U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 



 

 

 

For the Fiscal Year Ended

 

Commission File Number

January 31, 2009

 

0-20722


 

FIRSTGOLD CORP.


 

 

 

Delaware

 

16-1400479


 


(State of Incorporation)

 

(I.R.S. Employer Identification)

Principal Executive Offices:
1055 Cornell Avenue
P. O. Box 6
Lovelock, NV 89419
(775) 273-7800

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered


 


None

 

None

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

 

 

 

 

Title of Each Class

 

 


Common Stock

 

            $0.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issued, as defined in Rule 405 of the Securities Act.

 

 

Yes    o

No    x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

 

Yes    o

No    x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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    o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

Yes    o

No    x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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. (Check one):

 

 

 

o Large accelerated filer

 

o Accelerated filer

 

o Non-accelerated filer (do not check if a smaller reporting company)

 

x 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    o

No    x

As of May 1, 2009 the aggregate value of the voting stock held by non-affiliates of the Registrant, computed by reference to the average of the bid and ask price on such date was approximately $4.6 million based upon the closing price of $0.36 per share.

As of May 1, 2009, the Registrant had outstanding 141,717,235 shares of common stock.

Transitional Small Business Disclosure Format:    Yes o No x

Documents Incorporated by Reference

Certain exhibits required by Item 13 have been incorporated by reference from Firstgold’s previously filed Form 8-K’s, Form 10-Q and Form 10-K.



TABLE OF CONTENTS

 

 

 

 

 

 

 

 

Page of
Report

 

 

 


 

 

 

 

 

PART I

 

 

1

 

ITEM 1.

BUSINESS

 

1

 

ITEM 1A. 

RISK FACTORS

 

17

 

ITEM 2.

PROPERTIES

 

20

 

ITEM 3.

LEGAL PROCEEDINGS

 

22

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

23

 

 

 

 

PART II

 

 

24

 

ITEM 5.

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

 

24

 

ITEM 6.

SELECTED FINANCIAL DATA

 

27

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

27

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

35

 

ITEM 8.

FINANCIAL STATEMENTS

 

36

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

37

 

ITEM 9A(T). CONTROLS AND PROCEDURES

 

37

 

ITEM 9B.

OTHER INFORMATION

 

38

 

 

 

 

PART III

 

 

39

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

39

 

ITEM 11.

EXECUTIVE COMPENSATION

 

46

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

52

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTION AND DIRECTOR INDEPENDENCE

 

56

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

57

 

 

 

 

PART IV

 

 

60

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

60

 

 

 

SIGNATURES

 

63

i


PART I

 

 

ITEM 1. BUSINESS

General

Firstgold Corp. (“we,” “us,” “our” or “Firstgold”) has a business strategy whereby it will invest in, explore and if warranted, conduct mining operations of its current mining properties and other mineral producing properties. Firstgold is a public company that in the past has been engaged in the acquisition and exploration of gold-bearing properties in the continental United States. Currently, Firstgold’s principal assets include various mineral leases associated with the Relief Canyon Mine located near Lovelock, Nevada along with various items of mining equipment and improvements located at that site. Firstgold has also staked claims on approximately 4,200 acres of land at the Horse Creek exploration project near Winnemucca, NV, claims on approximately 3,300 acres of land located at the Honorine Gold exploration project near Winnemucca, NV, and claims on approximately 2,300 acres of land at its Fairview-Hunter exploration project, near Fairview, NV.

From 1995 until the beginning of 2000, Firstgold had followed the above described business activity focusing on the exploration for gold and silver mineral deposits. With the fall of the precious metal markets, Firstgold attempted to redefine its business strategy, and from approximately July 2001 until February 2003 Firstgold discontinued all business activity. During the period of inactivity, ASDi LLC, an entity controlled by A. Scott Dockter who was the Chief Operating Officer of Firstgold through June 2009, made the necessary expenditures to maintain the current status of the Relief Canyon mining claims. In February 2003, Firstgold resumed its business of acquiring, exploring and if warranted developing its mining properties.

Firstgold’s mailing address as of the end of fiscal year 2009 was 3108 Ponte Morino Drive, Suite 210, Cameron Park, CA 95682 and its telephone number is (530) 677-5974. As of July, 2009 Firstgold’s mailing address became 1055 Cornell Avenue, PO Box 6, Lovelock, NV 89419.

The Company

Firstgold Corp., a Delaware corporation, has been engaged in the acquisition and exploration of gold-bearing properties in Nevada since 1995. In fiscal 1999 Firstgold placed its only remaining property, the Relief Canyon Mine, located in Pershing County, Nevada, on a care and maintenance status. During fiscal 2000, Firstgold executed a contract to sell the Relief Canyon Mine to A. Scott Dockter, then Chairman of Firstgold; however the sale was never completed and the asset remains the property of Firstgold. Firstgold has now resumed operations at the Relief Canyon Mine. See “Business” below for further detail.

Firstgold’s independent accountants have included a “going concern” explanatory paragraph in their report dated August 31, 2009 on Firstgold’s financial statements for the fiscal year ended January 31, 2009, indicating substantial doubt about Firstgold’s ability to continue as a going concern (See Note 2 of Financial Footnotes). If Firstgold’s exploration program is not successful

1


or if insufficient funds are available to carry out Firstgold’s business plans, then Firstgold will not be able to execute its business plan.

For financial information regarding Firstgold, see “Financial Statements.”

Business

We are an “exploration stage” company engaged in the search and/or verification of ore deposits (reserves) in our property. Our business will be to acquire, explore and, if warranted, develop various mining properties located in the state of Nevada. We plan to carryout comprehensive exploration and, if warranted, development programs on our properties. We are currently processing mineralized material at the Relief Canyon Mining Project. While we currently plan to fund and conduct these activities ourselves, in the future we may engage in joint venture, royalty or partnership arrangements pursuant to which other companies would agree to finance and carryout the exploration and possible future development programs on our mining properties. Our current plan will require the hiring of various mining employees to perform exploration and mining activities for our various mining properties.

In July 2008, Firstgold opened a full service metals and mineral assay laboratory in leased buildings located in Lovelock, Nevada. On September 30, 2008 Firstgold purchased the laboratory facility for an aggregate purchase price of $450,000. The laboratory will process mineral samples from Firstgold’s Relief Canyon Mine, other Firstgold exploration properties and provide excess capacity to process mined samples from other outside mining and exploration companies. At peak operation, the laboratory is designed to process up to 1,000 fire assays and up to 1,000 geochemical analyses per day.

Properties

MATERIAL PROPERTY

Relief Canyon Mine

The Relief Canyon Mine is an open-pit, heap leaching operation located approximately 110 miles northeast of Reno, Nevada. It is located approximately 12 miles east of Lovelock, NV. It is accessed by improved roads by exiting Interstate 80 north of Lovelock, at Coal Canyon Road and traveling southeast for 9 miles to the mine site. Firstgold held 50 unpatented mining claims covering approximately 1,560 acres until October 2004 at which time Firstgold completed re-staking the Relief Canyon mill site and lode claims. Firstgold currently holds a total of 166 claims including 120 mill site claims and 46 unpatented mining claims. The annual payments to maintain these claims are approximately $23,240. Water for mining and processing operations is provided by two wells located on the property in close proximity to the mine and processing facilities. Power is provided by a local rural electric association and Firstgold has installed its own radio system to support telephone and internet service at the mine site. Relief Canyon is located in the Humboldt Range, a mining district in Pershing County, Nevada.

2


(MAP)

Background and History

On January 10, 1995, Firstgold purchased the Relief Canyon mine from J.D. Welsh & Associates for $500,000. The mine at that time consisted of 39 unpatented lode mining claims covering approximately 780 acres and a lease for access to an additional 800 acres contiguous to the 39 claims located on Firstgold’s property. When first acquired, the property included a building containing five carbon tanks and a boiler for carbon strip solution, four detoxified leach pads, a preg pond for gold bearing solution, a barren pond for solution from which gold had been removed, water rights, and various permits. From acquisition through November 1997, Firstgold refurbished the processing facilities by the purchase and installation of all equipment required to process the gold bearing leach solution when the mine was returned to production in 1997. During 1997, Firstgold staked an additional 402 claims. However, subsequent to January 31, 1998, Firstgold reduced the total claims to 50 (covering approximately 1,000 acres). In 1999 Firstgold placed the mine in a care and maintenance status.

If mining operations are not resumed at the Relief Canyon mine, it is possible Firstgold may be required to reclaim the mine. Reclamation consists of recontouring the four heaps to a 3:1 slope, sale and removal of the building and its contents, evaporation of all water in both ponds and

3


burial of the building foundation and floor within the ponds’ liners under the soil contained in the pond berms. Finally, native vegetation must be re-established in all areas of disturbance. A cash bond has been posted which will cover the cost of these reclamation activities.

During 1996, Repadre Capital Corporation (“Repadre”) purchased for $500,000 a net smelter return royalty (Repadre Royalty). Repadre was to receive a 1.5% royalty from production at each of the Relief Canyon Mine and Mission Mines. In July 1997, an additional $300,000 was paid by Repadre for an additional 1% royalty from the Relief Canyon Mine. In October, 1997, when the Mission Mine lease was terminated, Repadre exercised its option to transfer the Repadre Royalty solely to the Relief Canyon Mine resulting in a total 4% royalty. The total amount received of $800,000 has been recorded as deferred revenue in the accompanying financial statements.

Plan for Relief Canyon

Based on past exploration by us and work done by others, we believe the Relief Canyon Mine presents the potential for gold bearing ore deposits which will hopefully be validated through further exploration of additional mining claims.

The Relief Canyon properties include 120 millsite claims and 46 unpatented mining claims contained in about 1,560 acres.

Firstgold’s operating plan is to place the Relief Canyon mining property into production during the 2009 calendar year, and use the net proceeds from these operations, if any, to fund expanded exploration and, if warranted, development of its entire property holdings. By this means, Firstgold intends to progressively enlarge the scope and scale of the mining and processing operations, thereby increasing Firstgold’s annual revenues and eventually its net profits.

Firstgold’s goals for environmental protection and reclamation are for minimal environmental disturbance during mining, and reclamation and/or restoration of the disturbed area after mining ceases. The economics of Firstgold’s operations will permit this environmentally responsible plan of operations.

We will initially focus on exploring the North Relief Canyon mining property. In August, 2008 we increased our reclamation bond with the Nevada Bureau of Mining Regulations and Reclamation (“BMRR”) from $613,500 to $2,797,346 which allows us to apply for new permits for mining and processing on the property. Posting the reclamation bond completes the Activities of Compliance mandated by the Bureau of Land Management (“BLM”) and Nevada Department of Environmental Protection (“NDEP”) before any work can commence. We have completed all of the environmental work required by NDEP in the Administrative Order of Consent issued May 2005 (the AOC). The purpose of the AOC is to bring the Relief Canyon mine up to current environmental compliance.

Subsequent to the year-end, in July 2009 an irrevocable Letter of Credit from Umpqua Bank in favor of the U.S. Department of Interior, Bureau of Land Management in the amount of U.S. $2,183,846, representing a portion of the reclamation bond for the Relief Canyon Mine was called. The letter of credit was secured by a certificate of deposit in the amount of $2,293,126;

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$2,183,846 of the certificate of deposit was used to satisfy the letter of credit and now represents a cash bond on deposit with the Bureau of Land Management.

On September 25, 2006 we submitted our “Plan of Operations” for the Relief Canyon Mining Project to the NDEP. The Plan contains extensive details on how the mine will operate if and when production is achieved. The Plan includes an intention to reprocess the existing heaps containing approximately 8 million tons of mineralized material and the construction of a new heap leach pad. The Plan also includes facilities and processes which are compliant with our “Green Initiative” to construct and operate an environmentally conscience project.

On October 19, 2006 we received notice from the NDEP that we would be allowed to attach our current Plan of Operations as an amendment to a previous Plan of Operations submitted in 1996. This consolidation of Plans is expected to significantly reduce the processing time and documentation necessary to secure our production permit from the NDEP which will allow us to commence processing mineralized material at the Relief Canyon Mining Project. On April 9, 2007 we received notice from the NDEP that Firstgold’s 1996 Plan of Operation had been reinstated. All required permits needed to commence the re-processing of the old heap leach material were completed and submitted to the pertinent government agencies in early 2008. After review and public comment the BLM and the Nevada Department of Environmental Protection (NDEP) issued the required permits for Firstgold to begin construction of the processing facilities and heap leach pads. The permits also gave Firstgold the ability to crush and heap leach the material from the old pads. The NDEP Reclamation Permit was issued on August 5, 2008 and the Water Pollution Control Permit was issued on June 7, 2008. The BLM Environmental Assessment (EA) was issued July of 2008 stating that no significant environmental damage will occur because of our operations.

To assist us in this effort, we have retained Dyer Engineering Consultants, Inc. as our lead engineering firm for the permitting and compliance engineering work at the Relief Canyon and other exploration projects in Nevada.

Currently, we can proceed with the permits to commence full scale exploration and mining activities. The estimated time for completing the permitting process is between six months to nine months. However, upon posting the reclamation bond, we are able to carry on limited operations pending full permitting for full mining operations. The Amendment to the Plan of Operations approving the leaching operations was issued by the BLM on August 7, 2008

Description of Past Exploration and Existing Exploration Efforts

Gold mineralization at the Relief Canyon Mine is hosted in an inter-formational tectonic breccias between younger, thin-bedded sandy shales of the Triassic Grass Valley Formation and older thin-to-medium bedded Triassic Cane Springs limestone, as well as along high-angle faults and bedding plane faults in the Cane Springs limestone. Tertiary sills of quartz monzonite and dacite have intruded the breccias along high angle northwesterly faults and acted as traps for later gold-bearing hydrothermal solutions. The mineralization is hosted in an anticline, with a steeper dip

5


on the eastern limb, and plunges south-southwest. Most mine activity has been on the more accessible western limb of the fold. Large, low-angle northwesterly striking faults, originally interpreted as thrust faults, appear to have occurred along stratigraphic beds, and may be detachment faults rather than thrusts. Multiple high-angle faults, representing several regionally significant tectonic fabrics, also cross-cut the Relief-Packard Flats area.

Over 400 historic reverse circulation holes have been drilled at the Relief Canyon project. Of the 400 holes drilled, 106 had intercepts of gold bearing mineralizations of 0.1 gold/ton content.

The mineral zone of Relief Canyon is open ended on three sides. It is projected that ongoing drilling will increase the size of possible reserves. Most of the drilling to date was targeted for open pit mining, resulting in shallow holes which did not test for possible deeper mineralization. A significant number of deep holes were drilled on the North end of the property.

In late May 2007 we completed 57 drill holes on existing heaps at Relief Canyon using sonic drilling. The patented sonic drill head works by sending high frequency resonant vibrations down the drill string of the drill bit while the operator controls the frequencies to suit the specific conditions of the soil/rock geology. This round of drilling was intended to improve our understanding of the mineral content in the existing heap leach pads. We have also completed 83 reverse circulation drill holes in the existing pit area. Fire assays have been returned on the first 174 of these holes which are designed to evaluate three specific exploration target areas.

Although significant historical drilling has been performed at Relief Canyon there are no known reserves as a result of this drilling. We retained SRK Engineering to perform an initial resource evaluation of the Relief Canyon Property. In November 2008, we retained Mining Development Associates of Reno, Nevada to complete this evaluation which is expected to be delivered in October 2009.

We began preparing previously processed material on the existing heaps in November 2008 and began applying cyanide solution to the material on our heap leach pads in February 2009. However, due to lack of funds, in April, 2009 Firstgold suspended all exploration and leaching activity and placed the Relief Canyon mining property on a care and maintenance status. In June 2009 Firstgold closed its Cameron Park office.

Firstgold owns two reverse circulation drill rigs and two diamond core drill rigs. In addition to providing exploration drilling to Firstgold, these drilling rigs, along with operating crews, have been contracted out from time to time to other nearby mining operations. This rental activity produced $551,279 of revenue during fiscal 2008 and $680,386 in fiscal 2009.

In fiscal 2009 Firstgold completed the construction of a lab building in Lovelock Nevada. In addition to performing assay work for its own account Firstgold has also provided lab services to other mining companies. These services provided $150,920 of revenue during fiscal 2009.

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Mineral Processing Facilities

In October 2006, we commenced revitalization of our process solution ponds. The existing Pregnant and Barren ponds, which were converted to secondary overflow containment, have been cleaned and relined with the latest technology of fluid containment. In keeping with our “Green Initiative,” this will include new leak detection equipment and protocols. In addition, a new enclosed solution transmission system has been constructed between the site of the proposed heap leach pad and the existing solution ponds. Upon completion, we will have the capacity to reprocess approximately 7 million metric tons of existing lower grade oxide mineralized material stacked on existing leach pads by heap leaching. Heap leaching consists of stacking crushed or run-of-mine mineralized material in impermeable ponds, where a weak cyanide solution is applied to the top surface of the heaps to absorb the gold which is then directed by the solution transmission system to the mineral processing facility. We began reprocessing the mineralized material on the existing heaps in December 2008 and began applying cyanide solution to the material on our heap leach pads in January 2009. We were able to recover 91.19 ounces of gold and 340.461 ounces of silver from the processed material before the processing was suspended due to a lack of funds.

A mineral processing facility, with capacity to process up to 3,000 gallons per minute of gold bearing solution, has been constructed at the property site and in late February, 2009 started processing the first leached solution from our new heap leach pads. We shipped our first gold bearing carbon to be processed in early March 2009. A new 15,000 tons per day jaw crushing and stacking system has been constructed on site and is currently available to crush and stack excavated minerals.

EXPLORATION PROPERTIES

Firstgold leases mineral interests in certain mining exploration stage properties located in Nevada. Additional funding or the utilization of other venture partners will be required to fund exploration, research, future development and operating expenses at these properties.

Antelope Peak

On October 24, 2006, we entered into a Mineral Lease Agreement with the owners of approximately 25,000 acres of property located in Elko County, Nevada (the “Antelope Peak” property). The Lease allowed Firstgold the exclusive right to explore for and, if warranted, develop gold, silver and barite minerals on the leased property. The Lease has an initial term of five (5) years; however the term can be automatically extended thereafter for so long as Firstgold is engaged in mining operations.

The project is 40-60 miles east and parallels the Carlin Trend with features indicative of a potential gold-bearing system of the Carlin Type deposit model. It consists of nearly 35,000 acres of virtually unexplored private ground. After performing an Aerial Ground Magnetic Survey and conducting extensive ground sampling on the property, we determined that the land package and potential did not fit the geologic profile we had hoped for. Consequently, the lease was

7


terminated on October 24, 2008 without further liability to Firstgold. During the two years of the lease, we expended approximately $20,673 on exploration costs.

Horse Creek

On July 9, 2007, we completed staking claims on approximately 4,200 acres of potentially mineralized ground in Humboldt County, Nevada. We have conducted preliminary sampling of the area. During the course of the property evaluation, rock chip samples were collected. This sampling has shown the potential presence of intrusion-related gold systems. The next phase of this project will be to conduct extensive mapping of the area’s bedrock geology. Additionally, we plan to conduct an airborne geophysical survey to map the magnetic character of the rocks. Geochemical exploration efforts will continue with more rock chip sampling as well as an in-depth soil sampling survey. $42,233 was spent in FY 2009 on these efforts. $25,000 is budgeted to be spent in FY 2010 on these exploration efforts.

Fairview-Hunter

On January 11, 2008 we secured claims on approximately 2,300 acres of potentially mineralized ground near Fairview, Nevada. The property is underlain by a variety of volcanic units, including extensive pyroclastic units presumably related to regional explosive volcanism (i.e. caldera formation). Two alteration zones, labeled the North and South Pediment Targets, were identified during construction of the surface geology map and show anomalous soil sample geochemical signatures indicative of potential epithermal mineralization. We are conducting preliminary sampling of the area. During the course of the property evaluation, rock chip samples were collected. The next phase of this project will be to conduct extensive mapping of the area’s bedrock geology. Additionally, an airborne geophysical survey was conducted to map the magnetic character of the rocks. Geochemical exploration efforts will continue with more rock chip sampling as well as an in-depth soil sampling survey. $67,363 was spent in FY 2009 on these efforts. An additional $25,000 is budgeted to be spent in FY 2010 on these exploration efforts.

Honorine Gold

On February 22, 2008, we secured claims on approximately 3,300 acres of potentially mineralized ground north of Winnemucca, Nevada. The property is underlain by sedimentary rocks (quartzite, chert and phyllite) of the Valmy Formation. Structural preparation is evidenced by the occurrence of iron-stained, coarse, angular tectonic and/or hydrothermal breccias. We are conducting preliminary sampling of the area. During the course of the property evaluation, rock chip samples were collected. The next phase of this project will be to conduct extensive mapping of the area’s bedrock geology. Additionally, we plan to conduct an airborne geophysical survey to map the magnetic character of the rocks. Geochemical exploration efforts will continue with more rock chip sampling as well as an in-depth soil sampling survey. During FY2009, seven rotary drill holes and one core hole were drilled on the Honorine Property, with encouraging results. $189,613 was spent in FY 2009 on these efforts. An additional $200,000 is budgeted to be spent in FY 2010 on these exploration efforts.

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Crescent Red Caps LLC

In early 2005 we entered into a Letter of Intent to form a joint venture to acquire the exploration rights to certain properties which consisted of two leases of unpatented mining claims located in northeastern Nevada, approximately 60 miles southwest of Elko, Nevada in Lander County for which ASDi LLC was the lessee. In furtherance of this intended joint venture on January 25, 2006 ASDi LLC and Firstgold entered into an Operating Agreement for the Crescent Red Caps LLC, a Nevada limited liability company (“Crescent Red Caps LLC”) formed for the intended purpose of exploring the properties. The terms of the Operating Agreement for Crescent Red Caps LLC provided for Firstgold to own an initial 22.22% interest in the LLC and be the Manager and the remaining 77.78% interest to be held by ASDi LLC, a California limited liability company owned by A. Scott Dockter, then COO of Firstgold. Additionally, by the terms of the Operating Agreement, Firstgold, by making expenditures over three years (January 2006 - January 2009) aggregating $2,700,000, could acquire a 66.66% overall interest in the Crescent Red Caps LLC. Firstgold would then have the opportunity to purchase the remaining Crescent Red Caps LLC interest held by ASDi LLC based on the results of the exploration work contemplated by these additional expenditures.

On October 13, 2006 and November 1, 2006 the lessors gave notices of termination of the two leases. The lessors claimed that the proposed assignment of the leases by ASDi LLC to Crescent Red Caps LLC was either ineffective or in breach of the leases. ASDi LLC disputed the lease terminations and on February 8, 2007, the lessors filed a lawsuit seeking to terminate the leases (see the section “Legal Proceedings” below). In late March, 2008 the parties reached a settlement agreement and the case was dismissed by the Court on April 4, 2008. As a result of the settlement, Firstgold paid $150,000 to the Plaintiffs and Firstgold, ASDi LLC and Crescent Red Caps LLC relinquished all right, title and interest in the Red Caps and Crescent Valley leases to the Plaintiffs. Consequently, Firstgold no longer has any interest in these leases and will not pursue any further exploration activity on such leased property. Firstgold had not yet expended any significant amounts on its exploration program on the properties prior to this lease dispute.

Restructuring Transaction

On July 16, 2009 we entered into a Binding Offer Letter with Northwest Non-Ferrous International Investment Company, Limited (“Northwest”) which has its headquarters in Xi’an Shaanxi Province, China. Pursuant to the Binding Offer Letter, the parties have agreed to prepare and enter into definitive agreements having an aggregate value of approximately $26,500,000 and to make certain fundamental changes to Firstgold’s Certificate of Incorporation and Bylaws to give effect to the Restructure transaction which collectively are referred to herein as the “Restructuring.” The capital infusion by Northwest will consist of three components. All dollar amounts are stated in US dollars.

Purchase of Notes

The first capital investment component of the Restructuring provides for Northwest to acquire the currently outstanding Senior Secured Promissory Notes held by Firstgold’s primary creditors,

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Platinum Long Term Growth, LLC (“Platinum”) and Lakewood Group LLC (“Lakewood”) for a one-time payment of $11,500,000. The Binding Offer Letter provides for Northwest to make an initial pre-loan payment of $1,000,000 of which $500,000 was allocated to Platinum and Lakewood as a nonrefundable deposit and $500,000 was transferred to Firstgold to be used for working capital purposes. These funds were received by Firstgold’s Canadian counsel on July 16, 2009. The balance of $11,000,000 will be paid by Northwest to Platinum/Lakewood and Northwest will assume the existing secured promissory notes currently held by Platinum and Lakewood. Among other things, Northwest would assume all the security interests and title liens currently held by Platinum and Lakewood thus making Northwest our primary secured lender.

Working Capital Loan

The next capital investment component of the Restructuring is a $5,500,000 loan to be made by Northwest to Firstgold which will be used to discharge indebtedness to unsecured creditors and for general working capital. The loan will bear interest at a fixed rate of 10% per annum and the principal amount of the loan will be repaid in 24 equal monthly installments commencing on September 1, 2010. $500,000 of the loan proceeds were previously advanced to Firstgold on July 16, 2009 with the balance to be advanced to Firstgold on or before August 31, 2009.

Subscription for Shares

The third capital investment component of the Restructuring is the purchase of shares of Firstgold common stock whereby, on or about September 30, 2009, and subject to shareholder approval and regulatory approval, Northwest will subscribe for that number of shares from the authorized but unissued (post-split) shares which will equal 51% of the then issued and outstanding shares of Firstgold common stock for an amount of $9,500,000 (the “Subscription Transaction”) and result in a change of control of Firstgold. The proceeds from this subscription Transaction will be used for general working capital including the resumption of gold exploration and processing at Firstgold’s Relief Canyon mining site.

Structural Changes Required by Northwest

As part of the Restructuring, Northwest is allowed to nominate three directors to the Firstgold Board of Directors with Mr. Sun Feng (Chairman of Northwest) being designated as the new Chairman of the Firstgold Board. In addition, the Amended and Restated Certificate of Incorporation will be amended to provide for the Chairman of the Board to have a “casting vote” meaning that in case of a tie vote on any matter properly coming before the Board, the Chairman will have two votes compared to one vote by each of the remaining Directors thus allowing the Chairman the deciding vote in case of a tie vote on the Board. Northwest will also be granted certain preemptive rights allowing it to maintain its 51% ownership interest when and if currently outstanding warrants are exercised.

Financial Changes Required by Northwest

As a further condition of the Restructuring, Firstgold was required to reduce the amount of debt owed to creditors. Consequently, Firstgold has entered into arm’s length settlement arrangements

10


with most of its unsecured creditors whereby it will issue up to 84,123,514 shares of common stock, together with cash in the amount of approximately $4,438,000 in exchange for the discharge of $7,564,690 of original indebtedness and the cancellation of outstanding warrants exercisable into at least 63,000,000 shares of common stock. In addition, 19,300,000 shares are to be issued to settle compensation owed to directors and officers of Firstgold.

Regulatory Requirements

Due to the nature of the above described transaction with Northwest stockholder approval will be required for several aspects of the Restructuring transaction. Consequently, it is expected that in September 2009, proxy material will be sent to Firstgold stockholders seeking approval for the Restructuring transaction in addition to various other matters. Failure to secure stockholder approval would jeopardize some or all of the Restructuring transaction with Northwest and deprive Firstgold of significant capital investment necessary to resume operations at the Relief Canyon mining site.

Since the Firstgold common shares are currently listed on the Toronto Stock Exchange (“TSX”), certain TSX rules and regulations require that: (i) the issuance of shares by Firstgold to Northwest in an amount equal to 51% of then then-outstanding shares resulting in a change of control, (ii) the proposed issuance of shares representing more than 25% of the currently issued and outstanding shares at a discount to the market price in settlement of indebtedness and (iii) the issuance of share compensation to certain officers and directors of Firstgold, must be approved by Firstgold’s stockholders.

Since Northwest is a China based entity, it was determined that a voluntary application should be made to the Committee on Foreign Investment in the United States (“CFIUS”) seeking clearance as to any national security concerns relating to the proposed investment by Northwest in Firstgold. While we do not anticipate any difficulties with the CFIUS clearance, the application process will take 45 to 60 days which necessitates an extension of the planned initial closing from August 31, 2009 to on or before October 31, 2009. In order to gain approval of this extension from our senior secured creditors (Platinum/Lakewood), Northwest agreed to release its $500,000 deposit to Platinum/Lakewood. Firstgold intends to file a follow-up Form 8-K and news release concerning the status of the Restructuring as soon as such terms have been agreed upon.

Information about Northwest

Northwest Nonferrous International Investment Company Ltd. is 100% owned by the Northwest Mining and Geological Exploration Group Co. for Nonferrous Metals (NWME) and is based in Xi’an city of Shaanxi province, China. NWME has more than 6,000 employees including 800 geologists, technologists, and engineers.

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NWME is one of the top five exploration and mining Bureaus in China amongst around 100 provincial Bureaus in terms of revenue and technical capacity. NWME was one of the first Bureaus in China to conduct exploration projects in partnership with overseas companies. In 2007, NWME incorporated a joint venture with Yukon Nevada Gold Corporation to carry out exploration on new acquisitions. In 2008, NWME, in partnership with Jinduicheng Molybdenum Group Co., Ltd., acquired Yukon Zinc Corporation.

Industry Overview

The gold mining and exploration industry has experienced several factors recently that are favorable to Firstgold as described below.

The spot market price of an ounce of gold has increased from a low of $253 in February 2001 to a high of $1,011 in March 2008. The price was $927 as of January 31, 2009 and $886 as of May 1, 2009. This current price level has made it economically more feasible to produce gold as well as made gold a more attractive investment for many. Accordingly, the gross margin per ounce of gold produced per the historical spot market price range above provides significant profit potential if we are successful in identifying and extracting gold at the Relief Canyon mine.

By industry standards, there are generally four types of mining companies. Firstgold is considered an “exploration stage” company. Typically, an exploration stage mining company is focused on exploration to identify new, commercially viable gold deposits. “Junior mining companies” typically have proven and probable reserves of less then one million ounces of gold, generally produces less then 100,000 ounces of gold annually and / or are in the process of trying to raise enough capital to fund the remainder of the steps required to move from a staked claim to production. “Mid-tier” and large mining (“senior”) companies may have several projects in production plus several million ounces of gold in reserve.

Generally gold reserves have been declining for a number of years for the following reasons:

 

 

 

 

The extended period of low gold prices from 1996 to 2001 made it economically unfeasible to explore for new deposits for most mining companies.

 

 

 

 

The demand for and production of gold products have exceeded the amount of new reserves added over the last several consecutive years.

Reversing the decline in lower gold reserves is a long term process. Due to the extended time frame it takes to explore, develop and bring new production on line, the large mining companies are facing an extended period of lower gold reserves. Accordingly, junior companies that are able to increase their gold reserves more quickly should directly benefit with an increased valuation.

Additional factors causing higher gold prices over the past several years have come from a weakened United States dollar. Reasons for the lower dollar compared to other currencies include the historically low US interest rates, the weak US economy, the increasing US budget and trade deficits and the general worldwide political instability caused by the war on terrorism.

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Competition

Of the four types of mining companies, we believe junior companies represent the largest group of gold companies in the public stock market. All four types of mining companies may have projects located in any of the gold producing continents of the world and many have projects located near the Relief Canyon mine in Nevada. Many of our competitors have greater exploration, production, and capital resources than we do, and may be able to compete more effectively in any of these areas. Firstgold’s inability to secure capital to fund current exploration and possible future production capacity, would establish a competitive cost disadvantage in the marketplace which would have a material adverse effect on its operations and potential profitability.

We also compete in the hiring and retention of experienced employees. Consequently, though unlikely, it is possible that we may not be able to hire or retain qualified miners or operators in the numbers or at the times desired.

Employees

As of January 31, 2009, we had 61 full-time employees. Mining employees include a Mine Manager, Chief Geologist and Senior Geologist, a Lead Driller and a Plant Metallurgist. We also employ 7 lab technicians and staff at our metals and minerals assay laboratory. Due to a lack of funding we had to lay-off virtually all of our employees except for the Mine Manager and one other employee to secure and maintain the Relief Canyon mining site. When and if new funding is made available, we anticipate hiring back most of our employees during the current year to work on the mining sites in Nevada as our exploration program resumes. While skilled equipment and operations personnel are in demand, we believe we will be able to hire the necessary workers to sustain our exploration program. Our employees are not expected to be subject to a labor contract or collective bargaining agreement. We consider our employee relations to be good.

Consulting services, relating primarily to geologic and geophysical interpretations, and relating to such metallurgical, engineering, and other technical matters as may be deemed useful in the operation of our exploration activities, will be provided by independent contractors.

Government Controls and Regulations

Our exploration, mining and processing operations are subject to various federal, state and local laws and regulations governing prospecting, exploration, development, production, labor standards, occupational health, mine safety, control of toxic substances, and other matters involving environmental protection and employment. United States environmental protection laws address the maintenance of air and water quality standards, the preservation of threatened and endangered species of wildlife and vegetation, the preservation of certain archaeological sites, reclamation, and limitations on the generation, transportation, storage and disposal of solid and hazardous wastes, among other things. There can be no assurance that all the required permits and governmental approvals necessary for any mining project with which we may be associated can be obtained on a timely basis, or maintained. Delays in obtaining or failure to

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obtain government permits and approvals may adversely impact our operations. The regulatory environment in which we operate could change in ways that would substantially increase costs to achieve compliance. In addition, significant changes in regulation could have a material adverse effect on our operations or financial position.

Outlined below are some of the more significant aspects of governmental controls and regulations which materially affect our interests in the Relief Canyon, Horse Creek and Antelope Peak properties.

Regulation of Mining Activity

Firstgold’s mining activities, including exploration, and possible future development and production activities are subject to environmental laws, policies and regulations. These laws, policies and regulations affect, among other matters, emissions to the air, discharges to water, management of waste, management of hazardous substances, protection of natural resources, protection of endangered species, protection of antiquities and reclamation of land. The mines are also subject to numerous other federal, state and local laws and regulations. At the federal level, the mines are subject to inspection and regulation by the Division of Mine Safety and Health Administration of the Department of Labor (“MSHA”) under provisions of the Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health Administration (“OSHA”) also has jurisdiction over certain safety and health standards not covered by MSHA. Mining operations and all future exploration and development will require a variety of permits. Although we believe the permits can be obtained in a timely fashion, permitting procedures are complex, costly, time consuming and subject to potential regulatory delay. We do not believe that existing permitting requirements or other environmental protection laws and regulations would have a material adverse effect on our ability to explore and eventually operate the mines. However, we cannot be certain that future changes in laws and regulations would not result in significant additional expenses, capital expenditures, restrictions or delays associated with the operation of our properties. We cannot predict whether we will be able to obtain new permits or whether material changes in permit conditions will be imposed. Granting new permits or the imposition of additional conditions could have a material adverse effect on our ability to explore and operate the mining properties in which we have an interest.

On June 9, 2005, we received permission from the NDEP to commence designated environmental activities previously requested by us. In January 2006, we made a cash deposit of $243,204 to cover future reclamation costs as required by the NDEP for the Relief Canyon Mine.

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In September 2006, we submitted our “Application for Water Pollution Control Permit and Design Report” for the Relief Canyon project with the NDEP. This document provides the BLM and NDEP with information regarding the characteristics of the site, proposed management of process fluids, monitoring and tentative plans for the eventual closure of operations. In addition, this fulfills Nevada state requirements and illustrates the plan to prevent undue degradation of public lands while the Relief Canyon Mining Project is in operation.

On October 19, 2006 we received notice from the NDEP that we would be allowed to attach our current Plan of Operations for Relief Canyon submitted on September 15, 2006 as an amendment to the previous Plan of Operations submitted in 1996. This consolidation of Plans is expected to significantly reduce the processing time and documentation necessary to secure our production permit from the NDEP for the Relief Canyon project. We were also required to increase the reclamation cost deposit from $243,204 to $613,500 which was placed in a blocked account with our bank in Sacramento, California in March 2007. On April 9, 2007 we received notice from the NDEP that Firstgold’s Plan of Operation had been reinstated. With this approval, Firstgold is allowed to commence onsite operations subject to final determination and posting of a $2,797,346 reclamation bond.

On November 16, 2006, the NDEP notified Firstgold of certain violations that had occurred pertaining to the unauthorized release of water from one of the overflow containment ponds at the Relief Canyon mining site in early November 2006. On August 14, 2007, Firstgold was notified that a fine of $9,000 had been assessed for these violations. Firstgold paid the fine in full on August 21, 2007. Such violation and fine is not expected to affect the permitting process or exploration program at the Relief Canyon Mine site.

Legislation has been introduced in prior sessions of the U.S. Congress to make significant revisions to the U.S. General Mining Law of 1872 that would affect our unpatented mining claims on federal lands, including a royalty on gold production. It cannot be predicted whether any of these proposals will become law. Any levy of the type proposed would only apply to unpatented federal lands and accordingly could adversely affect the profitability of portions of any future gold production from the Relief Canyon mine.

The State of Nevada, where our mine properties are located, adopted the Mined Land Reclamation Act (the “Nevada Act”) in 1989 which established design, operation, monitoring and closure requirements for all mining facilities. The Nevada Act has increased the cost of designing, operating, monitoring and closing mining facilities and could affect the cost of operating, monitoring and closing existing mine facilities. Pursuant to the Nevada Act, we are required to mitigate long-term environmental impacts by stabilizing, contouring, resloping, and revegetating various portions of a site. While a portion of the required work was performed concurrently with prior operations, completion of the environmental mitigation occurs once removal of all facilities has been completed. The State of Nevada also has adopted reclamation regulations pursuant to which reclamation plans must be prepared and financial assurances established for existing facilities. The financial assurances can be in the form of cash placed on deposit with the State or reclamation bonds underwritten by insurance companies. We prepared a specific reclamation plan of the Relief Canyon Mine and began implementation of the plan in

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April 2005. This work was completed in the summer of 2005. We have now completed the Activities of Compliance required by BLM and NDEP which was a prerequisite to the issuance of mining permits and have deposited $2,797,346 in a blocked account with our bank in Sacramento, California to cover future reclamation costs. Our ability to commence full mining operations at the Relief Canyon Mine is subject to our obtaining all necessary mining permits.

Environmental Regulations

Legislation and implementation of regulations adopted or proposed by the United States Environmental Protection Agency (“EPA”), the BLM and by comparable agencies in various states directly and indirectly affect the mining industry in the United States. These laws and regulations address the environmental impact of mining and mineral processing, including potential contamination of soil and water from tailings, discharges and other wastes generated by mining process. In particular, legislation such as the Clean Water Act, the Clean Air Act, the Federal Resource Conservation and Recovery Act (“RCRA”), and the National Environmental Policy Act require analysis and/or impose effluent standards, new source performance standards, air quality standards and other design or operational requirements for various components of mining and mineral processing, including gold-ore mining and processing. Such statutes also may impose liability on us for remediation of waste we have created.

Gold mining and processing operations by an entity would generate large quantities of solid waste which is subject to regulation under the RCRA and similar state laws. The majority of the waste which is produced by such operations is “extraction” waste that EPA has determined not to regulate under RCRA’s “hazardous waste” program. Instead, the EPA is creating a solid waste regulatory program specific to mining operations under the RCRA. Of particular concern to the mining industry is a proposal by the EPA entitled “Recommendation for a Regulatory Program for Mining Waste and Materials Under Subtitle D of the Resource Conservation and Recovery Act” (“Strawman II”) which, if implemented, would create a system of comprehensive Federal regulation of the entire mine site. Many of these requirements would be duplicates of existing state regulations. Strawman II as currently proposed would regulate not only mine and mill wastes but also numerous production facilities and processes which could limit internal flexibility in operating a mine. To implement Strawman II the EPA must seek additional statutory authority, which is expected to be requested in connection with Congress’ reauthorization of RCRA.

We also are subject to regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA” or “Superfund”) which regulates and establishes liability for the release of hazardous substances and (ii) the Endangered Species Act (“ESA”) which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats. Revisions to “CERCLA” and “ESA” are being considered by Congress; however, the impact of these potential revisions on us is not clear at this time.

The Clean Air Act, as amended, mandates the establishment of a Federal air permitting program, identifies a list of hazardous air pollutants, including various metals and cyanide, and establishes

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new enforcement authority. The EPA has published final regulations establishing the minimum elements of state operating permit programs. Firstgold will be required to comply with these EPA standards to the extent adopted by the State of Nevada.

We believe that our current exploration activities at the Relief Canyon Mine, are in substantial compliance with federal and state regulations and is consistent with our Green Initiative approach to environmental impact and that no further significant capital expenditures for environmental control facilities will be required unless and until production resumes at the site.

 

 

ITEM 1A. RISK FACTORS

As an exploration stage company with an unproven business strategy, we may not be able to achieve positive cash flows and our limited history of operations makes evaluation of our future business and prospects difficult. We have been actively pursuing our business strategy since February 2003. Consequently, we have been reactivating our business operations and we have not generated substantial revenues, other than drilling revenue, interest income, and dividend income, since our resumption of business. As a result, we have only a limited operating history upon which to evaluate our future potential performance. Our prospects must be considered in light of the risks and difficulties encountered by new companies which have not yet established their business operations.

We will need additional funds to finance our mining and exploration activities as well as fund our current operations. Due to our lack of funds, we had to suspend operations at the Relief Canyon mine site and lay-off most of our employees. Our ability to meet our long-term obligations in the ordinary course of business is dependent upon our ability to raise additional capital through public or private equity financings, establish increasing cash flow from operations, entering into joint ventures or other arrangements with capital sources, or secure other sources of financing to fund operations. We are currently in negotiations with Northwest to provide up to $9,500,000 in operating capital to Firstgold. However, this transaction is not expected to close until October, 2009 and may not close at all if various conditions to closing, including completion of due diligence and stockholder approvals, are not achieved in a timely manner.

On August 7, 2008 the Company entered into a Note and Warrant Purchase Agreement (the “Agreement”) which created a long-term debt obligation in the aggregate amount of $12,000,000. Pursuant to the Agreement commencing on December 15, 2008 and continuing in each month thereafter, Firstgold is required to make monthly principal reduction payments equal to the greater of: i) 40% of Firstgold’s free cash flow (as defined in the Agreement) in the preceding calendar month, and ii) $400,000. Firstgold has not paid any of the principal reduction payments. Therefore, as of December 16, 2008, Firstgold was in default for non-payment of the required principal payment of $400,000 on the Senior Secured Promissory Notes. As a result of the default, the $12 million principal balance could be called immediately due and payable by the Lenders and the Lenders began charging a default interest rate of 18% per annum. Additionally, the loans are secured by a first priority interest in all of Firstgold’s assets including its equipment,

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its mining rights existing at its Relief Canyon mine as well as any future mining rights Firstgold may develop in certain other properties. On March 31, 2009 Firstgold entered into a Notice of Default and Forbearance Agreement whereby the Lenders agreed to forbear from further default proceedings until April 30, 2009. However, on April 22, 2009 the secured lenders terminated the Forbearance Agreement and declared defaults under their respective Senior Secured Notes. On June 17, 2009 these lenders filed an application to have a receiver appointed to oversee Firstgold’s operations and assets. Due to the current negotiations with Northwest which, among other things, would assume the lenders’ Senior Secured Promissory Notes for payment of $11,500,000, the lenders have agreed to refrain from any further action until the Northwest transaction is consummated or terminated.

A second mortgage for $67,500 due in June 2009 became past due and was in default. In July 2009 the lender began foreclosure proceedings on the building and improvements. In August 2009 Firstgold and the lender completed a forbearance agreement whereby Firstgold will prepay one year of interest at 7% on the mortgage while continuing to maintain its obligations to complete the water line improvements.

Our prior and current independent certified public accountants have expanded their opinion contained in our financial statements as of and for the years ended January 31, 1997, through January 31, 2009 to include an explanatory paragraph related to our ability to continue as a going concern, stating, in the audit report dated August 31, 2009, that the Company had an accumulated deficit of $45,835,365 at January 31, 2009. These factors, among others, as discussed in “Note 2- Going Concern” to the financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. The auditors recognize that the cash flow uncertainty makes their basic assumptions about value uncertain. When it seems uncertain whether an asset will be used in a “going concern” or sold at auction, the auditors assume that the business is a “going concern” for purposes of all their work, and then they disclose that there is material uncertainty about that assumption. It is definitely a consequence of our negative cash flows from operations that we continually need additional cash. At any time, a serious deficiency in cash reserves could occur and it is not always possible or convenient to raise additional capital. A problem in raising capital could result in temporary or permanent insolvency and consequently potential claims by unpaid creditors and perhaps closure of the business. All of these things are possibilities. It is certain, in any case, that analysts and investors view unfavorably any report of independent auditors expressing substantial doubt about a company’s ability to continue as a going concern.

The price of gold has experienced an increase in value over the past several years, generally reflecting among other things relatively low interest rates in the United States; worldwide instability due to terrorism; and a continuing global economic slump. Gold prices are close to historic highs closing at $886 per ounce on May 1, 2009. We believe that the economic conditions causing these high market valuations will continue for the foreseeable future. However, any significant drop in the price of gold will have a materially adverse affect on the results of our operations unless we are able to offset such a price drop by substantially increased production.

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The disclosures of our mineral resources are only estimates. We have no proven or probable reserves and have no ability to currently measure or prove our reserves other than estimating such reserves relying on information produced in the 1990’s supplemented by our current exploration data. Therefore we are unable to determine the quantity of gold we may be able to recover. We can only estimate a potential mineral resource which is a subjective process which depends in part on the quality of available data and the assumptions used and judgments made in interpreting such data. There is significant uncertainty in any resource estimate such that the actual deposits encountered or reserves validated and the economic viability of mining the deposits may differ materially from our expectations.

Gold exploration is highly speculative in nature. Success in exploration is dependent upon a number of factors including, but not limited to, quality of management, quality and availability of geological data and the expertise to interpret it and availability of exploration capital. Due to these and other factors, the probability of our exploration program identifying individual prospects having commercially significant reserves cannot be predicted. It is likely that many of the claims explored will not contain any commercially viable reserves. Consequently, substantial funds will be spent on exploration which may identify only a few, if any, claims having commercial development potential. In addition, if commercially viable reserves are identified, significant amounts of capital will be required to mine and process such reserves.

Our mining property rights consist of 166 mill site and unpatented mining claims at the Relief Canyon Mine, and our staked claims at the Horse Creek exploration property, the Honorine Gold exploration property, and the Fairview-Hunter exploration property. The validity of unpatented or staked mining claims is often uncertain and is always subject to contest. Unpatented mining and staked claims are generally considered subject to greater title risk than patented mining claims, or real property interests that are owned in fee simple. If title to a particular property is successfully challenged, we may not be able to carryout exploration programs on such property or to retain our royalty interests on that property should production take place, which could reduce our future revenues.

Mining is subject to extensive regulation by state and federal regulatory authorities. State and federal statutes regulate environmental quality, safety, exploration procedures, reclamation, employees’ health and safety, use of explosives, air quality standards, pollution of stream and fresh water sources, noxious odors, noise, dust, and other environmental protection controls as well as the rights of adjoining property owners. We believe that we are currently operating in substantial compliance with all known safety and environmental standards and regulations applicable to our Nevada property. However, there can be no assurance that our compliance could be challenged or that future changes in federal or Nevada laws, regulations or interpretations thereof will not have a material adverse affect on our ability to resume and sustain mining operations.

The business of gold mining is subject to certain types of risks, including environmental hazards, industrial accidents, and theft. Prior to suspending operations, we carried insurance against certain property damage loss (including business interruption) and comprehensive general liability insurance. While we maintain insurance consistent with industry practice, it is not

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possible to insure against all risks associated with the mining business, or prudent to assume that insurance will continue to be available at a reasonable cost. We have not obtained environmental liability insurance because such coverage is not considered by management to be cost effective. We currently carry insurance on all of our properties.

 

 

ITEM 2. PROPERTIES

Firstgold’s corporate headquarters was located at 3108 Ponte Morino Drive, Cameron Park, California 95682. Firstgold’s business office is now located at 1055 Cornell Avenue, P.O. Box 6, Lovelock, Nevada 89419. Firstgold also owns and operates a 10,000 sq. ft. mineral assay laboratory at 1300 Westfall Road, Lovelock, Nevada 89419.

Mining Property Rights

Relief Canyon Property

Our mining property rights are represented by 146 unpatented mill site and mining lode claims which were re-staked in October 2004 and June 2006. Unpatented mining claims are generally considered subject to greater title risks than patented mining claims or real property interests that are owned in fee simple. To remain valid, such unpatented claims are subject to annual maintenance fees. As of January 31, 2009, we were current in the payment of such maintenance fees.

Horse Creek Property

On July 9, 2007, we completed staking claims on approximately 4,200 acres of ground in the Horse Creek area located approximately 100 miles Northeast of Reno, Nevada. These claims are staked claims on property owned by the U.S. Bureau of Land Management (“BLM”). Such staking of claims is permitted on U.S. Government property; however such claims must be filed with the BLM and any significant drilling or development activity will be subject to the review and approval of the BLM and NDEP. Upon conclusion of all mineral exploration and mining operations, if any, Firstgold is required to restore the property.

Fairview-Hunter

On January 11, 2008 we entered into a Mineral Lease Agreement with Randall Stoeberl, dba RSgold of approximately 2,300 acres of potentially mineralized ground near Fairview, Nevada (“Fairview-Hunter” property). The Lease allows Firstgold the exclusive right to explore for and, if warranted, develop gold, silver and barite minerals on the leased property. The Lease includes exploration, mining and access rights, deposit of waste material, mineral processing, and water

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rights. The Lease has an initial term of ten (10) years; however the term can be automatically extended thereafter for so long as Firstgold is engaged in mining operations.

Firstgold paid $25,000 upon the signing of the Lease and is required to pay rent of $25,000 the first year, with payments increasing each subsequent year by $5,000, with a maximum annual payment of $50,000. Firstgold is required to complete an initial 2,000 feet of drilling in the first year, with no specified obligations thereafter. The drilling was completed in FY 2009. In addition, should mining operations commence, the Lessors would be entitled to 3% of net smelter returns. Firstgold is current on its lease payments.

These claims are staked claims on property owned by the U.S. Bureau of Land Management (“BLM”), and controlled by Randall Stoeberl. Such staking of claims is permitted on U.S. Government property; however such claims must be filed with the BLM and any significant drilling or development activity will be subject to the review and approval of the BLM and NDEP.

Honorine Gold

On February 22, 2008, we entered into a Mineral Lease Agreement with the Steve and Honorine Patterson Family Trust of approximately 3,300 acres of property located in Humboldt County, Nevada (the “Honorine Gold” property). The Lease allows Firstgold the exclusive right to explore for and, if warranted, develop gold, silver and barite minerals on the leased property. The Lease includes exploration, mining and access rights, deposit of waste material, and mineral processing. The Lease has an initial term of ten (10) years; however the term can be automatically extended thereafter for so long as Firstgold is engaged in mining operations.

Firstgold paid $15,000 upon the signing of the Lease and is required to pay rent of $15,000 the first year, with payments increasing each subsequent year by $15,000, with a maximum annual payment of $50,000. Firstgold is required to complete an initial 2,000 feet of drilling in the first year, with no specified obligations thereafter. The drilling was completed in FY 2009. In addition, should mining operations commence, the Lessors would be entitled to 5% of net smelter returns. Firstgold is current on its lease payments.

These claims are staked claims on property owned by the U.S. Bureau of Land Management (“BLM”), and controlled by Randall Stoeberl. Such staking of claims is permitted on U.S. Government property; however such claims must be filed with the BLM and any significant drilling or development activity will be subject to the review and approval of the BLM and NDEP.

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ITEM 3. LEGAL PROCEEDINGS

On February 8, 2007, a complaint was filed against ASDi, LLC, Crescent Red Caps LLC, Firstgold, and Scott Dockter by the Lessors of the Crescent Valley and Red Caps mining properties. The complaint was filed in the Sixth Judicial District Court of Lander County, Nevada (Case No. 9661). In the complaint the plaintiffs allege that ASDi, LLC wrongfully assigned its lessee rights in the Crescent Valley and Red Caps mining properties to Crescent Red Caps LLC (of which Firstgold is the Managing Member). The complaint sought the termination of the leasehold rights granted to ASDi, LLC and quiet title and punitive damages. The complaint also sought an order against Firstgold restricting public claims of ownership or control of the mining properties. ASDi, LLC and Firstgold believed the leases were not assigned and that any transfer of the leases or mining claims was not wrongful nor required the Lessors’ consent. Consequently, ASDi, LLC and Firstgold pursued a vigorous defense of this action. In late March, 2008 the parties reached a settlement agreement and the case was dismissed by the Court on April 4, 2008. As a result of the Settlement, Firstgold paid $150,000 to Plaintiffs and Firstgold, ASDi LLC and Crescent Red Caps LLC relinquished all right, title and interest in the Red Caps and Crescent Valley leases to the Plaintiffs. Consequently, Firstgold no longer has any interest in these leases and will not pursue any further exploration activity on such leased property.

On September 24, 2007, a complaint was served on Firstgold by Swartz Private Equity, LLC. The complaint was filed in the District Court for the Western District of New York (Case No. 07CV6447). In the complaint, plaintiff alleges that pursuant to an Investment Agreement dated October 4, 2000, and entered into with Firstgold’s former management, it is entitled to the exercise of certain warrants in the amount of 1,911,106 shares of Firstgold common stock or the equivalent cash value of $0.69 per share and a termination fee of $200,000. Firstgold filed an answer to the complaint on December 3, 2007. The parties are currently in settlement negotiations.

On January 30, 2008, a complaint was served on Firstgold by Park Avenue Consulting Group, Inc. The complaint was filed in the Supreme Court of the State of New York but was subsequently removed to the Federal District Court for the Southern District of New York (Case No. 08CV01850). In the complaint, plaintiff alleges that pursuant to a Retainer Agreement entered into on September 1, 2000, it is entitled to $100,000 in retainer fees, $43,874 in expenses, and 850,000 shares of common stock during the term of the agreement. In late October 2008 the parties reached a settlement agreement with an amendment to the settlement agreement reached in July 2009. As a result of the Settlement, Firstgold is to pay to the Plaintiff $225,000 cash of which $65,000 has been paid and $160,000 remains outstanding as of July 31, 2009; issue 1,900,000 shares of common stock and issue 250,000 warrants to purchase shares of common stock at a price of $0.4357 for a term of 3 years. As of January 31, 2009 a total of $378,000 has been recognized as expense, which consists of the $225,000 cash settlement and $153,000 as the fair value of the stock on the date issued. Additionally $30,188 was accounted for as both a debit and credit to additional paid in capital for the fair value of the warrants issued under the Black-Scholes option pricing model.

On June 23, 2009 Firstgold’s two primary creditors, Platinum Long Term Growth, LLC and Lakewood Group, LLC (the “Plaintiffs”) filed a lawsuit in the United States District Court for the

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Southern District of New York, Case No. 09CV5714 naming Firstgold and four of its officers and employees as Defendants. In the Complaint the Plaintiffs allege securities fraud, common law fraud and negligent misrepresentations relating to information provided to the Plaintiffs by the Defendants in conjunction with the purchase of $12,000,000 principal amount of Notes and Warrants to purchase shares of Firstgold’s common stock. The claims are based on alleged misrepresentations relating to grades of gold, recovery rates and processing volume existing at Firstgold’s Relief Canyon Mine, located near Lovelock, Nevada. The Complaint also alleges a misrepresentation as to the nature of certain previously issued warrants to purchase Firstgold common stock. The Defendants believe that the Plaintiffs conducted a thorough investigation of Firstgold’s business and mining assets utilizing their own extensive investment experience and independent experts prior to purchasing the Notes. Consequently, the Defendants believe the allegations to be without merit and will vigorously defend this action if necessary. As part of the Restructuring transaction, upon Northwest assuming the Plaintiffs’ Notes, the Plaintiffs have agreed to dismiss this Complaint.

 

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our 2008 Annual Meeting of Stockholders on November 20, 2008. At the Annual Meeting of Stockholders, 130,845,543 shares of common stock were entitled to vote at such meeting of which there were present in person or by proxy 66,426,137 shares of common stock which represented a quorum. At the Annual Meeting, the holders of our common stock elected the following nominees to our Board of Directors: Stephen Akerfeldt, Kevin Bullock, Donald Heimler and Terrence Lynch. All of the directors nominated were duly elected by a vote of 66,108,050 shares voting for the nominees, 262,727 shares voting against the nominees and 55,360 shares abstaining. Fraser Berrill did not stand for re-election. As a result, Mr. Berrill’s term as a director ended on November 20, 2008. Subsequent to the year-end, Kevin Bullock voluntarily resigned from the Board.

Our stockholders also ratified Hunter & Renfro LLP as Firstgold’s principal independent public accountants for fiscal year 2009 with 66,342,961 votes cast for and 71,622 votes against and 11,554 votes abstaining.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

Market for Our Common Stock

Our Common Stock has been listed on the OTC Bulletin Board with the trading symbol “FGOC.” As of May 1, 2009 the closing bid price of our Common Stock was $0.036 per share.

In January 2008, Firstgold filed an application to become listed on the Toronto Stock Exchange (“TSX”). On May 12, 2008 the TSX approved Firstgold’s application for listing its common shares and effective May 14, 2008 Firstgold’s shares became listed for trading on the TSX under the symbol “FGD”.

Due to our financial condition the TSX gave notice on April 23, 2009 that it would review whether the Firstgold common stock continued to meet the listing requirements for the TSX. In August 2009 the TSX placed management trading restrictions on Firstgold Common Stock traded on the TSX. On August 14, 2009 Firstgold made application to the TSX seeking approval of the proposed Restructuring transaction. On August 21, 2009 the TSX gave preliminary and conditional approval for the proposed Restructuring transaction and the listing of the shares to be issued pursuant to the Restructuring. It is anticipated, although not assured, that the TSX will allow continued listing and trading of Firstgold common stock pending the completion of the Restructuring transaction.

Price Range of Our Common Stock

A public trading market having the characteristics of depth, liquidity and orderliness depends upon the existence of market makers as well as the presence of willing buyers and sellers, which are circumstances over which we do not have control. The following table sets forth the high and low sales prices reported by the OTC Bulletin Board for our Common Stock in the periods indicated. The quotations below reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

 

 

 

 

 

 

 

 

FIRSTGOLD CORP. COMMON STOCK

 

Low

 

High

 

 

 

 

 

 

 

 

 

Year Ending January 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fourth Quarter (November-January)

 

$

0.13

 

$

0.25

 

 

 

 

 

 

 

 

 

Third Quarter (August-October)

 

$

0.16

 

$

0.42

 

 

 

 

 

 

 

 

 

Second Quarter (May-July)

 

$

0.38

 

$

0.785

 

 

 

 

 

 

 

 

 

First Quarter (February-April)

 

$

0.50

 

$

0.72

 

24



 

 

 

 

 

 

 

 

FIRSTGOLD CORP. COMMON STOCK

 

Low

 

High

 

 

 

 

 

 

 

 

 

Year Ending January 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fourth Quarter (November-January)

 

$

0.625

 

$

0.97

 

 

 

 

 

 

 

 

 

Third Quarter (August-October)

 

$

0.52

 

$

0.69

 

 

 

 

 

 

 

 

 

Second Quarter (May-July)

 

$

0.56

 

$

0.72

 

 

 

 

 

 

 

 

 

First Quarter (February-April)

 

$

0.33

 

$

0.73

 

Stockholders

As of January 31, 2009, there were approximately 1,005 holders of record of our Common Stock. This amount does not include stockholders whose shares are held in street name.

Dividend Policy

We have never declared or paid any cash dividends on our Common Stock. We currently anticipate that we will retain all future earnings for the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future.

Transfer Agent

The transfer agent for Firstgold’s common stock is Transfer Online, 317 SW Alder Street, 2nd Floor, Portland, OR 97204.

Securities Authorized For Issuance Under Equity Compensation Plans

On July 26, 2006, our Board of Directors adopted the 2006 Stock Option Plan which was submitted to and approved by stockholders at the 2006 Annual Stockholders Meeting held on November 17, 2006. Under the terms of the 2006 Plan, we may grant options to purchase up to 5,000,000 shares of our common stock which can include Incentive Stock Options issued to employees and Nonstatutory Stock Options issuable to employees or consultants providing services to Firstgold on such terms as are determined by our board of directors. Our Board administers the 2006 Plan. Under the 2006 Plan, options vest not less than 20% per year and have 10-year terms (except with respect to 10% stockholders which have five-year terms). If an option holder terminates his/her employment with us or becomes disabled or dies, the option holder or his/her representative will have a certain number of months to exercise any outstanding options. If we sell substantially all of our assets or are a party to a merger or consolidation in which we are not the surviving corporation, then we have the right to accelerate unvested options and will give the option holder written notice of the exercisability and specify a time period in which the option may be exercised. All options will terminate in their entirety to the extent not exercised on or prior to the date specified in the written notice unless an agreement governing any change of control provides otherwise. As of January 31, 2009, options to purchase 5,793,999

25


shares of common stock had been issued as follows: 750,000 options issued to A. Scott Dockter; 400,000 options issued to James Kluber; 750,000 options issued to Terrence Lynch; 1,000,000 options issued to Stephen Akerfeldt; 500,000 options issued to each of Donald Heimler, Fraser Berrill and Kevin Bullock; and 1,393,999 options issued to employees for the purchase of Firstgold restricted common stock. At the 2007 Annual Stockholders Meeting held on September 20, 2007, stockholders approved an increase in the shares issuable under the 2006 Plan to 10,000,000 shares.

Equity Compensation Plan Information

 

 

 

 

 

 

 

 

Plan Category

 

Number of securities to be issued
upon exercise of outstanding
options, warrants and rights as of
January 31, 2009
(a)

 

Weighted-average
exercise price of
outstanding options,
warrants and right
(b)

 

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column
(a) (c)

 


 


 


 


 

Equity compensation plans to be approved by security holders

 

5,793,999

 

$ 0.62

 

4,206,001

 

Equity compensation plans not approved by security holders

 

N/A

 

 

 

 

 

 

 


 


 


 

TOTAL

 

5,793,999

 

$ 0.62

 

4,206,001

 

Shares Issuable Upon Conversion of Debt

Subsequent to the fiscal year end Firstgold entered into a Notice of Default and Forbearance Agreement with its two largest creditors. Pursuant to this agreement Firstgold agreed to allow up to $4,000,000 of principal and accrued interest owed to these Lenders to be convertible into shares of Firstgold common stock at a conversion rate of $0.145/share. Such conversion privilege will only be available during such times as Firstgold is delinquent in its monthly debt payments.

Repurchase of Equity Securities

As part of the Northwest Restructuring transaction, Firstgold will pay approximately $4,438,000 and issue approximately 84,123,514 shares of common stock in exchange for the cancellation of $7,564,690 of creditor debt and the cancellation of outstanding warrants and convertible debt to acquire 63,000,000 shares of Firstgold common stock.

Recent Sales of Unregistered Securities

During the fourth quarter of Firstgold’s most recent fiscal year ending January 31, 2009, the following securities were issued pursuant to exemptions from registration under the Securities Act:

26



 

 

 

In December 2008 warrants to purchase 700,000 shares of common stock were exercised at an exercise price of $0.15 per share.

 

 

 

In December 2008 Firstgold issued warrants to purchase 30,000 shares of common stock at an exercise price of $0.50 per share.

 

 

 

In January 2009 warrants to purchase 3,120,001 shares of common stock were exercised at an exercise price of $0.15 per share.

 

 

 

In January 2009 Firstgold issued 100,000 shares of common stock at a price of $0.13 per share to a consulting company in partial settlement of a prior contract.

Sales of Firstgold securities pursuant to exemptions from registration under the Securities Act during the first three quarters of FY 2009 and during FY 2008 have been previously reported in its Quarterly Reports on Form 10-Q which can be viewed on the SEC’s website.

Subsequent to the fiscal year end, Firstgold has entered into negotiations with Northwest relating to a Restructuring transaction which includes the proposed issuance of stock in exchange for cancellation of various outstanding notes and warrants and the issuance of stock to Northwest. See the section “Restructuring Transaction” beginning at page 9.

ITEM 6. SELECTED FINANCIAL DATA

Information not required to be provided.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For more detailed financial information, please refer to the audited January 31, 2009 Financial Statements included in this Form 10-K.

Caution about forward-looking statements

This Form 10-K includes “forward-looking” statements about future financial results, future business changes and other events that haven’t yet occurred. For example, statements like we “expect,” we “anticipate” or we “believe” are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We do not undertake to update the information in this Form 10-K if any forward-looking statement later turns out to be inaccurate. Details about risks affecting various aspects of Firstgold’s business are discussed throughout this Form 10-K and should be considered carefully.

27


Plan of Operation for the Next Twelve Months

Certain key factors that have affected our financial and operating results in the past will affect our future financial and operating results. These include, but are not limited to the following:

 

 

 

 

Gold prices, and to a lesser extent, silver prices;

 

 

 

 

The level of future gold and silver production at the Relief Canyon Mine are estimated by us (based on past exploration by Firstgold and work done by others).

 

 

 

 

Results of our proposed exploration of properties including 166 millsite and unpatented mining claims contained in approximately 1,560 acres of the Relief Canyon Property; and approximately 9,800 acres of staked claims in the Horse Creek, Fairview-Hunter and Honorine Gold areas of Nevada.

 

 

 

 

Securing additional funding or the utilization of other venture partners will be required to fund exploration, research, development and operating expenses at the Relief Canyon Mine and exploration expenses at the Horse Creek, Fairview-Hunter and Honorine Gold properties. As indicated above, we are currently in negotiations with Northwest which among other things include a $5.5 million loan to repay creditors and $9.5 million investment for working capital in exchange for shares equal to 51% of Firstgold’s outstanding common stock. These funds, if received, are deemed sufficient to finance Firstgold’s current business plan.

Results of Operations

Our current business strategy is to invest in, explore and if warranted, conduct mining operations at our current mining properties and other mineral producing properties. Firstgold is a public company that in the past has been engaged in the acquisition and exploration of gold-bearing properties in the continental United States. Currently, our principal assets include various mineral claims associated with the Relief Canyon Mine located near Lovelock, Nevada along with various items of mining equipment and improvements located at that site. We have also entered into mineral leases to explore approximately 9,800 acres of property located in Nevada.

Operating Results for the Fiscal Years Ended January 31, 2009 and 2008

Although we commenced efforts to re-establish our mining business early in fiscal year 2004, no mining operations were commenced and no revenue from mining production was recognized during the fiscal years 2008 and 2009, respectively. However, we recognized $551,279 of revenue in FY 2008 and $680,386 in FY 2009 from the leasing of some of our drilling rigs and crew to other nearby mining operations. We also received revenue of $150,886 during FY 2009 from the operation of our mineral assay laboratory. We previously granted a 4% net smelting return royalty to a third party related to the Relief Canyon mining property which has been recorded as an $800,000 deferred option income. During the fiscal year ended January 31, 2009

28


we spent $1,860,831 on costs of services related to our drilling and laboratory services. Costs of services expended during the year ended January 31, 2008 were $513,222.

During the fiscal year ended January 31, 2009 we spent $5,130,024 on exploration, reclamation and maintenance expenses related to our mining properties. Exploration, reclamation and maintenance expenses expended during the year ended January 31, 2008 were $1,681,802. These expenses relate primarily to exploration costs and property improvements at our Relief Canyon mining claims. During FY 2009 we expended $2,250,723 on retro-fitting the on-site mill facility, $1,094,558 on the acquisition of a building, related improvements and equipment for our mineral assay laboratory, and $715,118 for the acquisition of mining equipment. In 2008 we expended $2,261,816 on retro-fitting the on-site mill facility and $2,098,686 for acquisition of mining equipment. We incurred general and administrative expenses of $4,757,556 during the year ended January 31, 2009. Of this amount, $2,240,312 reflects director, officer and staff compensation and related payroll taxes and benefits during the year, $1,249,576 reflect fees for outside professional services, and $421,401 for promotional expense. A large portion of the outside professional services reflects legal and accounting work pertaining to our annual and quarterly SEC reporting, and preparation of amendments to two SB-2 registration statements occurring in fiscal year 2009. During the year ended January 31, 2008 we incurred general and administrative expenses of $5,350,916 of which $2,065,464 represents director, officer and staff compensation and related payroll taxes during the year, $1,651,672 reflect fees for outside professional services and $645,509 for promotional expenses. In additional to legal and accounting costs relating to SEC compliance work, professional fees during FY 2009 also included litigation expenses related to the Red Caps and Crescent Valley leases. It is anticipated that both mining costs and operating expenses will increase significantly as we continue our exploration program and mining operations.

We incurred interest expense of $2,899,918 during FY 2009 which compares to interest expenses of $869,444 incurred during FY 2008. The amount of loans outstanding on average was significantly higher during fiscal year 2009 compared to fiscal year 2008, which was primarily the result of $12,000,000 of secured loans entered into in August, 2008. The higher interest expense during fiscal year 2009 was primarily due to the accrual of interest on the $12,000,000 secured loans. The interest expense during fiscal year 2008 was primarily due to the increase in accretion of warrants issued in fiscal years 2007 and 2008 as a debt discount as well as the write-off of balances of derivative liabilities upon conversion of convertible debt in fiscal 2008.

In conjunction with the Convertible Debentures issued during fiscal years 2007 and 2008, we allocated the proceeds received between convertible debt and the detachable warrants based upon the relative fair market values on the date the proceeds were received. Subsequent to the initial recording, the change in the fair value of the detachable warrants, determined under the Black-Scholes option pricing formula, and the change in the fair value of the embedded derivative in the conversion feature of the convertible debentures are recorded as adjustments to the liabilities at January 31, 2008. This expense was $703,992 for fiscal year 2008.

Our total net loss for fiscal year 2009 increased to $14,444,225 compared to a net loss of $7,632,537 incurred for fiscal year 2008. The larger net loss in fiscal year 2009 reflects the

29


substantial increase in operating expenses as we pursued our exploration programs and reactivated our mining activities, the increase in operating expense from additional staffing levels as well as costs associated with capital raising activities, coupled with the limited revenues recognized during fiscal year 2009.

Liquidity and Capital Resources

We have incurred significant operating losses since inception which has resulted in an accumulated deficit of $45,835,365 as of January 31, 2009. At January 31, 2009, we had cash and other current assets of $389,523 compared to $1,125,613 at January 31, 2008 and a net working capital deficit of $10,795,667. Since the resumption of our business in February 2003, we have been dependent on borrowed or invested funds in order to finance our ongoing operations. As of January 31, 2009, we had outstanding notes payable in the gross principal amount of $13,915,675 (net balance of $6,925,914 after $5,713,953 of deferred financing costs and $1,275,808 of original issue discount) which reflects an increase of $12,909,258 compared to notes payable in the gross principal amount of $1,006,417, (net balance of $857,937 after $148,480 of deferred financing costs) as of January 31, 2008.

In January 2006 we made a cash deposit of $243,204 in a blocked account to cover future reclamation costs as required by the Nevada Division of Environmental Protection for the Relief Canyon Mine. On March 28, 2007 we provided the United States Department of the Interior, Bureau of Land Management with a letter of credit which is secured by a certificate of deposit in the amount of $613,500. On April 12, 2007 the Nevada Division of Environmental Protection returned the $243,204 previously held in the blocked account. In August 2008 we made an additional cash deposit of $2,293,038 for an new certificate of deposit which was used to provided the United States Department of the Interior, Bureau of Land Management with a letter of credit in the amount of $2,183,846 which is secured by the additional certificate of deposit

On January 25, 2006, Firstgold entered into a joint venture with ASDi, LLC to develop two Nevada mining properties known as the Red Caps Project (“Red Caps”) and Crescent Valley Project (“Crescent Valley”). Pursuant to the Operating Agreement for the Crescent Red Caps LLC, ASDi LLC was to contribute the Red Caps and Crescent Valley mining leases to the Crescent Red Caps LLC in exchange for Firstgold issuing 2.5 million shares of its common stock and warrants to purchase 2.5 million shares of Firstgold common stock at an exercise price of $0.40 per share and a term of three years to ASDi LLC. On February 8, 2007 Lessors of the Red Caps and Crescent Valley properties filed a lawsuit to block the contribution of the mining leases to Crescent Red Caps LLC. Due to the settlement of litigation relating to these mining leases in March 2008, the joint venture has been terminated prior to Firstgold having spent any significant amounts for exploration expenses relating to these properties. However, Firstgold incurred approximately $1,100,000 in legal expenses relating to this litigation in fiscal year 2008.

Our primary sources of operating capital have been debt and equity financings. During the last two fiscal years we have entered into the following debt and equity financings.

30


On April 12, 2007 we received net proceeds of $2,374,200 from the sale of units (stock and warrants) in Canada.

On May 18, 2007 we received gross proceeds of $337,500 upon the issuance of units consisting of Firstgold common stock and warrants.

On June 22, 2007 we received net proceeds of $7,885,972 upon the issuance of units consisting of Firstgold common stock and warrants sold in Canada.

In February and March of 2008 we received gross proceeds of $7,712,797 upon the issuance of units consisting of Firstgold common stock and warrants.

In April 2008 we received gross proceeds of $460,100 from the sale of units consisting of Firstgold common stock and warrants.

On May 1, 2008 we issued a Convertible Debenture in the principal amount of $1,100,000.

Between August, 2008 and October, 2008 we issued Senior Secured Promissory Notes in the principal amount of $12,000,000 with net proceeds of $8,880,000 being received by Firstgold.

We will require approximately $5 million to $10 million in additional working capital above the amounts realized during fiscal year 2009 to bring the Relief Canyon Mine into full production and carry out planned exploration on our other properties. We do not believe we have sufficient working capital to fund our current business plan for Relief Canyon. Consequently, our intention is to pursue several possible funding opportunities including the sale of additional securities, entering into joint venture arrangements, or incurring additional debt. See the discussion of the proposed Restructuring Transaction beginning on page 9. However, the sale of additional securities or incurring additional debt must now be approved by the holders of our Senior Secured Promissory Notes.

Due to our continuing losses from business operations, the independent auditor’s report dated August 31, 2009, includes a “going concern” explanation relating to the fact that Firstgold’s continuation is dependent upon obtaining additional working capital either through significantly increasing revenues or through outside financing. As of January 31, 2009, Firstgold’s principal commitments included its obligation to pay a minimum of $400,000 per month on the Senior Secured Promissory Notes (which Firstgold is not currently able to pay), ongoing maintenance fees on 166 unpatented mining claims and the annual minimum rent due on the three mineral leases and mortgage payments relating to its offices and laboratory in Lovelock, Nevada.

We will need to raise additional capital to fund the long-term or expanded development, promotion and conduct of our mineral exploration and mining operations. Due to our limited cash flow, operating losses and limited assets, it is unlikely that we could obtain financing through commercial or banking sources. Consequently, any future capital requirements will be dependent on cash infusions from our major stockholders or other outside sources in order to fund our future operations. Although we believe that our current investors would continue to fund some of Firstgold’s expenses if such became necessary based upon their significant equity

31


interest in Firstgold, there is no assurance that such investors will continue to pay any of our expenses in the future. If adequate funds are not available in the near future, through public or private financing as well as borrowing from other sources, Firstgold will not be able to establish or sustain its mineral exploration or mining program.

Recent Financing Transaction

On April 12, 2007 we received gross proceeds of $2,552,900 upon the issuance of Units consisting of 5,673,110 shares of our common stock and warrants to purchase 2,836,555 shares of our common stock at an exercise price of $0.65 per share. The warrants have a term of 18 months. Due to the fact that these Units were not registered in an effective resale prospectus by October 15, 2007, an additional 542,310 “penalty shares” and 271,156 “penalty warrants” were issued to these investors and included in this prospectus.

On May 18, 2007 we received gross proceeds of $337,500 upon the issuance of Units consisting of 749,998 shares of our common stock and warrants to purchase 375,002 shares of our common stock at an exercise price of $0.65 per share. The warrants have a term of 18 months.

On June 22, 2007, we received gross proceeds of $8,479,539 upon the issuance of Units at $0.45 per Unit consisting of 18,843,421 shares of our common stock and Warrants to purchase 9,421,711 shares of our common stock at an exercise price of $0.65 per share. The warrants have a term of 18 months. Due to the fact that these Units were not registered in an effective resale prospectus by November 15, 2007, an additional 1,884,342 “penalty shares” and 942,171 “penalty warrants” were issued to these investors.

During February, March and April of 2008, we received gross proceeds of $8,342,843 upon the issuance of Units at $0.65 per Unit consisting of 12,835,143 shares of our common stock and warrants to purchase 6,417,572 shares of our common stock at an exercise price of $0.80 per share. The warrants have a term of 18 months.

On May 1, 2008, we issued a Convertible Debenture in the principal amount of $1,100,000 and bearing interest of 10% per annum. The transaction included the issuance of warrants to purchase 1,100,000 shares of Firstgold common stock at an exercise price of $1.00 per share. The Debentures were secured by all of our assets including the Relief Canyon Mine.

On August 7, 2008, Firstgold issued Senior Secured Promissory Notes in the aggregate principal amount of $7,215,597 which resulted in net proceeds to Firstgold of $4,989,543. On August 27, 2008, additional promissory notes in the principal amount of $472,973 were issued resulting in net proceeds of $350,000. On September 10, 2008, Firstgold issued additional Senior Promissory Notes in the aggregate principal amount of $1,351,351, which resulted in net proceeds to Firstgold of $1,000,000. On September 29, 2008, promissory notes in the principal amount of $5,257,375 were issued resulting in net proceeds of $2,460,457 to Firstgold. This brought the total principal amount of promissory notes issued to $12,000,000. The Notes bear interest of 4% per annum payable monthly and are due and payable on March 1, 2010. In addition, commencing in December 2008, Firstgold is required to make minimum monthly principal reduction payments of $400,000. The Notes are secured by all of the assets of Firstgold including its interests in the

32


Relief Canyon Mine property and facilities. The proceeds of these Notes were used to repay the $1.1 million convertible debenture and fund the final permitting, deposits and facility construction at the Relief Canyon Mine site.

Off-Balance Sheet Arrangements

During the fiscal year ended January 31, 2009, Firstgold did not engage in any off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operation are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.

Exploration Stage Company

Effective January 1, 1995 (date of inception), Firstgold is considered an exploration stage company as defined in SFAS No. 7. Firstgold’s exploration stage activities consist of exploring and evaluating several mining properties located in Nevada. Sources of financing for these exploration stage activities have been primarily debt and equity financing. Firstgold has, at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of Firstgold and other relevant factors.

Valuation of long-lived assets

Long-lived assets, consisting primarily of property and equipment, patents and trademarks, and goodwill, comprise a significant portion of our total assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Recoverability of assets is measured by a comparison of the carrying value of an asset to the future net cash flows expected to be generated by those assets. The cash flow projections are based on historical experience, management’s view of growth rates within the industry, and the anticipated future economic environment.

Factors we consider important that could trigger a review for impairment include the following:

 

 

 

 

(a)

significant underperformance relative to expected historical or projected future operating results,

33



 

 

 

 

(b)

significant changes in the manner of our use of the acquired assets or the strategy of our overall business, and

 

 

 

 

(c)

significant negative industry or economic trends.

When we determine that the carrying value of long-lived assets and related goodwill and enterprise-level goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model.

Deferred Reclamation Costs

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations,” which established a uniform methodology for accounting for estimated reclamation and abandonment costs. The statement was adopted February 1, 2003. The reclamation costs will be allocated to expense over the life of the related assets and will be adjusted for changes resulting from the passage of time and revisions to either the timing or amount of the original present value estimate.

Prior to adoption of SFAS No. 143, estimated future reclamation costs were based principally on legal and regulatory requirements. Such costs related to active mines were accrued and charged over the expected operating lives of the mines using the units-of-production method based on proven and probable reserves. Future remediation costs for inactive mines were accrued based on management’s best estimate at the end of each period of the undiscounted costs expected to be incurred at a site. Such cost estimates included, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines were reflected in earnings in the period an estimate was revised.

Exploration Costs

Exploration costs are expensed as incurred. All costs related to property acquisitions are capitalized.

Mine Development Costs

Mine development costs consist of all costs associated with bringing mines into production, to develop new ore bodies and to develop mine areas substantially in advance of current production. The decision to develop a mine is based on assessment of the commercial viability of the property and the availability of financing. Once the decision to proceed to development is made, development and other expenditures relating to the project will be deferred and carried at cost with the intention that these will be depleted by charges against earnings from future mining operations. No depreciation will be charged against the property until commercial production commences. After a mine has been brought into commercial production, any additional work on

34


that property will be expensed as incurred, except for large development programs, which will be deferred and depleted.

Reclamation Costs

Reclamation costs and related accrued liabilities, which are based on our interpretation of current environmental and regulatory requirements, are accrued and expensed, upon determination.

Based on current environmental regulations and known reclamation requirements, management has included its best estimates of these obligations in its reclamation accruals. However, it is reasonably possible that our best estimates of our ultimate reclamation liabilities could change as a result of changes in regulations or cost estimates.

Valuation of Derivative Instruments

FAS No. 133 “Accounting for Derivative Instruments and Hedging Activities requires bifurcation of embedded derivative instruments and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black Scholes model as a valuation technique. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as Adjustments to Fair Value of Derivatives. In addition, the fair values of freestanding derivative instruments such as warrants are valued using Black Scholes models.

Stock-Based Compensation

We currently account for the issuance of stock options to employees using the fair market value method according to SFAS No. 123R, Share-Based Payment.

Adopted Accounting Pronouncements

See Note 3 to the Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information not required to be provided.

35


 

 

ITEM 8. FINANCIAL STATEMENTS

FIRSTGOLD CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JANUARY 31, 2009 AND 2008

 

 

 

INDEX TO FINANCIAL STATEMENTS

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

F-1

 

 

 

Balance Sheet

 

F-2

 

 

 

Statements of Operations

 

F-4

 

 

 

Statements of Shareholders’ Deficit

 

F-5

 

 

 

Statements of Cash Flows

 

F-9

 

 

 

Notes to Financial Statements

 

F-11

36


Hunter & Renfro, LLP
A Tax, Accounting, Business Valuation & Litigation Support Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Shareholders
of Firstgold Corp.

We have audited the accompanying balance sheets of Firstgold Corp. (an exploration stage company) (the “Company”) as of January 31, 2009 and 2008, and the related statements of operations, comprehensive loss, shareholders’ deficit, and cash flows for each of the years in the two-year period ended January 31, 2009 and the period from January 1, 1995 to January 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Firstgold Corp. as of January 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended January 31, 2009 and 2008, and the period from January 1, 1995 to January 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a net loss of $7,632,537 and had negative cash flow from operations of $4,832,217. In addition, the Company had an accumulated deficit of $31,391,142 and a shareholders’ surplus of $5,174,290 at January 31, 2008. These factors, among others, as discussed in Note 2 to the financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

HUNTER & RENFRO, LLP
Sacramento, California
August 31, 2009

455 Capitol Mall Suite 235 Sacramento, CA 95814 Tel 916-443-5670 Fax 916-443-8938

F-1


 

FIRSTGOLD CORP.

(AN EXPLORATION STAGE COMPANY)
BALANCE SHEET
As of January 31, 2009 and 2008

 



 

 

 

 

 

 

 

 

 

 

January 31,
2009

 

January 31,
2008

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

15,666

 

$

383,223

 

Receivables

 

 

81,339

 

 

196,811

 

Deposits

 

 

7,368

 

 

295,281

 

Prepaid expense

 

 

285,180

 

 

250,298

 

 

 



 



 

 

 

 

 

 

 

 

 

Total current assets

 

 

389,553

 

 

1,125,613

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $936,744 and $205,084 at January 31, 2009 and 2008, respectively

 

 

16,452,452

 

 

9,119,323

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

Restricted cash

 

 

2,967,983

 

 

674,850

 

 

 

 

 

 

 

 

 

Total assets

 

$

19,809,988

 

$

10,919,786

 

 

 



 



 

 

 

 

 

 

 

 

 








 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

2,543,137

 

$

2,730,596

 

Accrued expenses

 

 

1,716,169

 

 

538,991

 

Senior secured notes net of deferred financing costs of $5,701,291 and $0 and original issue discount of $1,275,808 and $0 at January 31, 2009 and 2008, respectively

 

 

5,022,901

 

 

 

Convertible debentures net of deferred financing costs of of $12,662 and $32,132 at January 31, 2009 and 2008, respectively

 

 

637,338

 

 

501,520

 

Notes payable

 

 

1,265,675

 

 

356,417

 

 

 



 



 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

11,185,220

 

 

4,127,524

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

Accrued reclamation costs

 

 

2,866,989

 

 

680,326

 

Deferred revenue

 

 

800,000

 

 

937,650

 

 

 



 



 

 

 

 

 

 

 

 

 

Total long-term liabilities

 

 

3,666,989

 

 

1,617,976

 

 

 



 



 

 

 

 

 

 

 

 

 

Total liabilities

 

 

14,852,209

 

 

5,745,500

 

F-2

The accompanying notes are an integral part of these financial statements


 

FIRSTGOLD CORP.

(AN EXPLORATION STAGE COMPANY)

BALANCE SHEET
As of January 31, 2009 and 2008

 



 

 

 

 

 

 

 

 

 

 

January 31,
2009

 

January 31,
2008

 

 

 


 


 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ surplus (deficit)

 

 

 

 

 

 

 

Common stock, $0.001 par value 250,000,000 shares authorized at January 31, 2009 and 2008, respectively 136,565,544 and 117,432,317 shares issued and outstanding at January 31, 2009 and 2008, respectively

 

 

136,566

 

 

117,432

 

Additional paid in capital

 

 

50,656,578

 

 

36,447,996

 

Deficit accumulated during the exploration stage

 

 

(45,835,365

)

 

(31,391,142

)

 

 



 



 

 

 

 

 

 

 

 

 

Total shareholders’ surplus (deficit)

 

 

4,957,779

 

 

5,174,286

 

 

 



 



 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ surplus (deficit)

 

$

19,809,988

 

$

10,919,786

 

 

 



 



 

F-3

The accompanying notes are an integral part of these financial statements


FIRSTGOLD CORP.
(AN EXPLORATION STAGE COMPANY)

STATEMENTS OF OPERATIONS

For the Years Ended January 31, 2009 and 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended
January 31,

 

For the Period
From January 1,
1995 to January
31, 2009

 

 

 

 

 

 

 


 

 

 

 

2009

 

2008

 

 

 

 


 


 


 

Services revenue

 

$

846,219

 

$

551,279

 

$

551,279

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

Costs of services

 

 

(1,860,831

)

 

(513,222

)

 

(2,374,053

)

Exploration and maintenance costs

 

 

(5,130,024

)

 

(1,681,802

)

 

(8,706,154

)

General and administrative

 

 

(4,757,556

)

 

(5,530,916

)

 

(26,135,449

)

Depreciation

 

 

(780,475

)

 

(184,234

)

 

(985,559

)

 

 










Total costs and expenses

 

 

(12,528,886

)

 

(7,910,174

)

 

(38,201,215

)

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(11,682,667

)

 

(7,358,895

)

 

(36,803,717

)

 

 










 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

56,295

 

 

191,919

 

 

334,966

 

Dividend income

 

 

 

 

 

 

 

 

30,188

 

Other income

 

 

 

 

 

 

 

 

6,565

 

Gain on settlement of obligations

 

 

22,851

 

 

1,107,875

 

 

1,149,375

 

Adjustments to fair value of derivatives

 

 

 

 

 

(703,992

)

 

(1,357,903

)

Interest expense

 

 

(2,899,918

)

 

(869,444

)

 

(6,775,374

)

Loss from joint venture

 

 

 

 

 

 

 

 

(859,522

)

Loss on sale of marketable securities

 

 

 

 

 

 

 

 

(281,063

)

Bad debt expense

 

 

 

 

 

 

 

 

(40,374

)

Gain (loss) on disposal of plant, property

 

 

 

 

 

 

 

 

0

 

and equipment

 

 

59,214

 

 

 

 

 

(275,713

)

Loss on disposal of bond

 

 

 

 

 

 

 

 

(21,000

)

 

 










 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(2,761,558

)

 

(273,642

)

 

(8,089,855

)

 

 










 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(14,444,225

)

$

(7,632,537

)

$

(44,893,572

)

 

 










 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

($

0.11

)

($

0.07

)

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted-average shares outstanding

 

 

129,828,096

 

 

100,162,546

 

 

 

 

 

 



 



 

 

 

 

F-4

The accompanying notes are an integral part of these financial statements


FIRSTGOLD CORP.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS’ DEFICIT
For the Years Ended January 31, 2009 and 2008
and for the Period from January 1, 1995 to January 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

Other

 

 

 

 

 

 

 


 

Paid in

 

Comprehensive

 

 

 

Accumulated

 

 

 

Shares

 

Amount

 

Capital

 

(Loss)

 

Deficit

 

Total

 

 

 













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 1994

 

 

6,768,358

 

$

6,768

 

 

 

 

 

$

(636,084

)

$

(629,316

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(233,877

)

 

(233,877

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 1995

 

 

6,768,358

 

 

6,768

 

 

 

 

 

 

(869,961

)

 

(863,193

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to creditors and shareholders of Warehouse Auto Centers, Inc.

 

 

305,709

 

 

306

 

 

305,403

 

 

 

 

(305,709

)

 

 

Shares issued to investors and underwriters

 

 

5,135,130

 

 

5,135

 

 

4,701,835

 

 

 

 

 

 

 

 

4,706,970

 

Shares issued to purchase Washington Gulch

 

 

3,800,000

 

 

3,800

 

 

177,200

 

 

 

 

 

 

 

 

181,000

 

Shares issued in exchange for net profits interest

 

 

1,431,642

 

 

1,432

 

 

440,605

 

 

 

 

 

 

 

 

442,037

 

Shares issued to others

 

 

221,000

 

 

221

 

 

220,779

 

 

 

 

 

 

 

 

221,000

 

Shares issued to Repadre

 

 

100,000

 

 

100

 

 

99,900

 

 

 

 

 

 

 

 

100,000

 

Shares issued to repurchase 50% interest in Relief Canyon

 

 

1,000,000

 

 

1,000

 

 

999,000

 

 

 

 

 

 

 

 

1,000,000

 

Net loss for the period January 1, 1996 to January 31, 1997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,803,784

)

 

(1,803,784

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 1997

 

 

18,761,839

 

 

18,762

 

 

6,944,722

 

 

 

 

(2,979,454

)

 

3,984,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to Warehouse Auto Centers, Inc. shareholders subsequently cancelled

 

 

(25,242

)

 

(25

)

 

(25,217

)

 

 

 

 

 

 

 

(25,242

)

Shares issued to others

 

 

12,500

 

 

13

 

 

4,987

 

 

 

 

 

 

 

 

5,000

 

Additional shares issued to investors and underwriters for delay in share trading

 

 

513,514

 

 

513

 

 

204,487

 

 

 

 

 

 

 

 

205,000

 

Shares issued to Repadre

 

 

200,000

 

 

200

 

 

199,800

 

 

 

 

 

 

 

 

200,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,883,309

)

 

(5,883,309

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 1998

 

 

19,462,611

 

 

19,463

 

 

7,328,779

 

 

 

 

(8,862,763

)

 

(1,514,521

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in exchange for rent

 

 

15,000

 

 

15

 

 

5,985

 

 

 

 

 

 

 

 

6,000

 

Shares issued to IBK

 

 

5,616,977

 

 

5,617

 

 

542,383

 

 

 

 

 

 

 

 

548,000

 

Shares issued in exchange for property

 

 

150,000

 

 

150

 

 

55,350

 

 

 

 

 

 

 

 

55,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(753,219

)

 

(753,219

)

 

 



















Balance January 31, 1999

 

 

25,244,588

 

 

25,245

 

 

7,932,497

 

 

 

 

(9,615,982

)

 

(1,658,240

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-for-two stock split

 

 

12,672,441

 

 

12,671

 

 

(12,671

)

 

 

 

 

 

 

 

 

Shares issued in exchange for debt conversion

 

 

3,205,674

 

 

3,206

 

 

1,279,065

 

 

 

 

 

 

 

 

1,282,271

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(919,735

)

 

(919,735

)

 

 



















F-5

The accompanying notes are an integral part of these financial statements


FIRSTGOLD CORP.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS’ DEFICIT
For the Years Ended January 31, 2009 and 2008
and for the Period from January 1, 1995 to January 31, 2009 (cont.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional
Paid in
Capital

 

Other
Comprehensive
(Loss)

 

Deficit

 

Accumulated
Total

 

 

 


 

 

 

 

 

 

 

Shares

 

Amount

 

 

 

 

 

 

 













Balance January 31, 2000

 

 

41,122,703

 

 

41,122

 

 

9,198,891

 

 

 

 

(10,535,717

)

 

(1,295,704

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

1,796,000

 

 

1,796

 

 

663,204

 

 

 

 

 

 

 

 

665,000

 

Additional shares issued for delay in registration

 

 

239,200

 

 

239

 

 

(239

)

 

 

 

 

 

 

 

 

Shares issued for offering costs

 

 

120,000

 

 

120

 

 

(60,120

)

 

 

 

 

 

 

 

(60,000

)

Shares issued for legal settlement

 

 

1,000,000

 

 

1,000

 

 

649,000

 

 

 

 

 

 

 

 

650,000

 

Shares issued for services

 

 

78,271

 

 

79

 

 

69,921

 

 

 

 

 

 

 

 

70,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,382,723

)

 

(2,382,723

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 2001

 

 

44,356,174

 

 

44,356

 

 

10,520,657

 

 

 

 

(12,918,440

)

 

(2,353,427

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

2,500,000

 

 

2,500

 

 

147,500

 

 

 

 

 

 

 

 

150,000

 

Warrants issued with debt

 

 

 

 

 

 

 

 

20,000

 

 

 

 

 

 

 

 

20,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,502,366

)

 

(1,502,366

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 2002

 

 

46,856,174

 

 

46,856

 

 

10,688,157

 

 

 

 

(14,420,806

)

 

(3,685,793

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued upon exercise of warrants

 

 

550,000

 

 

550

 

 

54,450

 

 

 

 

 

 

 

 

55,000

 

Offering costs

 

 

 

 

 

 

 

 

(1,467

)

 

 

 

 

 

 

 

(1,467

)

Warrants issued with debt

 

 

 

 

 

 

 

 

13,574

 

 

 

 

 

 

 

 

13,574

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(215,533

)

 

(215,533

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 2003

 

 

47,406,174

 

 

47,406

 

 

10,754,714

 

 

 

 

(14,636,339

)

 

(3,834,219

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued upon exercise of warrants

 

 

200,000

 

 

200

 

 

19,800

 

 

 

 

 

 

 

 

20,000

 

Warrants issued with debt

 

 

 

 

 

 

 

 

63,918

 

 

 

 

 

 

 

 

63,918

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(204,820

)

 

 

 

 

(204,820

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(470,823

)

 

(470,823

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 2004

 

 

47,606,174

 

 

47,606

 

 

10,838,432

 

 

(204,820

)

 

(15,107,162

)

 

(4,425,944

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

671,667

 

 

672

 

 

100,078

 

 

 

 

 

 

 

 

100,750

 

Offering costs

 

 

 

 

 

 

 

 

(124,337

)

 

 

 

 

 

 

 

(124,337

)

Warrants issued with common stock

 

 

 

 

 

 

 

 

124,337

 

 

 

 

 

 

 

 

124,337

 

Warrants issued with debt

 

 

 

 

 

 

 

 

1,284,234

 

 

 

 

 

 

 

 

1,284,234

 

Sale of marketable securities

 

 

 

 

 

 

 

 

 

 

 

204,820

 

 

 

 

 

204,820

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,278,140

)

 

(1,278,140

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 2005

 

 

48,277,841

 

 

48,278

 

 

12,222,744

 

 

 

 

(16,385,302

)

 

(4,114,280

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

5,000,000

 

 

5,000

 

 

1,070,000

 

 

 

 

 

 

 

 

1,075,000

 

F-6

The accompanying notes are an integral part of these financial statements


FIRSTGOLD CORP.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS’ DEFICIT
For the Years Ended January 31, 2009 and 2008
and for the Period from January 1, 1995 to January 31, 2009 (cont.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional
Paid in
Capital

 

Other
Comprehensive
(Loss)

 

Deficit

 

Accumulated
Total

 

 

 


 

 

 

 

 

 

 

Shares

 

Amount

 

 

 

 

 

 

 



Shares issued in exchange for debt conversion

 

 

12,326,231

 

 

12,326

 

 

1,836,609

 

 

 

 

 

 

 

 

1,848,935

 

Shares issued to purchase 22% interest in Crescent Red Caps LLC

 

 

2,500,000

 

 

2,500

 

 

497,500

 

 

 

 

 

 

 

 

500,000

 

Warrants issued with investment in joint venture

 

 

 

 

 

 

 

 

359,523

 

 

 

 

 

 

 

 

359,523

 

Warrants issued for services

 

 

 

 

 

 

 

 

15,690

 

 

 

 

 

 

 

 

15,690

 

Net loss for the period February 1, 2005 to January 31, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,645,233

)

 

(2,645,233

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2006

 

 

68,104,072

 

 

68,104

 

 

16,002,066

 

 

 

 

(19,030,535

)

 

(2,960,365

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

1,428,500

 

 

1,428

 

 

237,847

 

 

 

 

 

 

 

 

239,275

 

Shares issued in exchange for debt conversion

 

 

6,207,029

 

 

6,207

 

 

1,550,263

 

 

 

 

 

 

 

 

1,556,470

 

Stock issued for services

 

 

2,000,000

 

 

2,000

 

 

738,000

 

 

 

 

 

 

 

 

740,000

 

Warrants issued for services

 

 

 

 

 

 

 

 

373,905

 

 

 

 

 

 

 

 

373,905

 

Stock issued in settlement of litigation

 

 

100,000

 

 

100

 

 

38,900

 

 

 

 

 

 

 

 

39,000

 

Warrants issued with debt

 

 

 

 

 

 

 

 

171,113

 

 

 

 

 

 

 

 

171,113

 

Stock options issued

 

 

 

 

 

 

 

 

322,879

 

 

 

 

 

 

 

 

322,879

 

Net loss for the period February 1, 2006 to January 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,728,070

)

 

(4,728,070

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2007

 

 

77,839,601

 

 

77,839

 

 

19,434,973

 

 

 

 

 

(23,758,605

)

 

(4,245,793

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

25,266,529

 

 

25,267

 

 

10,190,498

 

 

 

 

 

 

 

 

10,215,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in exchange for debt conversion

 

 

7,080,450

 

 

7,080

 

 

5,060,004

 

 

 

 

 

 

 

 

5,067,084

 

Stock issued for services

 

 

277,000

 

 

277

 

 

168,154

 

 

 

 

 

 

 

 

168,431

 

Shares issued upon exercise of warrants

 

 

4,380,180

 

 

4,380

 

 

810,114

 

 

 

 

 

 

 

 

814,494

 

Shares issued upon exercise of stock options

 

 

61,906

 

 

62

 

 

(62

)

 

 

 

 

 

 

 

 

Additional shares issued for delay in registration

 

 

2,526,651

 

 

2,527

 

 

(2,527

)

 

 

 

 

 

 

 

 

Stock options issued

 

 

 

 

 

 

786,842

 

 

 

 

 

 

 

 

786,842

 

Net loss for the period February 1, 2007 to January 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,632,537

)

 

(7,632,537

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2008

 

 

117,432,317

 

 

117,432

 

 

36,447,996

 

 

 

 

 

(31,391,142

)

 

5,174,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

12,835,227

 

 

12,836

 

 

7,511,401

 

 

 

 

 

 

 

 

7,524,237

 

Shares issued in exchange for debt conversion

 

 

127,999

 

 

128

 

 

63,871

 

 

 

 

 

 

 

 

63,999

 

F-7

The accompanying notes are an integral part of these financial statements


FIRSTGOLD CORP.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS’ DEFICIT
For the Years Ended January 31, 2009 and 2008
and for the Period from January 1, 1995 to January 31, 2009 (cont.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional
Paid in
Capital

 

Other
Comprehensive
(Loss)

 

Deficit

 

Accumulated
Total

 

 

 


 

 

 

 

 

 

 

Shares

 

Amount

 

 

 

 

 

 

 













Shares issued upon exercise of warrants

 

 

4,270,001

 

 

4,270

 

 

752,436

 

 

 

 

 

 

 

 

756,706

 

Warrants issued for services

 

 

 

 

 

 

 

 

44,180

 

 

 

 

 

 

 

 

44,180

 

Stock issued in settlement of litigation

 

 

1,900,000

 

 

1,900

 

 

164,100

 

 

 

 

 

 

 

 

166,000

 

Warrants issued with debt

 

 

 

 

 

 

 

 

5,400,793

 

 

 

 

 

 

 

 

5,400,793

 

Stock options issued

 

 

 

 

 

 

 

 

271,803

 

 

 

 

 

 

 

 

271,803

 

Net loss for the period February 1, 2008 to January 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,444,225

)

 

(14,444,225

)

 

 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2009

 

 

136,565,544

 

$

136,566

 

$

50,656,580

 

$

 

$

(45,835,367

)

$

4,957,779

 

 

 



















F-8

The accompanying notes are an integral part of these financial statements


 

FIRSTGOLD CORP.

(AN EXPLORATION STAGE COMPANY)

STATEMENTS OF CASH FLOWS

For the Years Ended January 31, 2009 and 2008

and for the Period from January 1, 1995 to January 31, 2009


 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended January 31,

 

From January 1,
1995 to January
31, 2009

 

 

 


 

 

 

 

2009

 

2008

 

 

 

 


 


 


 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(14,444,225

)

$

(7,632,537

)

$

(44,893,572

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

 

 

Accretion of warrants issued as a debt discount

 

 

921,227

 

 

43,278

 

 

2,252,280

 

Accretion of beneficial conversion

 

 

 

 

 

 

107,468

 

Accretion of debt discount

 

 

642,190

 

 

279,438

 

 

1,173,330

 

Adjustments to fair value of derivatives

 

 

 

 

703,992

 

 

1,357,902

 

Loss from joint venture

 

 

 

 

 

 

859,522

 

Loss on sale of marketable securities

 

 

 

 

 

 

281,063

 

Depreciation and amortization

 

 

780,475

 

 

210,572

 

 

1,822,122

 

Loss on disposal of property, plant and equipment

 

 

 

 

 

 

334,927

 

Impairment in value of property, plant and equipment

 

 

 

 

 

 

807,266

 

Loss on disposal of bond

 

 

 

 

 

 

21,000

 

Impairment in value of Relief Canyon Mine

 

 

 

 

 

 

3,311,672

 

Impairment in value of joint investments

 

 

 

 

 

 

490,000

 

Bad debt

 

 

 

 

 

 

40,374

 

Assigned value of stock and warrants exchanged for services

 

 

162,180

 

 

168,431

 

 

2,270,632

 

Assigned value of stock options issue for compensation

 

 

271,937

 

 

786,842

 

 

321,648

 

Gain on write off of note payable

 

 

 

 

 

 

(7,000

)

Judgment loss accrued

 

 

 

 

 

 

250,000

 

(Increase) decrease in

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

(2,293,133

)

 

(423,869

)

 

(2,967,983

)

Receivables

 

 

115,472

 

 

(82,074

)

 

84,735

 

Deposits

 

 

287,913

 

 

(287,913

)

 

(2,868

)

Deferred reclamation costs

 

 

2,186,663

 

 

39,300

 

 

2,401,511

 

Prepaid expenses

 

 

(34,882

)

 

(110,298

)

 

(288,080

)

Reclamation bonds

 

 

 

 

 

 

185,000

 

Other assets

 

 

 

 

 

 

(1,600

)

Increase (decrease) in

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

(187,459

)

 

2,131,808

 

 

2,262,177

 

Accrued expenses

 

 

1,177,178

 

 

(659,187

)

 

2,271,821

 

 

 



 



 



 

Net cash used by operating activities

 

 

(10,414,464

)

 

(4,832,217

)

 

(25,896,843

)

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of marketable securities

 

 

 

 

 

 

34,124

 

Investment in marketable securities

 

 

 

 

 

 

(315,188

)

Advances from shareholder

 

 

 

 

 

 

7,436

 

Contribution from joint venture partner

 

 

 

 

 

 

775,000

 

Purchase of joint venture partner interest

 

 

 

 

 

 

(900,000

)

 

 

 

 

 

 

 

 

 

(cont.

)

F-9

The accompanying notes are an integral part of these financial statements


 

FIRSTGOLD CORP.

(AN EXPLORATION STAGE COMPANY)

STATEMENTS OF CASH FLOWS

For the Years Ended January 31, 2009 and 2008

and for the Period from January 1, 1995 to January 31, 2009 (cont.)


 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended January 31,

 

From January 1,
1995 to January
31, 2009

 

 

 


 

 

 

 

2008

 

2008

 

 

 

 


 


 


 

Capital expenditures

 

 

(8,064,788

)

 

(7,695,202

)

 

(18,255,330

)

Proceeds from disposal of property, plant and equipment

 

 

 

 

 

 

 

 

278,783

 

Investments in joint ventures

 

 

 

 

 

 

(490,000

)

Note receivable

 

 

 

 

 

 

(268,333

)

Repayment of note receivable

 

 

 

 

 

 

268,333

 

 

 



 



 



 

Net cash used by investing activities

 

 

(8,064,788

)

 

(7,695,202

)

 

(18,865,175

)

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from the issuance of common stock

 

 

8,439,322

 

 

12,396,177

 

 

29,046,040

 

Proceeds from notes payable

 

 

11,327,070

 

 

250,685

 

 

19,193,514

 

Principal repayments of notes payable

 

 

(1,517,047

)

 

(24,517

)

 

(4,036,894

)

Repayment of advances to affiliate

 

 

 

 

 

 

(231,663

)

Deferred revenue

 

 

(137,650

)

 

137,650

 

 

799,950

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

18,111,695

 

 

12,759,995

 

 

44,850,233

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

     Net increase (decrease) in cash

 

$

(367,557

)

 

232,576

 

 

8,979

 

Cash, beginning of year

 

 

383,223

 

 

150,647

 

 

389,910

 

 

 



 



 



 

Cash, end of year

 

$

15,666

 

$

383,223

 

$

15,666

 

 

 



 



 



 

Supplemental cash flow information for the years ended January 31, 2006 and 2005 and January 1, 1995 THROUGH January 31, 2009 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Period
From January 1,
1995 to January
31, 2009

 

 

 

 

 

 

 

 

For the Years Ended January 31,

 

 

 

 

2009

 

2008

 

 

 

 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

$

 

$

161,107

 

Cash paid for income taxes

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Non Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

 

 

Conversion of related party note payable to common stock, including interest payable of $446,193

 

$

 

$

 

$

1,848,935

 

Conversion of convertible debentures to common stock, including interest of $217,151

 

$

 

$

3,186,203

 

$

4,359,609

 

Issuance of warrants as financing costs in connection with convertible debt

 

$

 

 

 

 

$

173,114

 

Issuance of common stock as payment for settlement of liabilities

 

$

118,000

 

$

 

$

157,000

 

F-10

The accompanying notes are an integral part of these financial statements


 

 

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

 

 

 

Firstgold Corp. has a business strategy whereby it will invest in, explore and if warranted, conduct mining operations of its current mining properties and other mineral producing properties. Firstgold is a public company that in the past has been engaged in the acquisition and exploration of gold-bearing properties in the continental United States. Currently, Firstgold’s principal assets include various mineral leases associated with the Relief Canyon Mine located near Lovelock, Nevada along with various items of mining equipment and improvements located at that site. Firstgold has staked claims in anticipation of exploring on approximately 9,800 acres of property located in the Horse Creek, Fairview Hunter and Honorine Gold areas of Nevada.

 

 

 

From 1995 until the beginning of 2000, Firstgold had followed the above described business activity focusing on the exploration and mining of gold and silver ore deposits. At the beginning of 2000, Firstgold’s business strategy became focused on investing in Internet start-up companies. That strategy was not successful and by mid-2001 Firstgold had abandoned such investments. From approximately July 2001 until February 2003 Firstgold had been inactive. During the period of inactivity, ASDi LLC, an entity controlled by A. Scott Dockter who was also the Chief Operating Officer of Firstgold, made the necessary expenditures to maintain the current status of the Relief Canyon mining claims. In February 2003, Firstgold resumed its business of acquiring, exploring and if warranted developing its mining properties.

 

 

 

Merger

 

 

 

In November 1996, Newgold, Inc. of Nevada (Old Newgold) was merged into Warehouse Auto Centers, Inc. (WAC), a public company, which had previously filed an involuntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of New York. Pursuant to the plan of reorganization and merger (the Plan), (i) WAC which was the surviving corporation for legal purposes, changed its name to Newgold Inc. (the Company), (ii) the outstanding shares of Old Newgold were converted into the right to receive an aggregate of 12,000,000 shares or approximately 69% of the post merger outstanding common stock of the Company, (iii) each outstanding share of WAC was converted into the right to receive 1/65 share of the common stock of the Company, for an aggregate of 51,034 shares or less than 1% of the post merger outstanding common stock, (iv) unsecured trade debts and other unsecured pre-petition liabilities were paid in full via the issuance of one share of the Company’s stock, for each $42 of debt, for an aggregate of 63,374 shares or less than 1% of the post merger outstanding common stock, and (v) post petition creditors received one share of stock for each $1 of debt, for an aggregate of 191,301 shares or approximately 1% of the post merger outstanding common stock. The Plan also required an amendment to the Company’s capital structure to increase the number of shares authorized to 50,000,000 and to reduce the corresponding par value to $.001.

 

 

 

In connection with the Plan, the Company raised $4,707,000 of cash through the issuance of convertible debtor certificates. Shortly after confirmation of the Plan, the debtor certificates were exchanged for 5,135,130 shares of common stock (including 428,130 shares issued in lieu of paying cash for underwriter’s fees) representing approximately 29% of the post merger outstanding common stock. An additional bonus of 513,514 shares was issued to investors and underwriters during the year ended January 31, 1998 for delay in the effective date of the Company’s stock trading.

 

 

 

For accounting purposes, Old Newgold has been treated as the acquirer (reverse acquisition).

F-11


 

 

 

Accordingly, the historical financial statements prior to November 21, 1996 are those of Old Newgold. There were no assets or liabilities acquired in this transaction and there is no impact on the statement of operations.

 

 

NOTE 2 - GOING CONCERN

 

 

These financial statements have been prepared on a going concern basis. During the years ended January 31, 2009 and 2008 and the period from January 1, 1995 to January 31, 2009, Firstgold incurred net losses of approximately $14,444,225, $7,632,537 and $44,893,572, respectively. In addition, while Firstgold had a total shareholders’ surplus of $4,957,779 it has been in the exploration stage since inception and through January 31, 2009. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time. Since inception, the Company has satisfied its capital needs by issuing equity securities and debt financing

 

 

 

Management plans to continue to provide for its capital needs during the year ending January 31, 2010 by issuing equity securities or incurring additional debt financing, with the proceeds to be used to re-establish mining operations at Relief Canyon as well as improve its working capital position. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

 

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 

Exploration Stage Company

 

 

 

Effective January 1, 1995 (date of inception), the Company is considered an exploration stage Company as defined in SFAS No. 7. The Company’s exploration stage activities consist of the exploration of several mining properties located in Nevada. Sources of financing for these exploration stage activities have been primarily debt and equity financing. The Company has, at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.

 

 

 

Cash and Cash Equivalents

 

 

 

For the purpose of the statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

 

 

 

Restricted Cash

 

 

 

Restricted cash represents certificates of deposit with Umpqua Bank to serve as collateral for a reclamation bond with the Nevada Department of Environmental Protection at the Relief Canyon Mine.

F-12


 

 

 

Marketable Securities Available for Sale

 

 

 

Investments in equity securities are classified as available-for-sale. Securities classified as available for sale are marked to market at each period end. Changes in value on such securities are recorded as a component of Other comprehensive income (loss). If declines in value are deemed other than temporary, losses are reflected in Net income (loss).

 

 

 

Property and Equipment

 

 

 

Depreciation, depletion and amortization of mining properties, mine exploration costs and major plant facilities will be computed principally by the units-of-production method based on estimated proven and probable ore reserves once production begins. Proven and probable ore reserves reflect estimated quantities of ore which can be economically recovered in the future from known mineral deposits. Such estimates are based on current and projected costs and prices. Other equipment (prior to production, all equipment) is depreciated using the straight-line method principally over the estimated useful life of the respective asset.

 

 

 

Deferred Reclamation Costs

 

 

 

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations,” which established a uniform methodology for accounting for estimated reclamation and abandonment costs. The statement was adopted February 1, 2003. The reclamation costs will be allocated to expense over the life of the related assets and will be adjusted for changes resulting from the passage of time and revisions to either the timing or amount of the original present value estimate.

 

 

 

Prior to adoption of SFAS No. 143, estimated future reclamation costs were based principally on legal and regulatory requirements. Such costs related to active mines were accrued and charged over the expected operating lives of the mines using the Units Of Production method based on proven and probable reserves. Future remediation costs for inactive mines were accrued based on management’s best estimate at the end of each period of the undiscounted costs expected to be incurred at a site. Such cost estimates included, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines were reflected in earnings in the period an estimate was revised.

 

 

 

Exploration Costs

 

 

 

Exploration costs are expensed as incurred. All costs related to property acquisitions are capitalized.

 

 

 

Mine Development Costs

 

 

 

Mine development costs consist of all costs associated with bringing mines into production, to develop new ore bodies and to develop mine areas substantially in advance of current production. The decision to develop a mine is based on assessment of the commercial viability of the property and the availability of financing. Once the decision to proceed to development is made, development and other expenditures relating to the project will be deferred and carried at cost with the intention that these will be depleted by charges against earnings from future mining operations. No depreciation will be charged against the property until commercial production

F-13


 

 

 

commences. After a mine has been brought into commercial production, any additional work on that property will be expensed as incurred, except for large development programs, which will be deferred and depleted.

 

 

 

Financing Costs

 

 

 

Financing costs, including interest, are capitalized when they arise from indebtedness incurred to finance development and construction activities on properties that are not yet subject to depreciation or depletion. Capitalization is based upon the actual interest on debt specifically incurred or on the average borrowing rate for all other debt except where shares are issued to fund the cost of the project.

 

 

 

Depreciation, Depletion and Amortization

 

 

 

Assets other than mining properties and mineral rights are depreciated using the straight-line method over their estimated useful lives. Capitalized development costs are amortized on the units of production method considering proven and probable reserves. Depreciation and depletion rates are subject to periodic review to ensure that asset costs are amortized over their useful lives.

 

 

 

Impairment

 

 

 

Mining projects and properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future cash flows expected to result from the use of the mining project or property and its eventual disposition are less than the carrying amount, impairment is recognized based on the estimated fair value of the mining project or property. Fair value generally is based on the present value of estimated future net cash flows for each mining project or property, calculated using estimates of proven and probable mineable reserves, geological resources, future prices, operating costs, capital requirements and reclamation costs. A provision for impairment in valuation of development costs and property, plant and equipment amounted to $800,000 for the year ended January 31, 2002 and was charged to operating expense. After these adjustments all development costs and property, plant and equipment have been fully written off.

 

 

 

Management’s estimates of future cash flows are subject to risks and uncertainties. Therefore, it is reasonably possible that changes could occur which may affect the recoverability of the Company’s investment in mineral properties.

 

 

 

Risks Associated with Gold Mining

 

 

 

The business of gold mining is subject to certain types of risks, including environmental hazards, industrial accidents, and theft. While the Company maintains insurance consistent with industry practice, it is not possible to insure against all risks associated with the mining business, or prudent to assume that insurance will continue to be available at a reasonable cost. The Company has not obtained environmental liability insurance because such coverage is not considered by management to be cost effective.

F-14


 

 

 

Reclamation Costs

 

 

 

Reclamation costs and related accrued liabilities, which are based on the Company’s interpretation of current environmental and regulatory requirements, are accrued and expensed, upon determination.

 

 

 

Based on current environmental regulations and known reclamation requirements, management has included its best estimates of these obligations in its reclamation accruals. However, it is reasonably possible that the Company’s best estimates of its ultimate reclamation liabilities could change as a result of changes in regulations or cost estimates.

 

 

 

Valuation of Derivative Instruments

 

 

 

FAS No. 133 “Accounting for Derivative Instruments and Hedging Activities requires bifurcation of embedded derivative instruments and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black Scholes model as a valuation technique. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as Adjustments to Fair Value of Derivatives. In addition, the fair values of freestanding derivative instruments such as warrants are valued using Black Scholes models.

 

 

 

Revenue Recognition

 

 

 

Revenues will be recognized when deliveries of gold are made, title and risk of loss passes to the buyer and collectibility is reasonably assured. Deferred revenue represents non-refundable cash received in exchange for royalties on net smelter returns on the Relief Canyon Mine. Deferred revenue will be amortized to earnings based on estimated production in accordance with the royalty agreement.

 

 

 

Fair Value of Financial Instruments

 

 

 

The carrying amount reflected in the balance sheets for cash, cash equivalents, loans and notes payable approximate the respective fair values due to the short maturities of these instruments. Available-for-sale marketable securities and hedging instruments also are recorded at fair value in the balance sheets. The fair values for held-to-maturity marketable debt securities, investments, receivables, and long-term debt are based primarily on quoted market prices for those or similar instruments.

 

 

 

Comprehensive Income

 

 

 

The Company utilizes SFAS No. 130, “Reporting Comprehensive Income.” This statement establishes standards for reporting comprehensive income and its components in a financial statement. Comprehensive income as defined includes all changes in equity (net assets) during a period from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on available-for-sale marketable securities. Comprehensive income is presented in the Company’s financial statements since the Company did have unrealized gain (loss) from changes in equity from available-for-sale marketable securities.

F-15


 

 

 

Income Taxes

 

 

 

The Company accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

 

 

As of January 31, 2009, the deferred tax assets related to the Company’s net operating loss carry-forwards are fully reserved. Due to the provisions of Internal Revenue Code Section 382, the Company may not have any net operating loss carry-forwards available to offset financial statement or tax return taxable income in future periods as a result of a change in control involving 50 percentage points or more of the issued and outstanding securities of the Company.

 

 

 

Estimates

 

 

 

The preparation of financial statements 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

 

 

Loss Per Share

 

 

 

The Company utilizes SFAS No. 128, “Earnings per Share.” Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

 

 

 

The following common stock equivalents were excluded from the calculation of diluted loss per share since their effect would have been anti-dilutive:


 

 

 

 

 

 

 

2009

 

2008

 

 


 


 

 

 

 

 

Warrants

 

38,421,097

 

39,257,146

F-16


 

 

 

Concentrations of Credit Risk

 

 

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. The Company places its cash and cash equivalents with high credit, quality financial institutions. At times, such cash and cash equivalents may be in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

 

 

Adopted Accounting Pronouncements

 

 

 

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS No. 155 amends SFAS No. 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instrument. The adoption of this standard did not have a material impact on financial condition or the results of Firstgold’s operations.

 

 

 

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” which provides an approach to simplify efforts to obtain hedge-like (offset) accounting. This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. The Statement (1) requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations; (2) requires that a separately recognized servicing asset or servicing liability be initially measured at fair value, if practicable; (3) permits an entity to choose either the amortization method or the fair value method for subsequent measurement for each class of separately recognized servicing assets or servicing liabilities; (4) permits at initial adoption a one-time reclassification of available-for-sale securities to trading securities by an entity with recognized servicing rights, provided the securities reclassified offset the entity’s exposure to changes in the fair value of the servicing assets or liabilities; and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the balance sheet and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for all separately recognized servicing assets and liabilities as of the beginning of an entity’s fiscal year that begins after September 15, 2006, with earlier adoption permitted in certain circumstances. The Statement also describes the manner in which it should be initially applied. The adoption of this standard did not have a material impact on financial condition or the results of Firstgold’s operations.

 

 

 

In July 2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and

F-17


 

 

 

disclosure of uncertain tax positions taken or expected to be taken in income tax returns. This statement is effective for fiscal years beginning after December 15, 2006. The adoption of this standard did not have a material impact on financial condition or the results of Firstgold’s operations.

 

 

 

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Issues No. 157, “Fair Value Measurements” (“SFAS 157”), which defines the fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is encouraged, provided that the Company has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The Company is currently evaluating the impact SFAS 157 may have on its financial condition or results of operations.

 

 

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). Under the provisions of SFAS 159, Companies may choose to account for eligible financial instruments, warranties and insurance contracts at fair value on a contract-by-contract basis. Changes in fair value will be recognized in earnings each reporting period. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on financial condition or the results of Firstgold’s operations.

 

 

 

Recent Accounting Pronouncements

 

 

 

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, the purpose of which is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 141R retains the fundamental provisions of SFAS No. 141, which it replaces, but is broader in scope than SFAS No. 141. This statement is effective for the Company beginning February 1, 2009. Earlier application is prohibited. The Company is currently assessing the potential impact that adoption of SFAS No. 141R will have on its financial statements.

F-18


NOTE 4 - PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At January 31, 2009

 

At January 31, 2008

 

 

 

Depreciable
Life
(In Years)

 



 

 

 

 

 

Accumulated
Amortization

 

Net Book
Value

 

 

 

Accumulated
Amortization

 

Net Book
Value

 

 

 

 

Cost

 

 

 

Cost

 

 

 

 

 















 

Land

 

 

 

 

$

266,977

 

$

 

$

266,977

 

$

40,532

 

$

 

$

40,532

 

Buildings

 

 

25

 

 

433,952

 

 

(27,267

)

 

406,685

 

 

431,452

 

 

(8,234

)

 

423,218

 

Mining equipment

 

 

3-10

 

 

2,922,637

 

 

(304,389

)

 

2,618,248

 

 

2,434,945

 

 

(71,780

)

 

2,363,165

 

Crushing system

 

 

20

 

 

2,609,183

 

 

(48,985

)

 

2,560,198

 

 

 

 

 

 

 

Process plant

 

 

10

 

 

4,263,925

 

 

(56,744

)

 

4,207,181

 

 

 

 

 

 

 

 

 

 

Site costs

 

 

3-10

 

 

1,535,882

 

 

(122,623

)

 

1,413,259

 

 

340,215

 

 

(40,326

)

 

299,889

 

Lab & equipment

 

 

5-10

 

 

1,162,934

 

 

(21,618

)

 

1,141,316

 

 

 

 

 

 

 

 

 

 

Other

 

 

3-10

 

 

1,326,717

 

 

(355,118

)

 

971,599

 

 

1,001,975

 

 

(84,745

)

 

917,230

 

Asset retirement costs

 

 

 

 

 

2,866,989

 

 

 

 

2,866,989

 

 

680,326

 

 

 

 

680,326

 

Construction-in-progress

 

 

 

 

 

 

 

 

 

 

 

4,394,963

 

 

 

 

4,394,963

 

 

 

 

 

 



















Totals

 

 

 

 

$

17,389,196

 

$

(936,744

)

$

16,452,452

 

$

9,324,408

 

$

(205,085

)

$

9,119,323

 

 

 

 

 

 




















 

 

 

Construction-in-progress at January 31, 2008 consisted of the construction of an ore processing plant and the erection of a jaw crushing system.

NOTE 5 - NOTES PAYABLE

 

 

 

 

 

Notes payable consist of the following at January 31, 2009:

 

 

 

 

Equipment notes payable

 

$

584,616

 

The first note does not bear any interest and is due in December 2010. The second note bears interest at 8.6% and is due June 2011. The third note bears interest at 5.7% and is due June 2013. The fourth note bears interest at 9% and is due December 2011. The fifth note bears interest at 7.5% and is due June 2013. The loans are secured by various items of vehicles, machinery and equipment.

 

 

 

 

 

 

 

 

 

Mortgage notes payable

 

 

314,787

 

The first note of $247,287 bears interest at 6.75% with monthly principal and interest payments and is due in September 2013. The second note of $67,500 bears interest at 6.75% and is due June 2009 with accrued interest and principal due at maturity. If Firstgold completes required water line improvements to the property by the due date of the second note then the second note and accrued interest will be forgiven. The loans are secured by a building and five acres of land in Lovelock, NV.

 

 

 

 

 

 

 

 

 

Short term note payable

 

 

256,000

 

In November Firstgold entered into a note payable with a six month term and bears interest at 50% per annum.

 

 

 

 

 

Insurance premium notes payable

 

 

110,272

 

 

 



 

The first note bears interest at 9.6%, is payable monthly and is due November 2009. The second note bears interest at 7% and is due December 2009.

 

 

 

 

 

 

 

 

 

Total notes payable

 

$

1,265,675

 

 

 



 

F-19



 

 

 

Interest expense was $2,899,917, $869,444 and $6,775,374 for the years ended January 31, 2009 and 2008, and the period from January 1, 1995 to January 31, 2009, respectively.

NOTE 6 – CONVERTIBLE DEBENTURE

 

 

 

September 26, 2006 Convertible Debenture

 

 

 

On September 26, 2006, Firstgold entered into a Securities Purchase Agreement (the “Purchase Agreement”) and other agreements, as amended on November 1, 2006, in connection with the private placement of convertible debentures, in the aggregate principal amount of $3,000,000 and bearing interest at 8% per annum (the “Debenture”). The Debentures were funded $1,000,000 on September 26, 2006, $1,000,000 upon the filing of a resale registration statement with the SEC on December 1, 2006 and $1,000,000 on March 15, 2007. Of the $1,000,000 funded on September 26, 2006, $120,000 was paid for various loan fees and closing costs; of the $1,000,000 funded December 1, 2006, $90,000 was paid for various loan fees and closing costs; and of the $1,000,000 funded March 19, 2007, $90,000 was paid for various loan fees and closing costs. On July 13, 2007 $450,000 of the Debenture dated March 15, 2007 was converted into 1,000,000 shares of common stock. On September 13, 2007 the $1,000,000 Debenture dated September 26, 2006 was converted into 2,222,222 shares of common stock. On October 12, 2007 $450,000 of the Debenture dated December 1, 2006 was converted into 1,000,000 shares of common stock. On October 16, 2007 $450,000 of the Debenture dated December 1, 2006 was converted into 1,000,000 shares of common stock. On October 30, 2007 1,444,444 shares of common stock were issued in conversion of the remaining $650,000 in principal of outstanding Secured Convertible Debentures. An additional 413,784 shares of common stock was issued in conversion of $186,203 of accrued interest on the Secured Convertible Debentures.

 

 

 

October 10, 2006 Convertible Debentures

 

 

 

On October 10, 2006, Firstgold issued convertible debentures in the aggregate principal amount of $650,000 and bearing interest of 8% per annum. The Debentures and accrued interest are convertible into shares of Firstgold common stock at a conversion rate of $0.45 per share. The Debentures are due and payable three years from the date of issue unless they are converted into shares of the Company’s common stock or are repaid prior to their expiration date. Additionally, the investors were issued warrants to purchase an aggregate of 746,843 shares of Firstgold common stock with 426,767 warrants exercisable at $0.45 per share and 320,076 warrants exercisable at $0.60 per share. The warrants expire four years from the date of issuance. The warrants were issued as financing costs and total deferred financing cost of $173,114 was recorded in relation to this debt.

F-20


 

 

 

August/September 2008 Senior Secured Promissory Notes

 

 

 

On August 7, 2008, Firstgold Corp. (the “Company”) entered into a Note and Warrant Purchase Agreement (the “Agreement”) with Platinum Long-Term Growth, LLC and Lakewood Group, LLC, two US-based investment funds (the “Lenders”). Pursuant to the Agreement, the Lenders will fund up to $15,750,000 in Senior Secured Promissory Notes. Funding of the loan will occur in five tranches of which the first occurred at the initial closing on August 7, 2008 in the aggregate amount of $6,742,625 (the “Initial Note Amount”). A first interim funding occurred August 27, 2008 in the amount of $472,973. A second interim funding occurred September 10, 2008 in the amount of $1,351,351. The second close funding occurred September 29, 2008 in the amount of $3,433,051. Three additional tranches of $1,250,000 each will be available during the months of November and December, 2008 and January 2009 subject to the Company achieving certain operational conditions. The loans bear an interest rate of 4% per annum with interest payments commencing in September, 2008. The loans are due and payable on March 1, 2010.

 

 

 

During the time that any debt remains owed to the Lenders the Agreement limits the Company’s ability to incur any additional indebtedness and, the Company must obtain the Lender’s consent to enter into certain future transactions including any future merger, sale of a substantial portion of its assets or becoming involved in any partnership or joint venture.

 

 

 

In conjunction with the making of the loan, the lenders were issued, on a pro rata basis, Warrants to purchase up to 15,000,000 shares of the Company’s common stock at an exercise price of $.4357 cents per share which may be adjusted downward based on future market conditions but in no event less than $.3961 cents per share. The Warrants have a term of 3 years. The Warrants also provide for a Put Right in which the Warrant holder after August 7, 2009 may require the Company to repurchase the Warrants at a redemption price of $.30 per Warrant. The Put Right is exercisable for a period of one year.

 

 

 

The cost of the loan transaction includes an original issue discount of 15% on each note amount plus a 4% origination fee and 7% broker’s commission.

 

 

NOTE 7 - COMMITMENTS AND CONTINGENCIES

 

 

Except for the advance royalty and rent payments noted below, the Company is not obligated under any capital leases or non-cancelable operating leases with initial or remaining lease terms in excess of one year as of January 31, 2009. However, minimum annual royalty payments are required to retain the lease rights to the Company’s properties.

 

 

 

Relief Canyon Mine

 

 

 

The Company purchased the Relief Canyon Mine from J.D. Welsh Associates (Welsh) in January 1995. The mine consisted of 39 claims and a lease for access to an additional 800 acres contiguous to the claims. During 1997, the Company staked an additional 402 claims. Subsequent to January 31, 1998, the Company reduced the total claims to 50 (approximately 1,000 acres). The annual payment to maintain these claims is $5,000. As part of the original purchase of Relief Canyon Mine, Welsh assigned the lease from Santa Fe Gold Corporation (Santa Fe) to the Company. The lease granted Santa Fe the sole right of approval of transfer to any subsequent owner of the Relief Canyon Mine. Santa Fe had accepted lease and minimum

F-21


 

 

 

royalty payments from the Company, but has declined to approve the transfer. Due to Welsh’s inability to transfer the Santa Fe lease, the original purchase price of $500,000 for Relief Canyon Mine was reduced by $50,000 in 1996 to $450,000.

 

 

 

Subsequent to January 31, 1998, the lease was terminated by Santa Fe. Management believes loss of the Santa Fe lease will have no material adverse affect on the remaining operations of the mine operation or the financial position of the Company.

 

 

 

During 1996, Repadre Capital Corporation (“Repadre”) purchased for $500,000 a net smelter return royalty (Repadre Royalty). Repadre was to receive a 1.5% royalty from production at each of the Relief Canyon Mine and Mission Mines. In July 1997, an additional $300,000 was paid by Repadre for an additional 1% royalty from the Relief Canyon Mine. In October, 1997, when the Mission Mine lease was terminated, Repadre exercised its option to transfer the Repadre Royalty solely to the Relief Canyon Mine resulting in a total 4% royalty. The total amount received of $800,000 has been recorded as deferred revenue in the accompanying financial statements.

 

 

 

Litigation

 

 

 

On February 8, 2007, a complaint was filed against ASDi, LLC, Crescent Red Caps LLC, Firstgold, and Scott Dockter by the Lessors of the Crescent Valley and Red Caps mining properties. The complaint was filed in the Sixth Judicial District Court of Lander County, Nevada (Case No. 9661). In the complaint the plaintiffs allege that ASDi, LLC wrongfully assigned its lessee rights in the Crescent Valley and Red Caps mining properties to Crescent Red Caps LLC (of which Firstgold is the Managing Member). In late March, 2008 the parties reached a settlement agreement and the case was dismissed by the Court on April 4, 2008. As a result of the Settlement, Firstgold paid $150,000 to Plaintiffs and Firstgold, ASDi LLC and Crescent Red Caps LLC relinquished all right, title and interest in the Red Caps and Crescent Valley leases to the Plaintiffs. Consequently, Firstgold no longer has any interest in these leases and will not pursue any further exploration activity on such leased property.

 

 

 

On September 24, 2007, a complaint was served on Firstgold by Swartz Private Equity, LLC. The complaint was filed in the District Court for the Western District of New York (Case No. 07CV6447). In the complaint, plaintiff alleges that pursuant to an Investment Agreement dated October 4, 2000, and entered into with Firstgold’s former management, it is entitled to the exercise of certain warrants in the amount of 1,911,106 shares of Firstgold common stock or the equivalent cash value of $0.69 per share and a termination fee of $200,000. Firstgold filed an answer to the complaint on December 3, 2007 and expects to vigorously defend this action. The lawsuit is now in the discovery phase.

 

 

 

On January 30, 2008, a complaint was served on Firstgold by Park Avenue Consulting Group, Inc. The complaint was filed in the Supreme Court of the State of New York but was subsequently removed to the Federal District Court for the Southern District of New York (Case No. 08CV01850). In the complaint, plaintiff alleges that pursuant to a Retainer Agreement entered into on September 1, 2000, it is entitled to $100,000 in retainer fees, $43,874 in expenses, and 850,000 shares of common stock during the term of the agreement. In late October 2008 the parties reached a settlement agreement with an amendment to the settlement agreement reached in July 2009. As a result of the Settlement, Firstgold is to pay to the Plaintiff $225,000 cash of which $50,000 has been paid and $175,000 remains outstanding as of January 31, 2009; issue 1,900,000 shares of common stock and issue 250,000 warrants to purchase shares of common

F-22


 

 

 

stock at a price of $0.4357 for a term of 3 years. As of January 31, 2009 a total of $348,000 has been recognized as expense, which consists of the $225,000 cash settlement and $48,000 as the fair value of the stock on the date issued. Additionally $30,188 was accounted for as both a debit and credit to additional paid in capital for the fair value of the warrants issued under the Black-Scholes option pricing model.

 

 

 

The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate dispositions of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

 

 

NOTE 8 - SHAREHOLDERS’ DEFICIT

 

 

The following common stock transactions occurred during the period from January 1, 1995 to January 31, 2009:

 

 

 

Common Stock

 

 

 

In January 1996, 3,800,000 shares were issued to purchase the rights to the Washington Gulch property. The site was acquired from a former officer of the Company. The property consists of a mill site located in Montana. The value of the common stock issued on the property was recorded at the cash value of the net monetary assets received which amounted to $181,000.

 

 

 

In June, 1996 the Company exchanged several “net profits interests” for shares of common stock of the Company. A net profit interest is a royalty based on the profit remaining after recapture of certain operating, capital and other costs as defined by agreement. Net profits interests sold for $442,037 were repurchased for 1,431,642 shares of common stock.

 

 

 

In October 1996 the Company issued 1,000,000 shares, valued at $1 per share, to Casmyn Corp. as partial consideration for the repurchase of their 50% interest in the Relief Canyon Mine.

 

 

 

In November, 1996, an aggregate of 221,000 shares were issued to others in exchange for general and administrative services rendered valued at $221,000.

 

 

 

In November 1996, the Company sold 100,000 shares in exchange for $100,000 in cash to Repadre Capital Corporation.

 

 

 

In November 1996, Newgold, Inc. of Nevada (Old Newgold) was merged into Warehouse Auto Centers, Inc. (WAC), a public company, which had previously filed an involuntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of New York. Pursuant to the plan of reorganization and merger (the Plan), (i) WAC which was the surviving corporation for legal purposes, changed its name to Newgold, Inc. (the Company), (ii) the outstanding shares of Old Newgold were converted into the right to receive an aggregate of 12,000,000 shares or approximately 69% of the post merger outstanding common stock of the Company, (iii) each outstanding share of WAC was converted into the right to receive 1/65 share of the common stock of the Company, for an aggregate of 51,034 shares or less than 1% of the post merger outstanding common stock, (iv) unsecured trade debts and other unsecured pre-petition liabilities were paid in full via the issuance of one share of the Company’s stock for each $42 of debt, for an aggregate of 63,374

F-23


 

 

 

shares or less than 1% of the post merger outstanding common stock, and (v) post petition 1 share of stock for each $1 of debt, for an aggregate of 191,301 shares or approximately 1% of the post merger outstanding common stock. The Plan also required an amendment to the Company’s capital structure to increase the number of shares authorized to 50,000,000 and to reduce the corresponding par value to $.001.

 

 

 

In connection with the Plan, the Company raised $4,707,000 of cash through the issuance of convertible debtor certificates. Shortly after confirmation of the Plan, the debtor certificates were exchanged for 5,135,130 shares of common stock (including 428,130 shares issued in lieu of paying cash for underwriter’s fees) of the Company representing approximately 29% of the post merger outstanding common stock.

 

 

 

In the bankruptcy reorganization of WAC, all creditors were issued stock in settlement of accounts payable. During fiscal 1998 post petition creditors had the option of receiving cash in lieu of stock. Five creditors returned 25,242 shares to the Company, resulting in a charge to stockholders’ deficit of $25,242.

 

 

 

In May 1997, the Company issued 12,500 shares to a note holder in payment of a $5,000 note, which had originally been issued in exchange for an agreement to defer filing a judgment for collection of a $200,000 note.

 

 

 

The Company’s stock was approved by NASD for trading on July 7, 1997. On May 27, 1997, the investors in the WAC bankruptcy reorganization, which had been approved by the court on November 21, 1996, were issued a ten-percent bonus of 470,700 shares for the delay in trading. An additional 42,814 shares were issued to the investment bankers for a total of 513,514 shares. A total of $205,000 was credited to stockholders’ deficit for the transaction.

 

 

 

In October 1997 Repadre Capital Corp. exercised warrants to purchase 200,000 shares at $1.00 per share.

 

 

 

The employment contract for the corporate counsel stipulated the Company would pay the rent for a law office. In March 1998, the Company issued 15,000 shares in lieu of cash for six months rent. General and administrative expense was charged $6,000 for the rent. The corporate counsel’s office was subsequently relocated to the Company’s headquarters.

 

 

 

In April 1998, the Company closed a Regulation S offering for 5,480,000 shares to raise $548,000 at $0.10 per share. In connection with this offering 136,977 shares were issued as commission to brokers.

 

 

 

As an alternative to gold mining, the Board of Directors approved an exploration program for a calcium bentonite mine located in southern California. In payment of a purchase option on the mine, the Company issued 150,000 shares of stock to the mine owner in May 1998. The Company charged $55,500 to exploration expense for the option. After completing the due diligence on the mine property, the Company abandoned development of the mine in August 1998.

 

 

 

On June 8, 1999 the Board of Directors approved a three-for-two stock split, effected in the form of a 50% stock dividend, payable to stockholders of record on June 10, 1999.

F-24


 

 

 

In January 2000 the Board of Directors, agreed that various creditors of the Company would settle their debt through conversion of the debt into equity by issuing stock at a price of $0.40 per share. In total, $1,282,271 of debt was converted into 3,205,674 shares of stock. $477,977 or 1,194,943 shares were for amounts owed to the Chairman of the Company; $328,733 or 821,833 shares were for amounts owed to two directors and $475,561 or 1,188,898 shares were for amounts owed to other shareholders.

 

 

 

In February 2000, the Company closed a private placement offering of 1,196,000 shares to raise $598,000 at $.50 per share. Additionally, a warrant was issued with each share to purchase an additional share of common stock at $1 per share. The warrants expired four years from the original date of closing. In connection with this offering $60,000 was paid as commission to brokers in the form of 120,000 shares of common stock and were accounted for as offering costs. Due to the registration of the shares not being completed, as a penalty the Company issued an additional 239,200 to the investors in August 2000.

 

 

 

In April 2000, the Company issued 78,271 shares of common stock in exchange for services related to an Internet interview and broadcast with the Chairman and Chief Executive Officer of the Company.

 

 

 

In April 2000, a $200,000 note payable and a $250,000 judgment payable were settled and paid off in full by a shareholder of the company. The total balances due including interest and legal fees had grown to approximately $650,000 at the time of settlement. The shareholder has received an additional 1,000,000 shares of stock as reimbursement for the payment of these amounts on behalf of the Company.

 

 

 

In October 2000 the Company issued 600,000 shares of common stock to an investor for $67,000.

 

 

 

In February 2001 the Company issued 2,500,000 shares of common stock to an investor for $150,000.

 

 

 

In January 2003 warrants to purchase 550,000 shares of common stock were exercised at a price of $0.10 per share. The original exercise price was $1.00 however the investors and the Company renegotiated the exercise price to $0.10 per share.

 

 

 

In February 2003 warrants to purchase 200,000 shares of common stock were exercised at a price of $0.10 per share. The original exercise price was $1.00 however the investor and the Company renegotiated the exercise price to $0.10 per share.

 

 

 

In January 2005 the Company issued 671,667 shares of common stock at a price of $0.15 per share to four investors for total proceeds of $100,750. Additionally, 671,667 warrants to purchase common stock at a price of $0.30 per share were issued to the investors. The warrants expire three years from the date of issuance.

 

 

 

In March 2005 a Special Meeting of Shareholders of Firstgold was held for the purpose of amending the Articles of Incorporation to affect an increase in the authorized shares of common stock issuable to 250,000,000 shares. At the meeting the proposal was approved by the shareholders, with a total of 31,392,611 shares voting in favor of the amendment, 411,711 voting against the amendment and 10,207 shares abstained from voting.

F-25


 

 

 

In February 2005 Firstgold issued 500,000 shares of common stock at a price of $0.15 per share to an investor for total proceeds of $75,000. Additionally, 500,000 warrants to purchase common stock at a price of $0.30 per share were issued to the investor. The warrants expire three years from the date of issuance.

 

 

 

In April 2005 Firstgold issued 2,000,000 shares of common stock at a price of $0.25 per share to investors for total proceeds of $500,000. Additionally, 1,000,000 warrants to purchase common stock at a price of $0.50 per share were issued to the investors. The warrants expire three years from the date of issuance.

 

 

 

In June 2005, the Company issued 50,000 shares of common stock and 50,000 warrants to purchase common stock in exchange for services related to website development for the Company.

 

 

 

In July 2005 Firstgold issued 12,326,231 shares of common stock at a price of $0.15 per share to the Chief Executive Officer according to the terms of existing notes payable to the officer. The issuance resulted in the repayment of principal and interest totaling $1,848,935.

 

 

 

In January 2006 Firstgold issued 2,500,000 shares of common stock at a price of $0.20 per share to ASDi LLC, an entity controlled and managed by the Chief Executive Officer in exchange for a 22.22% interest in a newly formed entity, Crescent Red Caps Joint Venture (see Note 8). Additionally, 2,500,000 warrants to purchase common stock at a price of $0.40 per share were issued to ASDi LLC. The warrants expire three years from the date of issuance.

 

 

 

In January 2006 Firstgold issued 2,500,000 shares of common stock at a price of $0.20 per share to an investor for total proceeds of $500,000. Additionally, 2,500,000 warrants to purchase common stock at a price of $0.40 per share were issued to the investor. The warrants expire three years from the date of issuance.

 

 

 

In March 2006 Firstgold issued 500,000 shares of common stock at a price of $0.20 per share to an investor for total proceeds of $100,000. Additionally, 500,000 warrants to purchase common stock at a price of $0.40 per share were issued to the investor. The warrants expire three years from the date of issuance.

 

 

 

In June 2006 Firstgold issued upon conversion 450,050 shares of common stock at a price of $0.202 per share and 1,904,037 shares of common stock at a price of $0.263 to a convertible debenture holder according to the terms of two existing convertible debentures. The issuance resulted in the repayment of principal totaling $600,000 owed by Firstgold to the convertible debenture holder.

 

 

 

In September 2006 Firstgold issued upon conversion 1,523,229 shares of common stock at a price of $0.263 to a convertible debenture holder according to the terms of two existing convertible debentures. The issuance resulted in the repayment of principal totaling $400,000 owed by Firstgold to the convertible debenture holder. An additional 117,852 shares of common stock was issued in conversion of $30,948 of accrued interest owed to the convertible debenture holder.

 

 

 

In October 2006 Firstgold issued 100,000 shares of restricted common stock to one person in partial settlement of an existing litigation matter.

F-26


 

 

 

In October 2006 a finder’s fee of 2,000,000 common shares and 2,000,000 warrants to purchase common shares at a price of $0.50 per common share were issued to an unrelated third party for their work associated with the Antelope Peak mineral lease.

 

 

 

In November 2006 warrants to purchase 928,500 shares of common stock were exercised at a price of $0.15 per share.

 

 

 

In January 2007 Firstgold issued 1,630,9181 shares of common stock at a price of $0.15 per share to the Chief Financial Officer according to the terms of existing notes payable to the officer. The issuance resulted in the repayment of principal and interest totaling $244,638.

 

 

 

In January 2007 Firstgold issued 535,643 shares of restricted common stock to one person in settlement of an existing note payable, accrued interest and accrued wages and bonus totaling $357,422.

 

 

 

In March 2007 warrants to purchase 1,125,000 shares of common stock were exercised at a price of $0.20 per share.

 

 

 

In April 2007 warrants to purchase 2,340,013 shares of common stock were exercised by the Chief Executive Officer at a price of $0.15 per share.

 

 

 

In April 2007 Firstgold received net proceeds of $2,374,200 upon the issuance of Units consisting of 5,673,110 shares of common stock and warrants to purchase 2,836,555 shares of common stock at an exercise price of $0.65 per share. An additional 567,311 shares and warrants to purchase 283,656 shares were issued on October 16, 2007 because the original Units were not registered for resale by October 15, 2007.

 

 

 

In May 2007 warrants to purchase 54,667 shares of common stock were exercised at a price of $0.1875 per share.

 

 

 

In May 2007 Firstgold received net proceeds of $337,500 upon the issuance of Units consisting of 749,999 shares of common stock and warrants to purchase 375,002 shares of common stock at an exercise price of $0.65 per share. An additional 74,998 shares and warrants to purchase 37,499 shares were issued on November 19, 2007 because the original Units were not registered for resale by November 18, 2007.

 

 

 

In June 2007 Firstgold received net proceeds of $7,798,141 upon the issuance of Units consisting of 18,843,421 shares of common stock and warrants to purchase 9,421,711 shares of common stock at an exercise price of $0.65 per share. An additional 1,884,342 shares and warrants to purchase 942,171 shares were issued on November 16, 2007 because the original Units were not registered for resale by November 15, 2007.

 

 

 

In June 2007 50,000 common shares and 127,000 warrants to purchase common shares at a price of $0.30 per common share were issued to an unrelated third party for their work associated with the raising of capital for Firstgold.

 

 

 

In July 2007 Firstgold issued upon conversion 1,000,000 shares of common stock at a price of $0.45 per share. The issuance resulted in the repayment of principal totaling $450,000 owed by Firstgold to the convertible debenture holder.

F-27


 

 

 

In July 2007, 25,000 stock options were exercised on a cashless basis at a price of $0.63 by an employee which resulted in 18,651 shares being issued.

 

 

 

In September 2007 Firstgold issued upon conversion 2,222,222 shares of common stock at a price of $0.45 per share. The issuance resulted in the repayment of principal totaling $1,000,000 owed by Firstgold to the convertible debenture holder.

 

 

 

In September 2007 warrants to purchase 93,500 shares of common stock were exercised at a price of $0.1875 per share.

 

 

 

In September 2007, 75,000 stock options were exercised on a cashless basis at a price of $0.61 by an employee, which resulted in 43,255 shares being issued.

 

 

 

In October 2007 Firstgold issued upon conversion 3,858,228 shares of common stock at a price of $0.45 per share to a convertible debenture holder according to the terms of three existing convertible debentures. The issuance resulted in the repayment of principal totaling $1,550,000 and accrued interest of $186,203 owed by Firstgold to the convertible debenture holder.

 

 

 

In January 2008 warrants to purchase 767,000 shares of common stock were exercised at a price of $0.30 per share.

 

 

 

In February 2008 warrants to purchase 250,000 shares of common stock were exercised at an average exercise price of $0.25 per share.

 

 

 

In February 2008 Firstgold received proceeds of $3,450,975 upon the issuance of Units consisting of 5,309,193 shares of common stock and warrants to purchase 4,164,016 shares of common stock at an exercise price of $0.80 per share. The warrants have a term of 18 months.

 

 

 

In March 2008 Firstgold received proceeds of $4,261,822 upon the issuance of Units consisting of 6,556,650 shares of common stock and warrants to purchase 3,636,057 shares of common stock at an exercise price of $0.80 per share. The warrants have a term of 18 months.

 

 

 

In April 2008 Firstgold received proceeds of $330,100 upon the issuance of Units consisting of 507,846 shares of common stock and warrants to purchase 571,699 shares of common stock at an exercise price of $0.80 per share. The warrants have a term of 18 months.

 

 

 

In April 2008 warrants to purchase 200,000 shares of common stock were exercised at an exercise price of $0.50 per share.

 

 

 

In May 2008 Firstgold received proceeds of $300,000 upon the issuance of Units consisting of 461,538 shares of common stock and warrants to purchase 276,923 shares of common stock at an exercise price of $0.80 per share. The warrants have a term of 18 months.

 

 

 

In May 2008 Firstgold issued warrants to purchase 1,100,000 shares of common stock at an exercise price of $1.00 per share.

 

 

 

In May 2008 Firstgold issued 127,999 shares of common stock to one person in settlement of an existing note payable and accrued interest totaling $63,999.

F-28


 

 

 

In July 2008 Firstgold issued warrants to purchase 500,000 shares of common stock at an exercise price of $1.00 per share.

 

 

 

In August 2008 Firstgold issued warrants to purchase 16,050,000 shares of common stock at an exercise price of $0.44 per share.

 

 

 

In October 2008 Firstgold issued 300,000 shares of common stock at a price of $0.16 per share to a consulting company in partial settlement of a prior contract.

 

 

 

In October 2008 Firstgold issued warrants to purchase 250,000 shares of common stock at an exercise price of $0.44 per share.

 

 

 

In October 2008 Firstgold issued warrants to purchase 60,000 shares of common stock at an exercise price of $0.50 per share.

 

 

 

In December 2008 warrants to purchase 700,000 shares of common stock were exercised at an exercise price of $0.15 per share.

 

 

 

In December 2008 Firstgold issued warrants to purchase 30,000 shares of common stock at an exercise price of $0.50 per share.

 

 

 

In January 2009 warrants to purchase 3,120,001 shares of common stock were exercised at an exercise price of $0.15 per share.

 

 

 

In January 2009 Firstgold issued 100,000 shares of common stock at a price of $0.13 per share to a consulting company in partial settlement of a prior contract.

 

 

 

Warrants

 

 

 

Firstgold has issued common stock warrants to officers of Firstgold as part of past financing transactions. Firstgold has also issued warrants as part of past and present convertible debt transactions (see Note 7). Firstgold has also issued warrants as part of the issuance of common stock (see this Note 9).

 

 

 

The fair market value of these warrants issued during the years ended January 31, 2009 and 2008 was determined to be $7,281,932 and $3,224,944, respectively, and was calculated under the Black-Scholes option pricing model with the following assumptions used:


 

 

 

 

 

 

 

 

2009

 

2008

 

 

 


 


 

Expected life

 

1.5 - 3 years

 

0.33 - 1.5 years

 

Risk free interest rate

 

1.00% -2.72%

 

3.43% - 4.92%

 

Volatility

 

63%-176%

 

45%-75%

 

Expected dividend yield

 

None

 

None

 



 

 

 

The fair value of these warrants is being amortized to interest expense over one and three years, the original life of the loans. Total amortization expense for the years ended January 31, 2009 and 2008 and the period from January 1, 1995 to January 31, 2008 was approximately $921,227, $43,278 and $2,252,279, respectively.

F-29


          The following table presents warrant activity through January 31, 2009:

 

 

 

 

 

 

 

 

 

 

Number of
Shares

 

Weighted
Average
Exercise
Price

 

 

 


 


 

Outstanding at January 31, 2000

 

 

 

$

 

Granted

 

 

3,746,000

 

 

0.55

 

Exercised

 

 

 

 

 

Canceled or expired

 

 

 

 

 

 

 



 



 

Outstanding at January 31, 2001 and 2002

 

 

3,746,000

 

 

0.55

 

Granted

 

 

452,463

 

 

0.15

 

Exercised

 

 

(550,000

)

 

(0.10

)

Canceled or expired

 

 

 

 

 

 

 



 



 

Outstanding at January 31, 2003

 

 

3,648,463

 

 

0.43

 

Granted

 

 

1,265,766

 

 

0.15

 

Exercised

 

 

(200,000

)

 

(0.10

)

Canceled or expired

 

 

(996,000

)

 

(1.00

)

 

 



 



 

Outstanding at January 31, 2004

 

 

3,718,229

 

 

0.15

 

Granted

 

 

8,006,354

 

 

0.16

 

Exercised

 

 

 

 

 

Canceled or expired

 

 

 

 

 

 

 



 



 

Outstanding at January 31, 2005

 

 

11,724,583

 

 

0.16

 

Granted

 

 

8,800,000

 

 

0.37

 

Exercised

 

 

 

 

 

Canceled or expired

 

 

 

 

 

 

 



 



 

Outstanding at January 31, 2006

 

 

20,524,583

 

 

0.25