD RUN INC. TABLE OF CONTENTS TO FORM 10-Q PART I - FINANCIAL INFORMATION Item 1. Financial Statements. 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 27 Item 4. Controls and Procedures. 27 PART II - OTHER INFORMATION Item 1. Legal Proceedings. 31 Item 1A. Risk Factors. 31 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 32 Item 3. Defaults Upon Senior Securities. 32 Item 4. Submission of Matters to a Vote of Security Holders. 32 Item 5. Other Information. 32 Item 6. Exhibits. 33 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GOLD RUN INC. UNAUDITED FINANCIAL STATEMENTS MARCH 31, 2008
GOLD RUN INC. (an exploration stage enterprise) BALANCE SHEETS AS AT MARCH 31, 2008 AND DECEMBER 31, 2007 (stated in U.S. dollars) (unaudited) March 31, December 31, 2008 2007 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,265 $ 35,954 Goods and services tax receivable 9,917 9,474 Warrant subscription receivable (Note 4 (b)) -- 1,000 Prepaid expenses 2,827 2,827 ----------- ----------- Total current assets 17,009 49,255 ----------- ----------- PROPERTY - MINERAL PROPERTY RIGHTS (Notes 5 and 6) 142,553 132,553 ----------- ----------- OTHER ASSETS: Reclamation bonds (Note 2 (e)) 33,635 33,635 Prepaid offering costs (Note 2 (f)) 252,050 252,050 ----------- ----------- Total other assets 285,685 285,685 ----------- ----------- TOTAL ASSETS $ 445,247 $ 467,493 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued liabilities (Note 7) To related parties $ 108,790 $ 78,504 To others 387,028 348,184 ----------- ----------- 495,818 426,688 Promissory notes (Note 4 (h)) 149,970 -- Accrued interest (Note 4 (h)) 7,500 -- ----------- ----------- Total current liabilities 653,288 426,688 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 4, 5, 9 and 11) SHAREHOLDERS' EQUITY (DEFICIT) (Note 4): Common stock, $.000001 par value, 100,000,000 shares authorized 46 46 Warrant subscribed -- 1,000 Additional paid-in capital 2,772,283 2,739,321 Deficit accumulated during the exploration phase (2,980,370) (2,699,562) ----------- ----------- Total shareholders' equity (deficit) (208,041) 40,805 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 445,247 $ 467,493 =========== =========== The accompanying notes to financial statements are an integral part of these balance sheets.
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GOLD RUN INC. (an exploration stage enterprise) STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION (MAY 5, 2006) TO MARCH 31, 2008 (stated in U.S. dollars) (unaudited) Deficit accumulated Additional during the Total Number of Common Warrant paid-in exploration shareholders' shares stock subscribed capital stage equity (deficit) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, May 5, 2006 -- $ -- $ -- $ -- $ -- $ -- Initial private placement of shares (Note 4(b)) 22,400,000 22 -- 2,218 -- 2,240 Shares issued to President/Chief Geologist (Note 4 (b)) 7,500,000 7 -- 743 -- 750 Private placement of shares (Note 4 (b)) 9,550,000 10 -- 9,540 -- 9,550 Fair value of share-based payments -- -- -- 190,904 -- 190,904 Net loss from inception to December 31, 2006 -- -- -- -- (839,620) (839,620) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, December 31, 2006 39,450,000 39 -- 203,405 (839,620) (636,176) Conversion of the promissory notes and accrued interest to common stock (Note 4 (f)) 4,826,800 5 -- 1,771,545 -- 1,771,550 Withholdings on conversion of promissory notes held by foreign parties (Note 4(f)) -- -- -- (15,000) -- (15,000) Private placement of shares (Note 4 (b)) 666,667 1 -- 499,999 -- 500,000 Costs of issuance of common stock related to private placement of shares (Note 4 (b)) -- -- -- (50,000) -- (50,000) Shares returned and cancelled (Note 3 and Note 4(b)) (16,605,000) -- -- -- -- -- Shares of common stock re-purchased and cancelled (Note 3 and Note 4 (b)) (2,450,000) (2) -- (2,448) -- (2,450) Private placement of shares (Note 4 (b)) 266,667 -- -- 200,000 -- 200,000 Private placements of shares and warrant (Note 4 (b)) 3,000,000) 3 1,000 2,997 -- 4,000 Shares returned and held in treasury (Note 4 (b)) (2,000,000) -- -- -- -- -- Fair value of share-based payments (Note 4 (e)) -- -- -- 128,823 -- 128,823 Net loss -- -- -- -- (1,859,942) (1,859,942) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, December 31, 2007 27,155,134 46 1,000 2,739,321 (2,699,562) 40,805 Warrant subscription received (Note 4 (b)) -- -- (1,000) 1,000 -- -- Private placement of shares (Note 4 (h)) 30,000 -- -- 30 -- 30 Fair value of share-based payments (Note 4 (e)) -- -- -- 31,932 -- 31,932 Net loss -- -- -- -- (280,808) (280,808) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, March 31, 2008 27,185,134 $ 46 $ -- $ 2,772,283 $(2,980,370) $ (208,041) =========== =========== =========== =========== =========== =========== The accompanying notes to financial statements are an integral part of these statements.
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GOLD RUN INC. (an exploration stage enterprise) STATEMENTS OF LOSS FOR THE THREE-MONTH PERIODS ENDED MARCH 31 2008 AND 2007, AND FOR THE PERIOD FROM INCEPTION (MAY 5, 2006) TO MARCH 31, 2008 (stated in U.S. dollars) (unaudited) Cumulative for the Three-month period from period ended inception to March 31, March 31, 2008 2007 2008 ------------ ------------ ------------ REVENUE $ -- $ -- $ -- ------------ ------------ ------------ COSTS AND EXPENSES: Exploration costs 70,145 56,768 810,068 Legal (Note 9) 40,788 34,529 387,615 Consulting and professional fees (Note 9) 22,666 53,158 351,667 Share-based payments (Note 4 (e)) 31,932 32,324 351,659 Administrative salaries 37,654 33,000 224,940 Amortization of debt financing costs (Note 4 (f)) -- 23,403 187,227 Travel 11,109 19,960 171,180 Audit fees 40,000 9,000 123,950 Filing and printing fees 7,359 1,648 57,323 Rent (Note 9) 7,195 13,325 46,876 Office expense 2,772 4,182 45,298 Exchange rate losses 1,134 -- 34,377 Bank charges 576 532 6,441 Miscellaneous -- -- 14,451 ------------ ------------ ------------ Total costs and expenses 273,330 281,829 2,813,072 ------------ ------------ ------------ LOSS FROM OPERATIONS (273,330) (281,829) (2,813,072) INTEREST EXPENSE ON PROMISSORY NOTES (Note 4 (f)) (7,500) (40,263) (168,550) INTEREST INCOME 22 -- 1,252 ------------ ------------ ------------ NET LOSS $ (280,808) $ (322,092) $ (2,980,370) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES 27,182,826 39,450,000 37,792,295 ============ ============ ============ LOSS PER SHARE $ (0.010) $ (0.008) $ (0.079) ============ ============ ============ The accompanying notes to financial statements are an integral part of these statements.
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GOLD RUN INC. (an exploration stage enterprise) STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS ENDED MARCH 31 2008 AND 2007, AND THE PERIOD FROM INCEPTION (MAY 5, 2006) TO MARCH 31, 2008 (stated in U.S. dollars) (unaudited) Cumulative for the Three-month period from period ended inception to March 31, March 31, 2008 2007 2008 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (280,808) $ (322,092) $ (2,980,370) ------------- ------------- ------------- Adjustments to reconcile net loss to net cash used by operating activities: Amortization of debt financing costs - 23,403 187,227 Share-based payments 31,932 32,324 351,659 Non-cash interest expense 7,500 40,263 168,550 Increase in goods and services tax receivable (443) - (9,917) Increase in prepaid expenses - - (2,827) Increase (decrease) in accounts payable and accrued liabilities 69,130 (93,630) 418,734 ------------- ------------- ------------- Total adjustments 108,119 2,360 1,113,426 ------------- ------------- ------------- Net cash used by operating activities (172,689) (319,732) (1,866,944) ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments to acquire mineral property rights (Note 6) (10,000) (25,000) (142,553) Payments to acquire reclamation bonds - - (33,635) ------------- ------------- ------------- Net cash used by investing activities (10,000) (25,000) (176,188) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash proceeds from the issuance of promissory notes 149,970 - 1,760,470 Cash proceeds from the issuance of warrants 1,000 - 1,000 Proceeds from sale of common stock, net 30 - 650,570 Payments of debt financing costs - - (187,227) Payments of offering costs - (29,811) (174,966) Payments to re-purchase common stock - - (2,450) ------------- ------------- ------------- Net cash provided by (used) financing activities 151,000 (29,811) 2,047,397 ------------- ------------- ------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,689) (374,543) 4,265 CASH AND CASH EQUIVALENTS, beginning of period 35,954 855,346 - ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, end of period $ 4,265 $ 480,803 $ 4,265 ============= ============= ============= SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ -- $ -- $ -- ============= ============= ============= Taxes paid $ -- $ -- $ -- ============= ============= ============= Non-cash items- Conversion of promissory notes and related accrued interest into common stock $ -- $ -- $1,771,550 ============= ============= ============= Offering costs included in accounts payable $ -- $ -- $ 77,084 ============= ============= ============= The accompanying notes to financial statements are an integral part of these statements.
-4- GOLD RUN INC. (AN EXPLORATION STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (stated in U.S. dollars) (unaudited) 1. NATURE OF OPERATIONS Gold Run Inc. ("the Company") is an exploration company engaged in the acquisition and exploration of mineral properties in the State of Nevada. The Company was incorporated on May 5, 2006 under the laws of the State of Delaware. As of March 31, 2008, the Company has put in place the management team, has leased four mineral properties and staked a fifth (see Note 5), has secured initial equity financing (see Note 4), and has commenced exploration activities on its leased properties. The Company has completed three offerings of promissory notes, two of which have been converted to common shares as of May 14, 2007 and has completed five private placements of common shares since the equity financing completed by the founders (see Note 4). The recoverability of amounts shown as mineral property rights is dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development of the properties and the ability of the Company to obtain profitable production or proceeds from the disposition thereof. The Company has been in the exploration stage since its inception and has not yet realized any revenue from its operations. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES These unaudited financial statements have been prepared by the Company. In the opinion of management, all known adjustments (consisting of normal recurring accruals or adjustments) have been made to present fairly the financial position, results of operations and cash flows for the unaudited periods presented. It is suggested that these financial statements be read in conjunction with the Company's audited financial statements for the year ended December 31, 2007, included in the Company's Annual Report on Form 10-KSB, as amended, originally filed with the Securities and Exchange Commission on April 15, 2008 (SEC File No. 333-139412). The Company believes that the disclosures made herein are adequate to make the information presented not misleading. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("US"). RECENT ACCOUNTING PRONOUNCEMENTS In February 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities", which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains on items for which the fair value option has been elected are to be reported in earnings. SFAS No. 159 will become effective as of the beginning of the first fiscal year that begins after November 15, 2007. The adoption of this statement had no immediate material effect on the Company's financial condition or results of operations. -5- In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and requires enhanced disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008 the FASB issued FASB Staff Position No. 157-2, "Effective Date of FASB Statement No. 157", which delays the effective date of SFAS 157 for non-financial assets and liabilities, other than those that are recognized or disclosed at fair value on a recurring basis, to fiscal years beginning after November 15, 2008. The adoption of SFAS No. 157 related to financial assets and liabilities had no impact on the Company's financial statements. The Company is currently evaluating the impact, if any, that SFAS No. 157 may have on its future consolidated financial statements related to non-financial assets and liabilities. CRITICAL ACCOUNTING POLICIES (a) Going concern - These financial statements have been prepared using US generally accepted accounting principles applicable to a going concern which assumes that the Company will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company had a net loss for the period from inception (May 5, 2006) to March 31, 2008 of $2,980,370 and shareholders' deficit at March 31, 2008 of $208,041. In addition, the Company failed to meet its funding obligations under a revised funding agreement entered into with Dave Mathewson, the Company's President and Chief Geologist ("Mathewson") dated December 13, 2007 to provide $2,000,000 in funding by March 31, 2008. On April 1, 2008, Mathewson extended the deadline for that financing tranche by 90 days to June 29, 2008. If the Company is unable to meet this extended deadline and Mathewson thereupon advises the Company that it is in default, the Company will then have an additional 90 days following such notice to cure such default (see Note 5(a)). The Company's ability to meet its obligations and continue as a going concern is dependent upon its ability to obtain additional financing, achievement of profitable operations and/or the discovery, exploration, development and sale of mining reserves. The Company cannot reasonably be expected to earn revenue in the exploration stage of operations. Although the Company plans to pursue additional financing, there can be no assurance that the Company will be able to secure financing when needed or to obtain such financing on terms satisfactory to the Company, if at all. The financial statements do not reflect any adjustments in the carrying values of the assets and liabilities, the reported expenses, and the balance sheet classifications used that would be necessary if the going concern assumption was not appropriate. Such adjustments could be material. (b) Measurement uncertainties - The preparation of financial statements in conformity with accounting principles generally accepted in the US 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 periods. Actual results may differ from those estimates. Significant estimates used in the preparation of these financial statements include, amongst other things, the estimated future operating results and net cash flows from mineral properties, the anticipated costs of asset retirement obligations including the reclamation of mine sites, the successful registration of the Company's shares and the computation of share-based payments. -6- (c) Cash and cash equivalents - Cash and cash equivalents include deposits, with original maturities of three months or less when purchased. (d) Mineral property rights - All direct costs related to the acquisition of mineral property rights are capitalized. Exploration costs are charged to operations in the period incurred until such time as it has been determined that a property has economically recoverable reserves, at which time subsequent exploration costs and the costs incurred to develop a property are capitalized. The Company reviews the carrying values of its mineral property rights whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts. An impairment loss is recognized when the carrying value of those assets is not recoverable and exceeds its fair value. As of March 31, 2008 and December 31, 2007, management has determined that no impairment loss is required. At such time as commercial production may commence, depletion of each mining property will be provided on a unit-of-production basis using estimated proven and probable recoverable reserves as the depletion base. In cases where there are no proven or probable reserves, depletion will be provided on the straight-line basis over the expected economic life of the mine. (e) Asset retirement obligations - The Company plans to recognize liabilities for statutory, contractual or legal obligations, including those associated with the reclamation of mineral and mining properties and any plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation will be recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost will be added to the carrying amount of the related asset and the cost will be amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability will be increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. The Company has posted reclamation bonds with the State of Nevada Reclamation Bond Pool for two of its properties as required by the United States Bureau of Land Management, to secure potential clean-up and land restoration costs if the projects were to be abandoned or closed. The Company has recorded the cost of these bonds as an asset in the accompanying balance sheets. (f) Prepaid offering costs - Prepaid offering costs are legal costs relating to the Company's proposed initial public registration of its shares. These costs will be charged against the proceeds of the Company's initial public offering, if such offering occurs, or will be charged to expense if such offering does not occur. -7- (g) Income taxes - Future tax assets and liabilities are recognized for the future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to be recovered or settled. This method also requires the recognition of future tax benefits such as operating loss carry-forwards to the extent that realization of such benefits is more likely than not. (h) Share-based payments - Share-based payments consist of the estimated fair value of stock options granted during the period, and are recorded as an expense and an addition to additional paid-in capital in accordance with SFAS No. 123 (Revised December 2004), "Share-Based Payment". (i) Loss per share - The basic loss per share for the three-month period ended March 31, 2008, the three-month period ended March 31, 2007 and the period from inception (May 5, 2006) to March 31, 2008 has been computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share would reflect the potential dilution of common share equivalents, such as outstanding stock options and share purchase warrants, in the weighted average number of common shares outstanding during the period, if dilutive. For this purpose, the "treasury stock method" is used for the assumed proceeds upon the exercise of stock options and warrants that are used to purchase common shares at the average market price during the year. At March 31, 2008 and December 31, 2007, none of the warrants or stock options were considered dilutive as the exercise prices of these warrants and options substantially exceeded the Company's net tangible book value per share. (j) Foreign currency transactions - The Company records foreign currency gains and losses on Canadian business transactions. The net loss was $1,134 for the three-month period ended March 31, 2008, compared with $Nil for the three-month period ended March 31, 2007. The net loss for the period from inception (May 5, 2006) to March 31, 2008 was $34,377. (k) Fair values of financial instruments - The Company has estimated that the carrying amount reported on the balance sheets for cash, receivables, mineral property rights, accounts payable and accrued liabilities and promissory notes approximates their fair values. (l) Debt financing costs - Debt financing costs represented commission costs and legal fees relating to the issuance of promissory notes. These costs were being amortized over the life of the promissory notes of two years (see Note 4 (f)). (m) Exploration stage enterprise - SFAS No. 7, "Accounting and Reporting by Development Stage Enterprises", establishes accounting and reporting standards for enterprises in the development stage. An entity is considered to be in the development stage if it is devoting substantially all of its efforts to establishing a new business and planned principal operations have not commenced. SFAS No. 7 requires that the financial statements of a development stage enterprise include disclosure of the cumulative results of the Company's operations, cash flows, and changes in stockholders' equity (deficit) from the inception of the Company's development stage through the date of the financial statements. -8- (n) Prior year reclassifications - Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. 3. LITIGATION AND SETTLEMENT OF LAWSUIT On September 24, 2007, the Company sued two founders and directors, as well as some of their business associates. The lawsuit, which was commenced on September 24, 2007 in the Ontario (Canada) Superior Court of Justice in Toronto, arose out of certain directors alleged undisclosed control of a competing gold exploration company through which they allegedly usurped the Company's rightful corporate business opportunities. The lawsuit also alleged their breach of fiduciary duty, breach of directors' duties, wrongful interference with the Company's economic interests, breach of contract, conspiracy and unjust enrichment. The Company settled this lawsuit in October 2007. As part of the settlement, these two directors resigned, renounced all affiliations with the Company and, together with some of their business affiliates and associates, assigned and transferred to the Company for nominal consideration a total of 19,055,000 shares of the Company's common stock held by them, constituting approximately 90% of their collective shareholdings. Additionally, these two directors assigned and transferred to the Company warrants for the purchase of 6,600,000 common shares, constituting 100% of the warrants held by them (see Note 4). 4. COMMON STOCK AND WARRANTS (a) Initial public offering of common shares - The Company's registration statement on Form SB-2 for an initial public offering in the amount of $8,000,000 on an all-or-none basis was declared effective by the US Securities and Exchange Commission ("SEC") on May 14, 2007, at which time the Company commenced receiving investment subscriptions. The Company subsequently changed the terms of its offering to a $3,000,000 / $8,000,000 mini-max offering and filed an amended registration statement with the SEC on June 27, 2007. The Company continued to receive subscriptions from investors after filing the amendment. All subscription funds were deposited into and held in an escrow account. On July 24, 2007, the SEC notified the Company that because of the changed offering terms, the revised offering could not continue, and all funds in escrow should be returned to the subscribers. Accordingly, the Company terminated the offering, and the funds were returned. The Company filed a new registration statement with the SEC on December 31, 2007, further amended and filed on February 11, 2008 and April 16, 2008, and expects to commence its offering upon the amended registration statement being declared effective. No subscription funds were held in escrow as of March 31, 2008 or December 31, 2007. (b) Private placement of common shares - On May 8, 2006, the Company completed a private placement wherein it sold for an aggregate of $2,240 (i) an aggregate of 22,400,000 shares of common stock at a price of $0.0001 per share, and (ii) a warrant to purchase 9,900,000 shares of common stock at a price of $1.00 per share, expiring on May 9, 2009. Sales of the shares were subject to a Founders Agreement dated October 5, 2006, subsequently amended, which restricted resale rights. As -9- the result of the settlement of the lawsuit described previously (see Note 3), 12,915,000 shares of common stock were surrendered that had been purchased by certain of the Company's founders. On December 4, 2007, Mr. James Berns and Mr. Michael Berns, two of the original Company founders, voluntarily surrendered an aggregate of 2,000,000 shares of common stock to the Company and, in consideration of $2.00, transferred warrants to purchase 1,650,000 shares of common stock to Mathewson. On May 9, 2006, the Company completed a private placement consisting of 7,500,000 shares of common stock to Mathewson for proceeds totaling $750. On May 10, 2006, the Company completed a private placement consisting of an aggregate of 9,550,000 shares of common stock to thirteen investors ("seed round investors"). Each share of common stock was sold at a price of $0.001. The Company realized proceeds totaling $9,550 from this private placement. As the result of the settlement of the Company's lawsuit described previously (see Note 3), five of these thirteen investors returned to the Company an aggregate of 3,690,000 shares of common stock that they had purchased in this private placement. The Company voluntarily purchased 2,450,000 shares of common stock from seed round investors at the original subscription price. In August 2007, the Company completed a private placement consisting of 666,667 shares of common stock. All 666,667 shares of common stock were sold to a single foreign investor for $500,000, (approximately $0.75 per share); commissions of $50,000 were paid to third parties in association with this transaction, for net proceeds of $450,000. Commissions paid were offset against additional paid-in capital. This private placement was conducted under Regulation S promulgated under the Securities Act of 1933, as amended (Rules 901 through 905 and preliminary notes). The securities issued in this private placement were sold to a single foreign accredited investor as defined in Rule 501 promulgated under the Securities Act of 1933, as amended. See Note 11 for a contingent event arising from the completion of this private placement. On November 7, 2007, the Company completed a private placement consisting of 266,667 shares of common stock. All 266,667 shares of common stock were sold for $200,000 (approximately $0.75 per share) to a single investor. See Note 11 for a contingent event arising from the completion of this private placement. On November 19, 2007, the Company entered into private placements to sell for an aggregate of $4,000 (i) an aggregate of 3,000,000 shares of common stock at a price of $0.001 per share, and (ii) a warrant to purchase 1,000,000 shares of common stock at ten percent over the initial public offering price per share, expiring on November 30, 2012. The private placements for the shares of common stock were completed in December 2007 after receipt of the funds for these shares. As of December 31, 2007, the Company had not yet received $1,000 in subscription funds to acquire 1,000,000 of the warrant shares from one of the investors and, accordingly, recorded the outstanding amount as a warrant subscription receivable at that date. The Company received the outstanding $1,000 in subscriptions funds from the private placement completed on January 18, 2008 and recorded the proceeds as additional paid-in capital. These private placements were made to one of the Company's original seed round investors and certain associates and, in effect, constitute a reallocation of the Company's original share capital, a significant portion of which was recovered by the Company as a result of the settlement of the litigation in October 2007 as described in Note 3. As of December 7, 2007, the Company's Board of Directors voted to supersede the Founders Agreement. Shares under this agreement are subject to restrictions on transfer and resale of shares as prescribed by the Company's Board of Directors and as may be amended from time-to-time, except that all such restrictions shall expire on a date which is two years from the date upon which the shares commence trading in the US. -10- (c) Warrants - Upon formation of the Company, the founding shareholders subscribed for a total of 22,400,000 shares of common stock at a price of $0.0001 per share plus share purchase warrants entitling the holders to purchase a total of 9,900,000 shares at a price of $1.00 per share expiring on May 9, 2009, all for total consideration of $2,240. As a consequence of the settlement of the lawsuit during October 2007 (see Note 3), two directors assigned and transferred to the Company 6,600,000 of the Company's warrants, constituting 100% of the warrants held by them. On November 19, 2007, the Company entered into private placements to sell for an aggregate of $4,000 (i) an aggregate of 3,000,000 shares of common stock at a price of $0.001 per share, and (ii) a warrant to purchase 1,000,000 shares of common stock at ten percent over the initial public offering price per share, expiring on November 30, 2012. The private placements for the shares of common stock were completed in December 2007 after receipt of the funds for these shares. On December 4, 2007, Mr. James Berns and Mr. Michael Berns, directors of the Company, voluntarily assigned an aggregate of 2,000,000 shares of common stock to the Company and in consideration of $2.00, transferred warrants, to purchase 1,650,000 shares of common stock, to Mathewson. On December 7, 2007, the Company's Board of Directors amended the terms of outstanding warrants so that their new exercise price is ten percent over the initial public offering price per share, expiring on the fifth (5th) anniversary of the date that the Company's common stock commences trading in the US. 3,300,000 of the Company's warrants were outstanding as at March 31, 2008 and December 31, 2007, at an exercise price of ten percent over the initial public offering price per share, expiring on the fifth (5th) anniversary of the date that the Company's common stock commences trading in the US. Given that the Company is in the exploration stage, management has allocated the full consideration of proceeds received from all of the stock offering to common stock. (d) Commitment to issue additional shares - During May 2006, the Company and Mathewson entered into an agreement providing for Mathewson to purchase 7,500,000 shares of the Company's common stock at a price of $0.0001 per share. This agreement was amended on June 22, 2007 and was further amended on December 13, 2007 (see Note 3 and Note 5(a)). Under terms of the agreement, the Company is obligated to issue additional shares to Mathewson (at a price of $0.0001 per share) in sufficient number so that Mathewson would continue to hold 15% of the then issued and outstanding shares of the Company. -11- In the event that Mathewson should hold more than 15% of the issued and outstanding shares at the time the Company meets its funding obligation (see Note 5(a)), those excess shares will be deemed to be automatically cancelled. In the event that Mathewson should hold less than 15% of the issued and outstanding shares at the time the Company meets its funding obligation, Mathewson shall have the non-assignable option to purchase from the Company, at a price of $0.0001 per share, for a period of thirty (30) days from such date, that number of shares such that, after such purchase, Mathewson will then own 15% of the outstanding number of shares of the Company. Shares issued by the Company pursuant to the acquisition of additional mineral property rights will be deducted from the total of the shares then issued and outstanding for the purposes of calculating the 15% Mathewson is entitled to. Shares sold or transferred to other employees of the Company by Mathewson must be included for purposes of calculating the 15% Mathewson is entitled to. These shares are restricted as to sale for the first six months after the date the Company's shares become publicly traded in the US and in the event of termination of Mathewson's employment prior to February 28, 2010, an additional eighteen months from the date of termination. (e) Share-based payments and employment agreement - On September 15, 2006, the Company and its Chief Executive Officer entered into an employment agreement which provides, amongst other compensation, an option to purchase 1,500,000 shares of common stock over a five-year period at a price of $0.25 for the first 500,000 shares and $0.50 for the remaining 1,000,000 shares.
The option vests as follows: Number of shares ----------------- Upon signing of the agreement 300,000 Pro-rata on a daily basis until September 14, 2007 400,000 Pro-rata on a daily basis from September 15, 2007 until September 14, 2008 400,000 Pro-rata on a daily basis from September 15, 2008 until September 14, 2009 400,000 ----------------- Total 1,500,000 =================
These options fully vest if one person or entity acquires 50% or more of the common stock of the Company. The fair value of the options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 100%; risk free interest rate of 4.70%; and an expected average life of three years. The fair value of the 916,986 options vested during the period from inception (May 5, 2006) to March 31, 2008 is estimated to be $351,659 and was expensed in the statement of loss for the period from inception (May 5, 2006) to March 31, 2008 (period from inception to December 31, 2007: $319,727). The Company expensed $31,932 in the statement of loss for the three-month period ended March 31, 2008, compared with $32,324 for the three-month period ended March 31, 2007. Any shares for which the Chief Executive Officer's option is exercised are subject to voluntary resale restrictions prohibiting him from selling more than 1% of his share holdings during any consecutive three-month calendar period commencing on June 1, 2007 and expiring on August 31, 2008. For purposes of this voluntary resale restriction, the Chief Executive Officer's share holdings shall be deemed to equal the number of shares for which his option has vested. The employment agreement also contains a provision which, in the event of termination without cause, would require the Company to pay the Chief Executive Officer $125,000 (Canadian funds). -12- On October 31, 2006, the Company entered into an agreement with a consultant, which provides the consultant with an option to purchase 100,000 shares of common stock over a two-year period at a price of $0.50 per share (Canadian funds). The fair value of the option is estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 100%; risk free interest rate of 4.70%; and an expected average life of two years. The fair value of the option granted is estimated to be $28,390 and has been fully expensed in the statement of loss for the period from inception (May 5, 2006) to December 31, 2006 and recorded as additional paid-in capital; requiring no additional expense for the three months ended March 31, 2008 and the three months ended March 31, 2007. (f) Promissory notes converted into common shares - During 2006, the Company completed two private placements of two-year non-transferable 10% convertible promissory notes with interest payable annually. Interest accrued and was payable on the annual anniversary date of each note. Note-holders were also entitled to receive one full year of interest if the Company successfully registered its common shares with the SEC before the first anniversary date of the convertible promissory notes, which it did. The promissory notes were converted into common shares of the Company at a conversion price of $0.25 per share in the case of Series 1 notes and $0.50 per share in the case of Series 2 notes upon the date of the Company's registration statement being declared effective by the SEC on May 14, 2007. At May 14, 2007, the Company converted promissory notes totaling $583,500 and related accrued interest expense of $58,350 (Series 1) and $1,027,000 and related interest expense of $102,700 (Series 2) into 4,826,800 shares of common stock. Total debt financing costs associated with these converted promissory notes totaled $187,227. Previously unamortized debt financing costs of $157,947, associated with the issuance of these convertible promissory notes, were expensed during the year ended December 31, 2007. A liability of $15,000 has been recorded for US withholding taxes attributable to the interest earned by foreign note holders upon conversion of the related notes to common shares. Additional paid-in capital has been reduced by the amount of these withholding taxes. (g) Treasury stock - At March 31, 2008 and December 31, 2007, there are 2,000,000 shares of common stock held in treasury. No value has been assigned to these shares which were surrendered to the Company in December 2007. (h) Promissory notes issued - During the three-month period ended March 31, 2008, the Company completed the sale, by way of two agreements, of promissory notes and shares with a value of $150,000. No commissions or fees were paid in connection with this Regulation S private placement. The notes are payable on the earlier of the closing of the Company's public offering or the first anniversary of the date of the note and bear 10% interest per annum. In connection with making these loans, the note-holders also purchased a total of 30,000 shares of common stock, par value $0.000001 per share, at a price of $0.001 per share (constituting $30 of the total proceeds of $150,000 received). -13- 5. EXPLORATION PROGRAM FUNDING OBLIGATION AND MINERAL PROPERTY RIGHTS (a) Exploration program funding obligation - As of December 31, 2006 the Company committed, under an agreement with Mathewson, to fund its mineral exploration program in the following amounts, no later than the following dates: May 31, 2007 $ 500,000 July 31, 2007 1,900,000 January 31, 2008 1,000,000 July 31, 2008 1,000,000 January 31, 2009 500,000 April 30, 2009 500,000 -------------- Total $5,400,000 ============== The foregoing exploration-program funding schedule was revised under a Letter Agreement between the Company and Mathewson dated June 22, 2007. The Company previously met its requirement to provide $600,000 worth of exploration funding prior to December 31, 2006. On September 14, 2007, the Company received a Notice of Default from Mathewson stating that it had failed to meet its obligation to provide an aggregate of $1,100,000 in exploration program funding through May 31, 2007 as required by the Amended and Restated Agreement by and between the Company and Mathewson dated November 20, 2006, and as further amended on June 22, 2007. The Notice of Default stated that if the Company did not cure its default and also furnish the additional $900,000 in exploration program funding due on October 1, 2007 under the Letter Agreement within 30 days from receipt of the Notice of Default, then all of the Company's interests in its Crescent Valley North, Robinson Creek, Horse Creek, Indian Creek, and Tempo properties would be forfeited to Mathewson. These properties represent all of the Company's mineral prospects. The Company subsequently did not meet its requirement to provide an additional $900,000 in funding by October 1, 2007. Mathewson also proposed in the Notice of Default that an alternative cure for these defaults and for the default of the Company's October 1, 2007 exploration program funding payment would be for two directors and officers to resign their positions with the Company, and for these directors and certain related shareholders to surrender all of the Company's shares of stock in which they have an ownership interest and to execute releases of any and all claims that they may have against the Company. The Notice of Default also states that this alternative cure must be made by October 17, 2007. The two directors in question did not comply with Mathewson's demand and the Company launched a lawsuit against these directors, as discussed previously in Note 3. The Company settled this lawsuit in October 2007. Mathewson withdrew and cancelled the Notice of Default and entered into a revised funding obligation agreement with the Company on December 13, 2007. Under this revised agreement, the Company committed to fund its mineral exploration program in the following amounts, not later than the following dates: March 31, 2008 $2,000,000 March 31, 2009 2,000,000 March 31, 2010 2,000,000 --------------- Total $6,000,000 =============== In addition to funding its exploration program, the Company is required to fund its other activities, including legal, accounting, travel and other costs. -14- Furthermore, the Company's funding obligations to Mathewson would be deemed to be satisfied upon the earlier of: (i) the date upon which the cumulative sum of $6,000,000 has been expended on exploration costs, or (ii) the date upon which funds in the amount of $6,000,000 (less the amount of exploration costs previously expended) is set aside and reserved to pay for exploration costs, provided the Company has also set aside funds to pay for general and administrative expenses in an amount equal to 50% of the funds set aside to pay for exploration costs. The Company did not meet the requirement to provide $2,000,000 in funding by March 31, 2008. On April 1, 2008, Mathewson extended the deadline for that financing tranche by 90 days to June 29, 2008. If the Company is unable to meet this extended deadline and Mathewson thereupon advises the Company that it is in default, the Company will then have an additional 90 days following such notice to cure such default. In the event that the Company is unable to cure its default, its rights to its leased Crescent Valley North ("CVN") (see Note 5(b)), Robinson Creek ("RC") (see Note 5(c)), Horse Creek ("HC") (see Note 5(d)), and Tempo (see Note 5(e)) properties, as well as to its staked Indian Creek ("IC") (see Note 5(f)) property, will be cancelled and of no further force or effect. The Company will then have no interest in and to any and all such properties. Mathewson will have the option to enter onto and take possession of the properties at the Company's expense. The Company's CVN, RC and HC properties are leased from KM Exploration Ltd. ("the Lessor"), a Nevada corporation in which Mathewson has a 50% ownership interest. Upon termination of its leases for any reason, the Company is required to remove all the equipment it may have installed on the leased properties and will be responsible for reclamation of those areas disturbed by the Company's activities. All of the Company's leases have been accounted for as operating leases. (b) CVN lease - On July 17, 2006, the Company entered into a mining lease agreement with the Lessor to lease a group of 151 unpatented lode mining claims known as the "CVN" group. The term of this lease is initially ten years. This lease may be extended in five year increments thereafter for a total lease term of thirty years. The Company can terminate the lease at any time upon 60 days advance notice. Until production is achieved, the following lease payments are required: Anniversary of effective date Annual lease of agreement payment -------------------------------------- --------------- Upon signing of the lease $13,333 Years 1 through 4 13,333 Years 5 through 9 26,667 All years thereafter 43,333 Once production is achieved from this property, the lease requires the Company to pay the Lessor the greater of: (i) a royalty on production equal to 3% of net smelter returns (money which the smelter or refinery pays the mining operator for the mineral product), or -15- (ii) the lease payments as per the above table. The Company has the right at any time during the lease agreement to purchase a maximum of two "points" of the Lessor's three percent (3%) gold production royalty, thereby reducing the Lessor's gold production royalty to one percent (1%). Each "point" is equivalent to 1% of net smelter returns. The purchase price for each royalty "point" shall be as follows: Average price of gold for the Price per preceding thirty days royalty point --------------------------------------- ------------- $300.00 per ounce and lower $2,000,000 $300.01 to $400.00 per ounce 2,500,000 $400.01 to $500.00 per ounce 3,000,000 $500.01 to $600.00 per ounce 4,000,000 $600.01 to $700.00 per ounce 5,000,000 $700.01 to $800.00 per ounce 6,000,000 $800.01 to $900.00 per ounce 7,000,000 The Company shall have the right to purchase less than a full royalty "point," at a pro-rata price. (c) RC lease - On July 17, 2006, the Company entered into a mining lease agreement with the Lessor to lease a group of 91 unpatented lode mining claims known as the "RC" group. The term of this lease is initially ten years. This lease may be extended in five year increments thereafter for a total lease term of thirty years. The Company can terminate the lease at any time upon 60 days advance notice. Until production is achieved, the following lease payments are required: Anniversary of effective date Annual lease of agreement payment ------------------------------ ------------------- Upon signing of the lease $10,000 Years 1 through 4 10,000 Years 5 through 9 20,000 All years thereafter 32,500 Once production is achieved from this property, the lease requires the Company to pay the Lessor the greater of: (i) a royalty on production equal to 2.5% of net smelter returns (money which the smelter or refinery pays the mining operator for the mineral product), or (ii) the lease payments as per the above table. The Company has the right at any time during the lease agreement to purchase a maximum of one-and-one-half (1.5) "points" of the Lessor's two-and-one-half percent (2.5%) gold production royalty, thereby reducing the Lessor's gold production royalty to one percent (1%). Each "point" is equivalent to 1% of net smelter returns. The purchase price for each royalty "point" shall be as follows: -16- Average price of gold for the Price per preceding thirty days royalty point --------------------------------------- ------------- $300.00 per ounce and lower $2,000,000 $300.01 to $400.00 per ounce 2,500,000 $400.01 to $500.00 per ounce 3,000,000 $500.01 to $600.00 per ounce 4,000,000 $600.01 to $700.00 per ounce 5,000,000 $700.01 to $800.00 per ounce 6,000,000 $800.01 to $900.00 per ounce 7,000,000 The Company shall have the right to purchase less than a full royalty "point," at a pro-rata price. (d) HC lease - On July 17, 2006, the Company entered into a mining lease agreement with the Lessor to lease a group of 189 unpatented lode mining claims known as the "HC" group. The term of this lease is initially ten years. This lease may be extended in five year increments thereafter for a total lease term of thirty years. The Company can terminate the lease at any time upon 60 days advance notice. Until production is achieved, the following lease payments are required: Anniversary of effective date Annual lease of agreement payment ------------------------------ ------------------- Upon signing of the lease $10,000 Years 1 through 4 10,000 Years 5 through 9 20,000 All years thereafter 32,500 Once production is achieved from this property, the lease requires the Company to pay the Lessor the greater of: (i) a royalty on production equal to 2.5% of net smelter returns (money which the smelter or refinery pays the mining operator for the mineral product), or (ii) the lease payments as per the above table. The Company has the right at any time during the lease agreement to purchase a maximum of one-and-one-half (1.5) "points" of the Lessor's two-and-one-half percent (2.5%) gold production royalty, thereby reducing the Lessor's gold production royalty to one percent (1%). Each "point" is equivalent to 1% of net smelter returns. The purchase price for each royalty "point" shall be as follows: Average price of gold for the Price per preceding thirty days royalty point --------------------------------------- ------------- $300.00 per ounce and lower $2,000,000 $300.01 to $400.00 per ounce 2,500,000 $400.01 to $500.00 per ounce 3,000,000 $500.01 to $600.00 per ounce 4,000,000 $600.01 to $700.00 per ounce 5,000,000 $700.01 to $800.00 per ounce 6,000,000 $800.01 to $900.00 per ounce 7,000,000 -17- The Company shall have the right to purchase less than a full royalty "point," at a pro-rata price. (e) Tempo lease - The Company entered into a lease with the Lyle F. Campbell Trust of Reno, Nevada on May 18, 2007. The lease was assigned by Lyle F. Campbell Trust to Gold Standard Royalty Corp. in December 2007. The lease is for an initial period of ten years and may be extended in five year increments for up to a total term of 99 years. The Company may terminate this lease at any time. Until production is achieved, lease payments (deemed "advance minimum royalties") consist of an initial payment of $5,000, which was made upon the effectiveness of the lease, followed by annual payments according to the following schedule: Due date of advance Amount of advance minimum royalty payment minimum royalty payment -------------------------------- ------------------------------------- January 15, 2008 $10,000 January 15, 2009 15,000 January 15, 2010 30,000 January 15, 2011 45,000 January 15, 2012 and annually The greater of $60,000 or the dollar thereafter during the term equivalent of 90 ounces of gold of the lease In the event that the Company produces gold or other minerals from this property, the lease payments will be the greater of: (i) the advance minimum royalty payments according to the table above, or (ii) a production royalty equal to 4% of the gross sales price of any gold, silver, platinum or palladium recovered plus 2% of the gross sales price of any other minerals that the Company has recovered. The lease expressly states that the Company has no rights to any oil, gas, hydrocarbons and geothermal resources that may be found on the property. Under certain conditions, Gold Standard Royalty Corp. may elect to take its production royalty in-kind rather than cash. In the event that the Company produces gold or other minerals from this property and pays Gold Standard Royalty Corp. a production royalty, then, within any one calendar year, the Company may use 100% of that year's advance minimum royalty payment as a credit against its production royalties payable for that year. If production royalty payments payable for that year are greater than the Company's advance minimum royalty payment paid for that year, then the Company can credit all advance minimum royalty payments made in previous years against 50% of the production royalty payable for that year. In the event that Gold Standard Royalty Corp. is paid a production royalty by the Company, the Company has the option to repurchase up to two points of the royalty payable on gold, silver, platinum or palladium, which would have the effect of thereafter permanently reducing the Lessor's production royalty on gold, silver, platinum or palladium from 4% to 2% of the -18- Company's gross sales price for those minerals. The purchase price for each royalty "point" shall be according to the following schedule: Royalty point Purchase price ------------------ ------------------ First 1% $1,500,000 Second 1% 3,000,000 The Company does not have the option to purchase the remaining 2% production royalty on gold, silver, platinum or palladium or the 2% production royalty applicable to all other minerals. The lease requires the Company to perform $25,000 worth of physical work annually on the property for 2007, 2008 and 2009. Starting in 2010 and thereafter, the Company must perform a minimum of $50,000 worth of work annually on the property, of which at least $25,000 is physical work. (f) Staked claims - (i) Indian Creek - The Company spent $27,952 on staking 88 claims comprising a contiguous claim group, named Indian Creek by the Company, located on the Independence-Eureka gold trend approximately five miles south of the Company's RC project. 6. PROPERTY Property consists of the cost of mineral property rights, as follows:
March 31, 2008 December 31, 2007 ------------------------------------------------ -------------------------------------------------- Acquisition Acquisition Acquisition related legal Acquisition related legal cost fees Total cost fees Total -------------- --------------- --------------- --------------- --------------- --------------- CVN lease $26,667 $12,312 $ 38,979 $26,667 $12,312 $ 38,979 RC lease 20,000 10,311 30,311 20,000 10,311 30,311 HC lease 20,000 10,311 30,311 20,000 10,311 30,311 Tempo lease 15,000 - 15,000 5,000 - 5,000 IC staked 10,000 17,952 27,952 10,000 17,952 27,952 -------------- --------------- --------------- --------------- --------------- --------------- Total $91,667 $50,886 $142,553 $81,667 $50,886 $132,553 ============== =============== =============== =============== =============== ===============
-19- 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities include the following:
March 31, December 31, 2008 2007 -------- -------- Accounts payable- Accrued legal fees $303,656 $262,868 Accrued audit and other fees 35,000 35,000 Accrued consulting and accounting fees 4,164 24,898 Accrued withholding taxes on interest paid to foreign note holders (see Note 4(f)) 15,000 15,000 Accrued exploration and field employee costs 6,901 7,487 Accrued wages and employee deductions 21,346 2,180 Accrued office expenses 961 751 -------- -------- Total $387,028 $348,184 ======== ======== Accounts payable to related parties- Accrued consulting, rent and accounting fees (Note 9) $ 14,890 $ 18,096 Accrued travel and office expenses (Note 9) 12,492 -- Accrued legal costs - related parties (Note 9) 30,408 30,408 Accrued exploration costs - related parties (Note 9) 51,000 30,000 -------- -------- Total $108,790 $ 78,504 ======== ========
8. INCOME TAXES The components of the Company's deferred tax asset are as follows: March 31, December 31, 2008 2007 --------- --------- Net operating loss carry-forward $ 802,000 $ 723,000 Share-based payments 123,000 112,000 Exploration costs 58,000 51,000 --------- --------- Total deferred tax asset 983,000 886,000 Valuation allowance (983,000) (886,000) --------- --------- Net deferred tax asset $ -- $ -- ========= ========= The Company has recorded a valuation allowance sufficient to fully reserve the deferred tax asset as realization of the deferred tax asset is not reasonably assured because of the Company's loss since inception. Management evaluates the need for a valuation allowance periodically. At March 31, 2008, the Company had net operating loss carry-forwards of approximately $2,261,000 that may be used in future years to offset federal taxable income. Such carry-forwards begin expiring in 2026. 9. RELATED PARTY TRANSACTIONS During the period from inception (May 5, 2006) to December 31, 2006, the Company entered into an employment agreement with Mathewson. This agreement requires the Company to pay Mathewson a net smelter royalty ("NSR") of 1% for all prospects generated by him and which are acquired for staking by the Company, exclusive of the CVN, HC and RC properties described in Note 5. Mathewson is also granted a 1/2% NSR for all prospects he generates which are subsequently leased by the Company, as long as the lease carries a maximum NSR of 4% (including the 1/2%) and such lease does not adjoin claims from which he is otherwise entitled to receive NSRs. The Company may purchase such 1/2% NSR relating to leased prospects for $250,000. -20- During the three-month period ended March 31, 2008, the Company incurred consulting fees of $Nil and paid expenses of $Nil to firms controlled by two former directors. The Company incurred consulting fees and paid expenses to two former directors of $27,341 and $3,523, respectively for the three-month period ended March 31, 2007. For the period from inception (May 5, 2006) to March 31, 2008 the Company incurred consulting fees and paid expenses of $112,521 and $77,405 respectively. These directors subsequently resigned as part of the settlement referred to in Note 3. During the three-month period ended March 31, 2008, the Company paid legal fees of $Nil to a legal firm controlled by two directors (three-month period ended March 31, 2007: $Nil). For the period from inception (May 5, 2006) to March 31, 2008, the Company incurred legal expenses of $85,253 with this firm, of which $20,000 has been capitalized to mineral property rights, $17,500 had been charged to debt financing costs (see Note 4(f)), $25,000 has been charged to prepaid offering costs, and the remainder has been charged to legal expense. The Company has accrued $19,890 in travel and business development costs at March 31, 2008, to reimburse one of the directors for expenses incurred while working on Company matters. In July 2007, three of the Company's directors and a former Company director advanced the Company a total of $30,000 for exploration costs (see Note 7). No terms of repayment have been set for these advances. During the three-month period ended March 31, 2008, the Company paid a company controlled by the Corporate Secretary $12,500 in consulting fees and general administration costs, compared with $8,777 for the three-month period ended March 31, 2007. For the three-month period ended March 31, 2008, the Company also paid a company controlled by the Corporate Secretary $Nil in rent for the corporate head office, compared with $12,086 for the three-month period ended March 31, 2007. For the period from inception (May 5, 2006) to March 31, 2008, the Company paid $50,793 in consulting fees and general administration costs, as well as $39,681 in rent. During the three-month period ended March 31, 2008, the Company paid $15,000 to a firm of which the Chief Financial Officer ("CFO") is a principal. During the three-month period ended March 31, 2007, the Company paid $9,450 to another firm, of which the CFO was the managing partner. For the period from inception (May 5, 2006) to March 31, 2008, the Company paid $63,662 in accounting and CFO fees to firms of which the CFO is or previously was a principal or partner. On December 10, 2007, the Company entered into an engagement agreement with Viewpoint Securities, LLC ("Viewpoint"), a broker-dealer, with which one of the Company's shareholders is affiliated. Under this agreement, the Company retained Viewpoint as an exclusive advisor to provide corporate finance and investment banking related advice. The Company paid Viewpoint a $25,000 retainer. The agreement with Viewpoint is in effect until December 31, 2010 and may be renewed thereafter. Under the terms of the agreement, during the term of the agreement and for a period of three years thereafter, the Company will pay Viewpoint a cash fee equal to 3.5% of the value of any strategic partnership, joint or collaborative venture, strategic alliance or similar transaction with persons or entities introduced to the Company by Viewpoint during the term of the agreement. During the term of the agreement and for a period of two years thereafter, for any investor identified by Viewpoint during the term of the agreement who participates in an equity financing, the Company will pay Viewpoint a 10% cash commission and issue Viewpoint warrants to purchase shares of common stock equal to 10% of the value of the equity purchased by such investor. During the term of the agreement and for a period of two years thereafter, the Company will also pay Viewpoint a commission, based upon gross proceeds raised, to the extent that they identify any investors during the term of the agreement who participate in debt offerings. The agreement with Viewpoint requires the Company to admit a representative of Viewpoint as a non-voting observer to meetings of the Company's Board of Directors and to copy Viewpoint on all actions taken by unanimous written consent in lieu of a meeting of the Board of Directors. -21- 10. CONCENTRATIONS OF CREDIT RISK At March 31, 2008 and December 31, 2007, substantially all of the Company's cash is held in US dollar denominated accounts within the US. The Company has not experienced losses on such accounts, nor does the Company believe that there is significant risk of loss on such accounts. At March 31, 2008 and December 31, 2007, all of the Company's mineral property rights were geographically concentrated in the State of Nevada. 11. CONTINGENCIES The Subscription Agreement for the private placement of 666,667 shares of common stock (see Note 4(b)) contains an anti-dilution provision under which, upon the effective date of the amended registration statement contemplated under Note 4(a), the purchaser will be issued an additional estimated 509,804 shares of common stock (dependent on the share price of the public offering contemplated in Note 4(a)). Including these estimated additional shares of common stock expected to be issued as a result of these anti-dilution provisions, the purchaser will acquire a total of 1,176,471 shares of common stock in this private placement (corresponding to approximately $0.43 per share). The subscription agreement for the private placement of 266,667 shares of common stock (see Note 4(b)) contains an anti-dilution provision under which, subsequent to the filing of the amended registration statement contemplated under Note 4(a), the number of shares deemed purchased by this purchaser will be adjusted by an estimated additional 266,666 shares of common stock (dependent on the share price of the public offering contemplated in Note 4(a)) above the 266,667 shares of common stock purchased in this transaction. Including these estimated additional shares of common stock expected to be issued to this purchaser as a result of these anti-dilution provisions, the purchaser will acquire a total of 533,333 shares of common stock in this private placement (corresponding to approximately $0.38 per share). Title searches have been conducted on the CVN, RC and HC properties. These searches have indicated that although the Company's title to the properties is defensible, there are potentially conflicting claims which may impair title to certain portions of the Company's claims. The Company is not insured against challenges, impairments or defects to its property title. The Company has not conducted a title survey on the Tempo property or the Indian Creek staked claims. -22- * * * ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is management's discussion and analysis of the financial condition and results of operations of Gold Run Inc., (the "Company", or "Gold Run"), for the three months ended March 31, 2008, and its financial position as at March 31, 2008, and should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2007, including the notes thereto, and with the Company's unaudited financial statements for the three months ended March 31, 2008, including the notes thereto. The Company's financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP"). All figures are in US dollars, unless otherwise noted. Additional information relating to the Company has been filed electronically through the Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR") and is available online at www.sec.gov/edgar. The date of this management's discussion and analysis is May 19, 2008. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS This discussion and analysis may contain forward-looking statements that are based on the Company's expectations, estimates and projections regarding its business and the economic environment in which it operates. These statements speak only as of the date on which they are made, are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Actual outcomes and results may differ materially from those expressed in these forward-looking statements and readers should not place undue reliance on such statements. Certain information included in this discussion and analysis may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "might", "would", "should", "could", "expect", "believe", "plan", "estimate", "forecast", "predict", "potential", "continue", "anticipate", "project", "pro-forma", "strategy", "attempt", "develop", "help", "future" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding the future plans or prospects of the Company. Forward-looking -23- statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Although the Company believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Forward-looking statements are not guarantees of future performance and there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and the Company takes no responsibility to update them or to revise them to reflect new events or circumstances, except as required by law.
SELECTED QUARTERLY, ANNUAL AND CUMULATIVE FROM INCEPTION INFORMATION - --------------------------------- ----------------------------------------- ------------------ --------------------- Cumulative from inception (May 5, Year Ended 2006) to Three Months Ended December 31, 2007 March 31, 2008 - --------------------------------- ----------------------------------------- ------------------ --------------------- March 31, 2008 March 31, 2007 - --------------------------------- -------------------- -------------------- ------------------ --------------------- Total Revenues $ Nil $ Nil $ Nil $ Nil - --------------------------------- -------------------- -------------------- ------------------ --------------------- Net Loss (280,808) (322,092) (1,859,942) (2,980,370) - --------------------------------- -------------------- -------------------- ------------------ --------------------- Loss Per Share (0.010) (0.008) (0.047) (0.079) - --------------------------------- -------------------- -------------------- ------------------ --------------------- Cash 4,265 480,803 35,954 4,265 - --------------------------------- -------------------- -------------------- ------------------ --------------------- Total Assets 445,247 860,426 467,493 445,247 - --------------------------------- -------------------- -------------------- ------------------ --------------------- Total Liabilities 653,288 1,786,370 426,688 653,288 - --------------------------------- -------------------- -------------------- ------------------ --------------------- Shareholders' Equity (Deficit) (208,041) (925,944) 40,805 (208,041) - --------------------------------- -------------------- -------------------- ------------------ --------------------- Exploration costs 70,145 56,768 443,886 810,068 - --------------------------------- -------------------- -------------------- ------------------ --------------------- Share-based payments 31,932 32,324 128,823 351,659 - --------------------------------- -------------------- -------------------- ------------------ --------------------- Interest expense on promissory 7,500 40,263 110,906 168,550 notes - --------------------------------- -------------------- -------------------- ------------------ ---------------------
LIQUIDITY AND CAPITAL RESOURCES On March 31, 2008 the Company had cash and cash equivalents of $4,265, a decrease in $31,689 from the $35,954 it had on December 31, 2007. This decrease is due to cash expenditures on legal, consulting and administrative activities. As described in greater detail below, the Company intends to raise funds through its planned public offering. To the extent that it is able to do so, the Company may also raise funds through additional private placements of its securities, including but not limited to promissory notes, warrants and shares of common stock. At this time, the Company has no additional sources of liquidity. -24- During the three-month period ended March 31, 2008, the Company completed the sale of promissory notes with a value of $150,000. No commissions or fees were paid in connection with this Regulation S private placement. The notes are payable on the earlier of the closing of the Company's public offering or the first anniversary of the date of the note and bear 10% interest per annum. In connection with making these loans, the note-holders also purchased a total of 30,000 shares of common stock, par value $0.000001 per share, at a price of $0.001 per share. Under the Company's Funding Obligation Agreement with its President and Chief Geologist, David Mathewson ("Mathewson"), discussed in notes 2(a) and 5(a) of the unaudited financial statements for the three month period ended March 31, 2008, the Company is required to fund its exploration program with $2,000,000 by March 31, 2008, with an additional $2,000,000 due by March 31, 2009, and an another $2,000,000 due by March 31, 2010. We were unable to fund our exploration financing tranche in the amount of $2,000,000 due on March 31, 2008. On April 1, 2008, Mr. Mathewson extended the deadline for that financing tranche by 90 days to June 29, 2008. If we are unable to meet this extended deadline and Mr. Mathewson thereupon advises us that we are in default, we will then have an additional 90 days following such notice to cure such default. We anticipate that we will be able to meet this obligation without penalty if our pending public offering is declared effective by the SEC in the near future. However, in the event we are unable to raise the required funds, we will need to seek additional financing and/or renegotiate our contract with Mathewson. In the event the Company is unable to do so, the Company will lose all of its interests in its mining properties. Assuming the Company fulfills its funding obligations with Mathewson, the Company intends to continue with the exploration of its properties. The Company's operating and capital expenditures are expected to increase in subsequent periods with the advancing of exploration and development activities. The amounts and timing of expenditures will depend on the progress of ongoing exploration and development activities. Reference is made to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2007, as amended, originally filed with the SEC on April 15, 2008 (SEC File No. 333-139412), for a description of the Company's planned exploration on each of its properties. Although the Company's historical capital needs have been met by the sales of common stock, and promissory notes, there can be no assurance such financing will be available in the future on favorable terms, if at all. We estimate that we will require approximately $5.2 million through May 31, 2009 to satisfy our exploration funding requirements with Dave Mathewson, conduct our planned exploration programs, conduct follow-up work on our exploration projects currently in progress, and pay our estimated administrative expenses, lease payments and estimated claim maintenance costs. We intend to raise these funds through our planned public offering. In the event we raise only the minimum from our planned $4,000,000-$10,000,000 minimum-maximum public offering, we will need to raise additional funds to meet our financial needs. -25- Even if the Company raises the maximum from its planned public offering, the Company will require substantial additional funds to further explore and, if warranted, develop one or more of its exploration properties. The Company has limited financial resources and no current source of recurring revenue, and there is no assurance that additional funding will be available to the Company to carry out the completion of its planned exploration activities, for additional exploration or for the substantial capital that is typically required in order to place a property into commercial production. There can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in the delay or indefinite postponement of further exploration and property development. The terms of any additional financing obtained by the Company could result in substantial dilution to the shareholders of the Company. RESULTS OF OPERATIONS The Company has no operating revenues and relies on external financings to generate capital. As a result of its activities, Gold Run continues to incur annual net losses. For the three months ended March 31, 2008, Gold Run incurred a net loss of $280,808 compared with $322,092 for the three months ended March 31, 2007. The decrease in loss of $41,284 is attributable predominantly to a decrease of $30,492 in consulting and professional fees and a decrease in amortization of debt financing costs of $23,403. Since our inception on May 6, 2006 through March 31, 2008, Gold Run incurred a net loss of $2,980,370. We have commenced the initial exploration work on four of our properties. The total planned initial exploratory work for all five properties is estimated to be approximately $988,000, of which approximately $810,000 has been spent through March 31, 2008. Completing the first stage for all five properties, and a second stage of work on three of our properties, is estimated to cost approximately $1,678,000. We will require the proceeds of our pending public offering to perform the initial exploration work on two of our properties and to follow-up our initial exploratory work on three of our properties. In addition, we intend to seek out and acquire additional mining prospects in Nevada and elsewhere. In the event that we acquire additional mining prospects, we may decide to accordingly modify our planned exploration programs for our existing properties. Reference is made to our Annual Report on Form 10-KSB for the year ended December 31, 2007, as amended, originally filed with the SEC on April 15, 2008 (SEC File No. 333-139412), for a detailed description of our properties and planned exploration programs. -26- CASH FLOWS Cash used by operating activities for the three months ended March 31, 2008 was $172,689 (three months ended March 31, 2007: $319,732). This is primarily due to a $15,274 increase in net loss before amortization, non-cash share-based payments and non-cash interest expense offset by a $162,760 increase in accounts payable and accrued liabilities. Cash used in operating activities since our inception on May 6, 2006 through March 31, 2008 was $1,866,944. The Company intends to raise funds through its planned public offering in order to meet its operating cash flow needs. Cash used in investing activities for the three months ended March 31, 2008 was $10,000 (three months ended March 31, 2007: $25,000). Cash used in investing activities since our inception on May 6, 2006 through March 31, 2008 was $176,188. The amounts represent payments to acquire mineral property rights or reclamation bonds during the related periods. Cash provided by financing activities for the three months ended March 31, 2008 was $151,000 (three months ended March 31, 2007: cash used by financing activities of $29,811). Cash provided by financing activities since our inception on May 6, 2006 through March 31, 2008 was $2,047,937. Cash provided by financing activities are primarily attributed to proceeds received from the sale and issuance of promissory notes, warrants and common stock during the related periods. These amounts are offset by cash used by financing activities which consist of payments of debt financing costs, offering costs and re-purchase of common stock during the related periods. OFF-BALANCE SHEET TRANSACTIONS The Company does not have any off-balance sheet arrangements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This item is not applicable to the registrant as it is a smaller reporting company as defined in Item 10 of Regulation S-K. ITEM 4. CONTROLS AND PROCEDURES. DISCLOSURE CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures, as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. -27- The Company has evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the operation of the Company's disclosure controls and procedures as of the end of the fiscal quarter covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objective, and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of March 31, 2008. After management concluded, as described in the next subsection below, that our internal control over financial reporting was not effective as of December 31, 2007, our Chief Executive Officer and our Chief Financial Officer reassessed the effectiveness of our disclosure controls and procedures as of March 31, 2008. They concluded that although our disclosure controls and procedures were effective as of March 31, 2008, they could be strengthened. As part of our response to the material weakness to our internal control over financial reporting described in the next subsection below, following our fiscal quarter ended March 31, 2008, we implemented the following measures intended to strengthen our disclosure controls and procedures: o Written schedules will be provided by management to all members of the board of directors of the final deadlines and our internal, interim deadlines for preparation and filing of financial statements and other regulatory reports. These written schedules will identify the person(s) responsible for the preparation of financial statements and regulatory reports; o Board of directors meetings will be held no less than quarterly to ensure that these measures are functioning as intended. INTERNAL CONTROL OVER FINANCIAL REPORTING There was no change to our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2008. However, there were important developments affecting our internal control over financial reporting which occurred during that time. The term internal control over financial reporting is defined in Rule 13a-15(f) or Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. -28- In late March, 2008, in the course of auditing our financial results for the year ended December 31, 2007 and their contemporaneous review of our internal controls, the independent public accountants brought to our attention several control deficiencies which they believed constituted, in the aggregate, a material weakness in our internal control over financial reporting as of December 31, 2007. We agreed that a material weakness existed as of December 31, 2007 with respect to our internal control over financial reporting. The specific deficiencies identified by the independent public accountants were: o We did not sufficiently segregate financial responsibilities for authorizing, approving and reconciling transactions. o We misclassified certain expenditures and we failed to properly record and account for certain expenses as they were incurred, resulting in the publication of incorrect unaudited financial statements on Form 10-QSB for the quarter ended September 30, 2007. We do not believe that these errors in recording and accounting, either individually or in the aggregate, had a material impact upon our financial statements and positions as of March 31, 2008. o We failed to have the financial statements for the quarter ending September 30, 2007 reviewed by an independent public accountant prior to our publication of them, and failed to disclose that there was no such independent review, as is required by SEC regulations. We subsequently corrected those financial statements, which were reviewed by independent public accountants and published by us in our amended Form 10-QSB dated February 11, 2008. The deficiencies were in part the result of our small size and limited resources. We only have one full-time administrative employee, the Chief Executive Officer, and our Chief Financial Officer works for us on a part-time basis. The material weakness to our internal control over financial reporting manifested itself on November 19, 2007, which is the date that we filed our quarterly report on Form 10-QSB for the fiscal quarter ended September 30, 2007 without first submitting the financial statements contained in that report for review by the independent public accountants as required by SEC regulations. The filing of that quarterly report without such prior review was a key element of the material weakness to our internal control over financial reporting. All of our financial statements contained in our reports filed prior to November 19, 2007 had been reviewed by independent public accountants prior to filing, as have the financial statements contained in this quarterly report. After concluding in late March, 2008 that there existed a material weakness to our internal control over financial reporting as of December 31, 2007, we commenced in early April, 2008 the implementation of remedial measures designed to eliminate that material weakness. We completed the implementation of these remedial measures on April 30, 2008. We intend to periodically review and enhance all of these controls as necessary. We believe that the following new measures pertaining to our internal control over financial reporting are reasonable and practicable given our small size and limited resources: -29- o To improve the segregation of duties and responsibilities and strengthen the authorization and approval process, all material commitments or expenditures in excess of $5,000 are required to be approved in advance by at least two persons, one of whom must be either the President, Chief Executive Officer or Chief Financial Officer, and the other of whom must be a director who is not an officer. For expenditures in excess of $5,000, two signatures are required on all checks. One of the signatures must be that of either the President, Chief Executive Officer, or Chief Financial Officer, and the other signature must be that of a director who is not an officer; o To monitor non-arm's length transactions, all payments to officers, directors and associates in excess of $5,000 require approval of the board of directors; o To foster transparency, all directors and senior officers have on-line access to monitor all bank accounts and the Chief Executive Officer will perform a monthly review of the bank statements for unusual items and transactions; o To the extent practicable, all directors and senior officers have access to all bookkeeping matters, including invoices, material contracts, ledgers, corporate books and records; o Written schedules will be provided by management to all members of the board of directors of the final deadlines and our internal, interim deadlines for preparation and filing of financial statements and other regulatory reports. These written schedules will identify the person(s) responsible for the preparation of financial statements and regulatory reports; o Written schedules will be provided by management to all members of the board of directors setting forth all important dates, deadlines, and obligations for all material contracts; and o Board of directors meetings will be held no less than quarterly to ensure that these controls are functioning as intended. Management will distribute a checklist of items that must be completed before our financial statements are approved. Finally, the minutes of the board of directors meetings will reflect the review and approval of all of the Company's financial statements. -30- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 1A. RISK FACTORS. In light of the assessment by the registrant's management that there was a material weakness to its internal control over financial reporting as of December 31, 2007, described in Part I, Item 4 above, the registrant believes that the risk factor captioned "We face challenges with the internal control over financial reporting and disclosure controls" in its Form 10-KSB filed on April 15, 2008 should be replaced with the following two risk factors: WE HAD A MATERIAL WEAKNESS IN OUR INTERNAL FINANCIAL CONTROLS AS OF DECEMBER 31, 2007. A MATERIAL WEAKNESS COULD CAUSE OUR FINANCIAL STATEMENTS TO BE INACCURATE. During their annual audit review completed in March 2008, the independent public accountants identified several control deficiencies, which we concluded, in the aggregate, constituted a material weakness in our internal control over financial reporting as of December 31, 2007. The three specific control deficiencies identified by the independent public accountants were: o Our small size made it difficult for us to properly segregate responsibilities for approving, authorizing and reconciling transactions. Specifically, we have only one full-time administrative employee, our chief executive officer, and our chief financial officer works for us on a part-time basis. o We misclassified certain expenditures and we failed to properly record and account for certain expenses as they were incurred, resulting in the publication of incorrect unaudited financial statements on Form 10-QSB for the quarter ended September 30, 2007. o On November 19, 2007, we filed with the SEC our quarterly report on Form 10-QSB for the quarter ending September 30, 2007 without prior review by our independent accountants as required by SEC regulations. We did not disclose in that filing, as required, that the required independent review had not been performed. A material weakness in our internal control over financial reporting could cause our financial statements to be inaccurate. This could cause the market to lose confidence in our financial reporting, impair our ability to obtain additional financing, and result in a loss of your investment. -31- WE MAY NOT BE ABLE TO FOLLOW OUR INTERNAL PROCEDURES RELATING TO THE AUTHORIZATION AND REPORTING OF OUR FINANCIAL TRANSACTIONS, OR SUCH PROCEDURES MAY NOT FUNCTION AS INTENDED. We are a small company with limited resources. We have only one full-time administrative employee, our chief executive officer, and our chief financial officer works for us on a part-time basis. This may cause us not to comply with our internal procedures designed to assure that our financial information is properly gathered and reported. In the event that we do not follow these internal procedures, or if they do not function as intended, we could publish materially incorrect financial statements. This could cause investors to lose confidence in the accuracy of our reported financial information, impair our ability to secure additional financing, and result in a loss of your investment. * * * ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. On March 14, 2008, the registrant completed a private placement to two investors, each of whom represented to us that they were an accredited investor as defined in Section 501(a) of the Securities Act of 1933, as amended (the "Securities Act"), whereby we sold for an aggregate of $150,000 (i) an aggregate of 30,000 shares of Common Stock, par value $0.000001 per share, and (ii) an aggregate of $150,000 (principal amount) worth of promissory notes, with interest payable at a rate of 10% per year. The promissory notes are due and payable upon the earlier of the termination of our public offering which we are currently attempting to have declared effective, or the first anniversary of the dates of the notes. This private placement was made in reliance upon Regulation S promulgated under the Securities Act. The sales were made to accredited investors or to persons outside the United States; no general solicitation was made by us or by any person acting on our behalf; the securities sold are subject to transfer restrictions, and the certificates representing the shares of Common Stock will contain an appropriate legend that they have not been registered under the Securities Act, may not be offered or sold absent registration or pursuant to an exemption therefrom. The proceeds from this sale were added to the registrant's unrestricted working capital. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. -32- ITEM 6. EXHIBITS. The following is an index of the exhibits appended to or incorporated by reference in this report:
Certificate of Incorporation* Exhibit 3.1 By-Laws* Exhibit 3.2 Form of $.75 Warrant* Exhibit 4.1 Form of $1.25 Warrant* Exhibit 4.2 Form of Founder Unit Warrant* Exhibit 4.3 Copy of John M. Pritchard Option Agreement* Exhibit 4.4 Copy of Crescent Valley North Lease* Exhibit 10.1 Copy of Robinson Creek Lease* Exhibit 10.2 Copy of Horse Creek Lease* Exhibit 10.3 Copy of Trevor Michael / 2120315 Ontario Inc. Consulting Agreement* Exhibit 10.4 Copy of Amended and Restated Agreement with David "Dave" Mathewson* Exhibit 10.5 Copy of Funding Obligation Agreement with David "Dave" Mathewson* Exhibit 10.6 Copy of David "Dave" Mathewson Employment Agreement* Exhibit 10.7 Copy of John M. Pritchard Employment Agreement* Exhibit 10.8 Copy of Brion Theriault Employment Agreement* Exhibit 10.9 Form of Mathewson-Theriault Stock Assignment Agreement* Exhibit 10.10 Copy of Share Purchase Agreement between Trevor Michael and Gordon Cooper* Exhibit 10.11 Copy of Share Purchase Agreement between Trevor Michael and Jasbir Gill* Exhibit 10.12 Copy of Escrow Agreement* Exhibit 10.13 Copy of Letter Agreement with David Mathewson* Exhibit 10.14 Copy of Tempo Mineral Prospect Lease* Exhibit 10.15 -33- Copy of Subscription Agreement with Abdulsalam A. al-Abdulkarim* Exhibit 10.16 Copy of Amended Subscription Agreement with Abdulsalam A. al-Abdulkarim* Exhibit 10.17 Form of Subscription Agreement for Shares of Gold Run Inc. with Fischoff Family LLC* Exhibit 10.18 Copy of Subscription Agreements for Common Stock for November 19, 2007 Private Placement* Exhibit 10.19 Copy of Subscription Agreements for Warrant for November 19, 2007 Private Placement* Exhibit 10.20 Copies of Lockup Letters in Connection with November 19, 2007 Private Placement* Exhibit 10.21 Assignments of Common Stock to Company by James Berns and Michael Berns* Exhibit 10.22 Transfer of Warrants by James Berns and Michael Berns to David Mathewson* Exhibit 10.23 Form of Engagement Agreement with Viewpoint Securities, LLC* Exhibit 10.24 Form of Subscription Agreements and Promissory Notes for March 14, 2008 Private Placement* Exhibit 10.25 Rule 13a-14(a)/15d-14(a) Certification of John Pritchard** Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Ernest Cleave** Exhibit 31.2 Section 1350 Certifications of John Pritchard ** Exhibit 32.1 Section 1350 Certifications of Ernest Cleave ** Exhibit 32.2 Copy of September 27, 2006 David Mathewson Letter* Exhibit 99.1 Copy of October 18, 2006 David Mathewson Letter* Exhibit 99.2 Title Report for Crescent Valley North* Exhibit 99.3 Title Report for Robinson Creek* Exhibit 99.4 -34- Title Report for Horse Creek* Exhibit 99.5 Notice of Default dated September 14, 2007 (cured by Exhibit 10.6)* Exhibit 99.6 Copy of December 21, 2007 letter concerning assignment of the Tempo Lease to Gold Standard Royalty Corporation* Exhibit 99.7 Letter from David C. Mathewson extending exploration program financing tranche to June 29, 2008* Exhibit 99.8 *Previously filed by the registrant on Form S-1/A, as amended, on April 16, 2008 (SEC file no. 333-148410), and incorporated by reference herein. ** Filed herewith.
SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOLD RUN INC. Date: May 20, 2008 /s/ John M. Pritchard ---------------------------- John M. Pritchard Chief Executive Officer (Principal Executive Officer) Date: May 20, 2008 /s/ Ernest Cleave -------------------------- Ernest Cleave Chief Financial Officer (Principal Financial Officer) -35- EX-31.1 2 exh31.txt EXHIBIT 31.1 I, John M. Pritchard, certify that: 1. I have reviewed this quarterly report of Gold Run Inc. for the quarter ending March 31, 2008; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: May 20, 2008 /s/ John M. Pritchard ---------------------------------- John M. Pritchard Chief Executive Officer (Principal Executive Officer) EX-31.2 3 exh31-2.txt EXHIBIT 31.2 I, Ernest Cleave, certify that: 1. I have reviewed this quarterly report of Gold Run Inc. for the quarter ending March 31, 2008; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: May 20, 2008 /s/ Ernest Cleave -------------------------- Ernest Cleave Chief Financial Officer (Principal Financial Officer) EX-32.1 4 exh32-1.txt EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Gold Run Inc. (the "Company") hereby certifies, to such officer's knowledge, that: (i) the accompanying quarterly report of the Company on Form 10-Q for the fiscal quarter ending March 31, 2008 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 20, 2008 /s/ John M. Pritchard ----------------------------------- John M. Pritchard Chief Executive Officer (Principal Executive Officer) The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. EX-32.2 5 exh32-2.txt EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Gold Run Inc. (the "Company") hereby certifies, to such officer's knowledge, that: (iii) the accompanying quarterly report of the Company on Form 10-Q for the fiscal quarter ending March 31, 2008 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (iv) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 20, 2008 /s/ Ernest Cleave -------------------------- Ernest Cleave Chief Financial Officer (Principal Financial Officer) The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. -----END PRIVACY-ENHANCED MESSAGE-----