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PCFG > SEC Filings for PCFG > Form 10-K on 2-Apr-2014All Recent SEC Filings

Show all filings for PACIFIC GOLD CORP

Form 10-K for PACIFIC GOLD CORP


2-Apr-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the Securities and Exchange Commission. Words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project or projected", or similar expressions are intended to identify "forward-looking statements". Such statements are qualified in their entirety by reference to and are accompanied by the above discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements.

Management is currently unaware of any trends or conditions other than those mentioned in this management's discussion and analysis that could have a material adverse effect on the Company's consolidated financial position, future results of operations, or liquidity. However, investors should also be aware of factors that could have a negative impact on the Company's prospects and the consistency of progress in the areas of revenue generation, liquidity, and generation of capital resources. These include: (i) variations in revenue, (ii) possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the Company seek to do so, (iii) increased governmental regulation, (iv) increased competition, (v) unfavorable outcomes to litigation involving the Company or to which the Company may become a party in the future and (vi) a very competitive and rapidly changing operating environment.

The risks identified here are not all inclusive. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all such risk factors on the Company's business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.

The financial information set forth in the following discussion should be read with the financial statements of Pacific Gold included elsewhere herein.

Financial Condition and Changes in Financial Condition

Overall Operating Results:

The Company had no revenues from the sale of gold for the year ended December 31, 2013.

Operating expenses for the year ended December 31, 2013 totaled $815,021. The Company incurred labor costs associated with the various mining activities.
Labor costs were $231,406 for the year. Equipment operating costs, tools and materials of $21,004 were incurred primarily to prepare the plant and equipment at Black Rock Canyon for operations. Legal and professional fees of $178,541 were incurred for services performed with respect to acquisitions and mining prospect evaluation, as well as SEC reporting compliance and accounting fees. The Company also incurred expenses related to geological studies, fieldwork, site visits, preparation of mining permit applications and consulting fees of $38,921. Advertising and public relations expenses totaled $14,513. Interest expense totaled $742,749 for the year; of this amount, $471,334 was a non-cash expense that included amounts for interest on the Convertible Debentures that were not paid out in cash, $271,415 was interest accrued on debt and interest expensed for late fees on trade payables. The remaining expenses relate to office, general administrative and stock transfer agent fees. We believe we will incur substantial expenses for the near term as we build up operations at the Black Rock Canyon Mine and progress with our evaluations of future mining prospects.

The Company had revenues from the sale of gold for the year ended December 31, 2012 of $165,816 with a negative gross margin of $406,656.

Operating expenses for the year ended December 31, 2012 totaled $2,244,134. The Company incurred labor costs associated with the various mining activities.
Labor costs were $381,389 for the year. Equipment operating costs, tools and materials of $329,846 were incurred primarily to prepare the plant and equipment at Black Rock Canyon for operations. Legal and professional fees of $334,534 were incurred for services performed with respect to acquisitions and mining prospect evaluation, as well as SEC reporting compliance and accounting fees. The Company also incurred expenses related to geological studies, fieldwork, site visits, preparation of mining permit applications and consulting fees of $45,003. Advertising and public relations expenses totaled $126,237. Interest expense totaled $1,300,028 for the year; of this amount, $978,896 was a non-cash expense that included amounts for interest on the Convertible Debentures that were not paid out in cash, $321,133 was interest accrued on debt and interest expensed for late fees on trade payables. The remaining expenses relate to office, general administrative and stock transfer agent fees. We believe we will incur substantial expenses for the near term as we build up operations at the Black Rock Canyon Mine and progress with our evaluations of future mining prospects.


Liquidity and Capital Resources:

Since inception to December 31, 2013, we have funded our operations from the sale of securities, issuance of debt and loans from a shareholder.

As of December 31, 2013, our assets totaled $1,926,412, which consisted primarily of mineral rights, land and water rights, and related equipment. Our total liabilities were $4,335,917 which primarily consisted of related parties' notes payable and accrued interest to of $2,391,762, accounts payable and accrued expenses of $1,233,130, convertible notes payable of $450,637, and promissory notes of $260,388. We had an accumulated deficit of $44,571,756 and a working capital deficit of $4,329,188 at December 31, 2013.

For the year ended December 31, 2013, the convertible note holders have converted $746,256 in principal and $48,562 in accrued interest on the Convertible notes. An additional $405,000 was assigned to the convertible notes.
The conversion rate of the notes is discussed in Note 7 to the consolidated financial statements.

For the year ended December 31, 2013, the Company issued additional $108,500 in promissory notes to non-related party. The promissory notes are due on January 2, 2015. Interest expense on the promissory notes accrues at a rate of 10% per annum. Interest accrued on the notes for the year ended December 31, 2013 was $21,888. At December 31, 2013 the balance on the promissory notes was $260,388 including accrued interest, representing promissory notes owed to two individual debt holders.

As of December 31, 2013, Pacific Gold owes $1,204,506 in principal and $169,317 in accrued interest to a company owned by the Chief Executive Officer. The amount due is represented by a promissory note accruing interest at 10% per year. The note is due on January 2, 2014 and is convertible into shares of common stock of Pacific Gold at $0.02 per share. On June 10, 2013 the Company issued 300,000 of Series A preferred shares on conversion of $300,000 of the note principal and recorded a deemed dividend of $300,000 related to the conversion.

As of December 31, 2013, Pacific Gold owes a total of $894,175 in principal and $123,765 in accrued interest to a related party of our Chief Executive Officer. The amount due is represented by promissory notes accruing interest at 10% per year. During the year ended December 31, 2013, the company issued $293,000 in additional notes. The notes are due on January 2, 2015.

Our independent auditors, in their report on the consolidated financial statements, have indicated that the Company has experienced recurring losses from operations and may not have enough cash and working capital to fund its operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. Management has made a similar note in the consolidated financial statements. As indicated herein, we need capital for the implementation of our business plan, and we will need additional capital for continuing our operations. We do not have sufficient revenues to pay our expenses of operations. Unless the company is able to raise working capital, it is likely that the Company either will have to cease operations or substantially change its methods of operations or change its business plan.

New Accounting Pronouncements

Pacific Gold does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company, or any of its subsidiaries' operating results, financial position, or cash flow.

Critical Accounting Principals

The Company follows Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 470-20, Debt - Debt with Conversion and Other Options, to account for its convertible debentures. The Company records a beneficial conversion feature ("BCF") related to the issuance of convertible debt that have conversion features at fixed or adjustable rates and records the fair value of warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to paid-in-capital. The Company calculates fair value using the Black-Scholes valuation method using assumptions pertinent to the warrants or convertible note.

The derivative liability related to convertible notes arises because the conversion price of the Company's convertible notes is discounted from the market price of the Company's common stock. Thus, the number of shares that may be issued upon conversion of such notes is indeterminate, which gives rise to the possibility that the Company may not be able to fully settle its convertible note and warrant obligations by the issuance of common stock. The Company has adjusted the derivative liability to fair value at each reporting date using the Black-Scholes valuation model. Adjustments in fair value arising because of changes in the market conditions are recorded as a gain or loss. To the extent the derivative liability is reduced as a consequence of the conversion of notes, such reduction is recognized as additional paid-in-capital.


The Company records stock-based compensation according to the provisions of ASC Topic 718, Compensation - Stock Compensation, which requires fair value compensation cost relating to share based payments be recognized in the financial statements. Fair value is measured at the grant date and recorded at the fair value of the award. Stock options are measured using the Black-Scholes valuation model.

Off Balance Sheet Arrangements

None.

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