NOTE 1 -
ORGANIZATION AND DESCRIPTION OF BUSINESS
Nevada
Gold Holdings, Inc. (the “Company”, formerly known as Nano Holdings
International, Inc.) was incorporated under the laws of the State of Delaware on
April 16, 2004. Nevada Gold Enterprises, Inc., a Nevada corporation,
was incorporated under the laws of the State of Nevada on October 2,
2008.
On
December 31, 2008, Nevada Gold Acquisition Corp., a Nevada corporation formed on
December 18, 2008, and a wholly owned subsidiary of Nevada Gold Holdings, Inc.,
merged with and into Nevada Gold Enterprises, Inc. (the “Merger”). Nevada Gold
Enterprises, Inc. was the surviving corporation in the Merger. As a result of
the Merger, Nevada Gold Enterprises, Inc., became a wholly-owned subsidiary of
Nevada Gold Holdings, Inc.
Pursuant
to the Merger, Nevada Gold Holdings, Inc. ceased operating as a distributor of
party and drinking supplies and acquired the business of Nevada Gold
Enterprises, Inc., to engage in the exploration and eventual development of gold
mines and will continue the Company’s existing business operations as a
publicly-traded company under the name Nevada Gold Holdings, Inc.
The
Merger was treated as a reverse merger and recapitalization for financial
accounting purposes. As a result of the merger, the Company recorded an
aggregate stock issuance of 39,393,946 shares of common stock with a net value
of $(180,978). The negative recapitalization net value recognized was the result
of the Company restating the equity structure of the legal subsidiary using the
exchange ratio established in the acquisition agreement to reflect the number of
shares of the legal parent issued in the reverse acquisition. Nevada
Gold Enterprises, Inc. was considered the acquirer for accounting purposes, and
Nevada Gold Holdings, Inc. is considered the surviving company for legal
purposes. Accordingly, the accompanying financial statements present the
historical financial statements of Nevada Gold Enterprises, Inc., as the
historical financial statements of Nevada Gold Holdings, Inc., i.e. a reverse
merger. As used herein, the “Company” means Nevada Gold Holdings,
Inc.
NOTE 2 -
GOING CONCERN
The
Company's consolidated financial statements are prepared using generally
accepted accounting principles in the United States of America applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has not yet
established an ongoing source of revenues sufficient to cover its operating
costs and allow it to continue as a going concern and has accumulated losses
since inception. The ability of the Company to continue as a going concern is
dependent on the Company obtaining adequate capital to fund operating losses
until it becomes profitable. If the Company is unable to obtain adequate
capital, it could be forced to cease operations. These factors raise
substantial doubt about the Company’s ability to continue as a going
concern.
In order
to continue as a going concern, the Company will need, among other things,
additional capital resources. Management's plan is to obtain such resources for
the Company by obtaining capital from management and significant shareholders
sufficient to meet its minimal operating expenses and seeking equity and/or debt
financing. However management cannot provide any assurances that the Company
will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations. The accompanying consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern
NOTE 3 -
SIGNIFICANT ACCOUNTING POLICIES
a. Accounting
Method
The
Company’s financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31
year-end.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 3 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
b.
Revenue
Recognition
The
Company has not earned any revenues since inception. The Company will
develop appropriate revenue recognition policies at such time that planned
principal operations become feasible.
c.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
d. Use
of Estimates
The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
e.
Basic
Earnings (Loss) Per Share
Basic net
earnings (loss) per common share is computed by dividing net earnings (loss)
applicable to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted net earnings (loss) per common
share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options. In periods where losses are reported, the weighted-average number
of common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive.
The
dilutive effect of outstanding stock options and warrants is reflected in
diluted earnings per share by application of the treasury stock method. The
dilutive effect of outstanding convertible securities is reflected in diluted
earnings per share by application of the if-converted method.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 3 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
e.
Basic
Earnings (Loss) Per Share (Continued)
The
following is a reconciliation of basic and diluted earnings per share for 2009
and 2008:
|
|
|
Periods
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net
income (loss) available to common shareholders
|
|
$
|
(866,318
|
)
|
|
$
|
(20,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - basic
|
|
|
72,445,261
|
|
|
|
70,633,946
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Potential
dilutive effect of common stock equivalents:
|
|
|
|
|
|
|
|
|
|
Options
and warrants
|
|
|
-
|
|
|
|
-
|
|
|
Convertible
Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - diluted
|
|
|
72,445,261
|
|
|
|
70,633,946
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share - diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
For the
year ended December 31, 2009, fully diluted earnings per share excludes the
dilutive effect of 4,470,000 common stock equivalents from options and
warrants and 1,250,000 common stock equivalents from convertible debt, because
their inclusion would be anti-dilutive. For the period ended December 31,
2008, fully diluted earnings per share excludes the dilutive effect of 600,000
common stock equivalents from convertible debt, because their inclusion would be
anti-dilutive.
f. Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
g. Common
Stock
The
holders of the Company’s common stock are entitled to receive dividends out of
assets or funds legally available for the payment of dividends of such times and
in such amounts as the board from time to time may determine. Holders
of common stock are entitled to one vote for each share held on all matters
submitted to a vote of shareholders. There is no cumulative voting of
the election of directors then standing for election. The common
stock is not entitled to pre-emptive rights and is not subject to conversion or
redemption. Upon liquidation, dissolution or winding up of the
company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the common stock after payment of
liquidation preferences, if any, on any outstanding payment of other claims of
creditors.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 3 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Preferred
Stock
Shares of
preferred stock may be issued from time to time in one or more series, each of
which shall have such distinctive designation or title as shall be determined by
the board of directors of the Company. Preferred stock shall have
such voting powers, full or limited, or no voting powers, and such preferences
and relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as may be adopted from time
to time by the board of directors.
i.
General and Administrative Expenses
General
and administrative expenses include those costs not directly related to the
sales of the Company’s products. These expenses include travel, administrative
compensation, and various legal and professional fees.
j. Principles
of Consolidation
The
accompanying financial statements include the accounts of Nevada Gold Holdings,
Inc. and its wholly owned subsidiary Nevada Gold Enterprises,
Inc. All significant intercompany transactions have been
eliminated.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 3 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Recent
Accounting Pronouncements
In May
2009, the Company adopted the Codification standards that establish standards
for accounting for and disclosing subsequent events (events which occur after
the balance sheet date but before financial statements are issued or are
available to be issued). The standard requires and entity to disclose the date
subsequent events were evaluated and whether that evaluation took place on the
date financial statements were issued or were available to be issued. It is
effective for interim and annual periods ending after June 15, 2009. Management
has reviewed all subsequent events through the date that the financial
statements were issued in accordance with this pronouncement. The
adoption of this standard did not have a material impact on the Company’s
financial condition or results of operation.
In June
2009, the Financial Accounting Standards Board ("FASB") established the FASB
Accounting Standards Codification (the "Codification") as the source of
authoritative accounting principles recognized by the FASB to be applied by
non-governmental entities in the preparation of financial statements in
conformity with GAAP. Rules and interpretive releases of the Securities
and Exchange Commission ("SEC") under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The introduction
of the Codification does not change GAAP and other than the manner in which new
accounting guidance is referenced, the adoption of these changes had no impact
on our consolidated financial statements.
No other recent accounting pronouncements are expected to have a
material effect on the Company’s consolidated financial statements.
l. Income
Taxes
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will to be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of
enactment.
Net
deferred tax assets consist of the following components as of December 31, 2009
and 2008:
|
|
|
2009
|
|
|
2008
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
NOL
carryover
|
|
$
|
346,013
|
|
|
$
|
8,149
|
|
|
Valuation
allowance
|
|
|
(346,013
|
)
|
|
|
(8,149
|
)
|
|
Net
deferred tax asset
|
|
$
|
--
|
|
|
$
|
--
|
|
The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal and state income tax rates of 39% to pretax income
from continuing operations for the years ended December 31, 2009 and 2008 due to
the following:
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit at statutory rate
|
|
$
|
(337,864
|
)
|
|
$
|
(8,149
|
)
|
|
Valuation
allowance
|
|
|
337,864
|
|
|
|
8,149
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2009, the Company had net operating loss carryforwards of
approximately $900,000 that may be offset against future taxable income through
2030. No tax benefit has been reported in the December 31, 2009 financial
statements since the potential tax benefit is offset by a valuation allowance of
the same amount. Due to the change in ownership provisions of the Tax Reform Act
of 1986, net operating loss carry forwards for Federal income tax reporting
purposes are subject to annual limitations.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 3 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Income
Taxes (Continued)
Net
operating loss carryforwards may be limited as to use in future years as a
result of any change in ownership.
NOTE 4 –
DEBT AND EQUITY
On
October 2, 2008 the Company issued 30,480,000 shares of common stock various
individuals. These shares were issued as founders’ shares and were
recorded for the cash value the founders paid of $25. In the
accompanying consolidated statement of stockholders’ equity (deficit), the $25
has been included in the reverse merger recapitalization.
On
December 31, 2008, the Company sold in a private placement offering an aggregate
of 828,000 post-split shares of common stock for cash at $0.125 per
share. On December 31, 2008, the Company also received $150,000 pursuant to
a secured convertible note payable with an unrelated party. Under the terms of
this convertible note, interest accrues at a rate of 10.0 % per annum, and the
balance, including accrued interest, was due on December 31, 2009, was
convertible at $1.00 per share that was adjustable based on the conversion
prices of options, warrants or other convertible instruments issued by the
Company. The Company analyzed the conversion feature of the note and
determined that the conversion feature was a derivative liability. The
derivative liability was valued at $112,500 based on the intrinsic value between
the original conversion price and the stock price on December 31, 2008. The
Company recorded a debt discount for the value of the derivative
liability. Upon the closing of the Merger, the purchaser of the note also
received 300,000 post-split shares of Common Stock under the terms of the
convertible note. These shares were valued at $0.125 per share
($37,500). The Company recorded a debt discount for the value of the
300,000 shares issued to the purchaser of the convertible note. On June 24,
2009, the Company prepaid $100,000 of principal on this note, $4,603 in
accrued interest, and issued 200,000 shares of common stock to the holder
of the note payable as consideration for waiving certain disputed
anti-dilution clauses of the note. These shares were valued at $0.25 per share
($50,000) and were recorded as common stock issued for services for the year
ended December 31, 2009. On September 21, 2009, the Company paid the remaining
$50,000 in note principal and $8,082 in accrued interest, thus satisfying the
note in full. As a result of the convertible note repayment, the
derivative liability was settled and the Company recognized a $112,500 gain for
the year ended December 31, 2009; additionally, the debt discount on the
convertible note, totaling $150,000 ($112,500 from the derivative liability and
$37,500 from the 300,000 shares) was recognized as interest expense for the year
ended December 31, 2009. As of December 31, 2009 the Company has no remaining
obligations under the terms of the note.
Effective
March 9, 2009, the Company issued 330,000 post-split shares of common stock for
cash at $0.125 per share.
On May
11, 2009, the Company entered into a consulting agreement whereby the Company
receives certain investor relation and corporate communications services in
exchange for the issuance of 100,000 post-split shares of the Company’s common
stock. Of these shares, 50,000 were issued upon execution of the
agreement, at a value of $0.25 per share. The remaining 50,000 shares
were issued on August 26, 2009, also at $0.25 per share.
Effective
May 13, 2009, the Company’s shares of common stock were forward split on a 2
shares for 1 share basis, in the form of a stock dividend. The accompanying
financial statements have been restated to reflect the forward stock split on a
retro-active basis.
On
November 5, 2009 the Company received 2,000,000 shares from David Mathewson, who
surrendered the shares pursuant to his resignation as an officer of the
Company. The shares were subsequently cancelled by the Company in
April, 2010.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 4 –
DEBT AND EQUITY (Continued)
Private Placement
Offerings
On June
24, 2009, the Company consummated a private placement offering whereby the
Company issued 2,000,000 units in exchange for cash at $0.25 per unit for net
proceeds after closing costs of $500,000. Each unit consists of one
share of common stock and one warrant to purchase one share of common stock at
$0.50 per share, exercisable for a period of five years. Concurrent with
the private placement offering, the Company agreed to grant an additional
200,000 warrants to the related placement agent,which were valued at $44,456
using the Black-Scholes options pricing model assuming common stock volatility
of 153% and a risk-free rate of 3.94. Each of these warrants allows
the recipient the right to purchase one share of the Company’s common stock at a
price of $0.25 per share, for a period of up to five years. The
Company performed an analysis of the 2,000,000 warrants using the Black-Scholes
options pricing model, assuming common stock volatility of 153% and a risk-free
rate of 3.94%, resulting in an aggregate relative fair value of
$235,327. The fair value of the warrants was recognized in additional
paid in capital for the year ended December 31, 2009.The warrants were deemed
not to be derivatives.
On
September 18, 2009, the Company consummated a private placement offering whereby
the Company issued 1,000,000 units in exchange for cash at $0.25 per unit for
net proceeds after offering costs of $4,130. Each unit consists of
one share of common stock and one warrant to purchase one share of common stock
at $0.50 per share, exercisable for a period of five years. Each of
these warrants allows the recipient the right to purchase one share of the
Company’s common stock at a price of $0.25 per share, for a period of up to five
years. The Company performed an analysis of the warrants using the
Black-Scholes options pricing model, assuming common stock volatility of 134%
and a risk-free rate of 3.94%, resulting in an aggregate relative fair value of
$109,474. The fair value of the warrants was recognized in additional
paid in capital for the year ended December 31, 2009. The warrants were deemed
not to be derivatives.
In
connection with the private placement offering, the Company had previously
entered into a Placement Agency Agreement with Gottbetter Capital Markets, LLC
(the “Placement Agent”), in which the Company agreed (i) to pay a cash fee to
the Placement Agent equal to 10% of the gross proceeds from the sale of PPO
Units to investors introduced to the Company by the Placement Agent and 2% of
the gross proceeds from the sale of PPO Units to any other investors, and (ii)
to issue to the Placement Agent warrants to purchase a number of shares of
Common Stock equaling 10% of the PPO Units sold to investors introduced to the
Company by the Placement Agent and 2% of the PPO Units sold to any other
investors, exercisable for a period of five years at an exercise price of $0.50
per share. In connection with the closing on September 18, 2009, the
Placement Agent earned a cash fee of $5,000 and warrants to purchase 20,000
shares of Common Stock. The Company valued these warrants at $2,181,
pursuant to the Black-Scholes options pricing model. The fair value of the
warrants was recognized in additional paid in capital for the year ended
December 31, 2009.
Bridge
Loan
On
December 7, 2009 the Company entered into a Bridge Loan Agreement with Theory
Capital Corp., an unrelated third party entity (“Theory”), whereby Theory loaned
a total of $100,000 to the Company. The note accrues interest at a
rate of 10.0% per annum, and is due and payable in full on June 4,
2010. The note is mandatorily convertible into common stock upon the
Company’s closing of a private placement offering, or the due date, whichever
comes first. The loan is convertible into common stock at the market
value of the shares on the date of conversion. The Company’s
management has assessed the conversion feature of the note and concluded that it
is a contingent conversion feature, which will not be recorded until the
triggering event (a future private placement offering by the Company) takes
place.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 4 –
DEBT AND EQUITY (Continued)
Stock Option
Awards
On
November 5, 2009, the Company’s Board of Directors granted to David Rector, in
connection with his appointment as the Company’s Chief Executive Officer,
President, Secretary and director, incentive stock options to purchase 1,000,000
shares of Common Stock at a purchase price of $0.135 per share (the closing bid
price quoted on the OTCBB on the date of grant), vesting 100% on December 31,
2010, and expiring November 4, 2014.
On
November 16, 2009, the Company’s Board of Directors granted to John N. Braca, in
connection with his appointment as a director, non-qualified stock options to
purchase 250,000 shares of Common Stock at a purchase price of $0.
127 per share (the closing
bid price quoted on the OTCBB on the date of grant), vesting 100% on December
31, 2010, and expiring November 15, 2014.
The
Company’s 2008 Equity Incentive Plan (the Plan), which is shareholder-approved,
permits the grant of share options and shares to its employees for up to 4
million shares of common stock. The Company believes that such awards better
align the interests of its executive officers, key employees, consultants and
directors with those of its shareholders.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model that uses the assumptions noted in the
table below. Expected volatilities are based on implied volatilities from,
historical volatility of the Company’s stock, and other factors. The Company
uses historical data to estimate option exercise and employee termination within
the valuation model; separate groups of employees that have similar historical
exercise behavior are considered separately for valuation purposes. The expected
term of options granted is derived from the output of the option valuation model
and represents the period of time that options granted are expected to be
outstanding; the range given below results from certain groups of employees
exhibiting different behavior. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
|
|
|
2009
|
|
|
Expected
volatility
|
|
|
193
|
%
|
|
|
|
|
|
|
|
Expected
dividends
|
|
|
0
|
%
|
|
|
|
|
|
|
|
Expected
term (in years)
|
|
|
3
|
|
|
|
|
|
|
|
|
Risk-free
rate
|
|
|
2.3
|
%
|
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 4 –
DEBT AND EQUITY (Continued)
Stock Option
Awards
A summary
of option activity under the Plan as of December 31, 2009, and changes during
the year then ended is presented below:
|
Options
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,250,000
|
|
|
$
|
0.13
|
|
|
|
4.9
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
1,250,000
|
|
|
$
|
0.13
|
|
|
|
4.9
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 200
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
weighted-average grant-date fair value of options granted during the years ended
December 31, 2009 and 2008, was $0.12 and $-0-, respectively.
A summary
of the status of the Company’s nonvested shares as of December 31, 2009, and
changes during the year ended December 31, 2009, is presented
below:
|
Nonvested Shares
|
|
Shares
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,250,000
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at December 31, 2009
|
|
|
1,250,000
|
|
|
$
|
0.13
|
|
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 4 –
DEBT AND EQUITY (Continued)
Warrants
A summary
of warrant activity as of December 31, 2009, and changes during the year then
ended is presented below:
|
Options
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,220,000
|
|
|
$
|
0.50
|
|
|
|
4.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
3,220,000
|
|
|
$
|
0.50
|
|
|
|
4.6
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2009
|
|
|
3,220,000
|
|
|
$
|
0.50
|
|
|
|
4.6
|
|
|
|
-
|
|
NOTE 5 –
FAIR VALUE MEASUREMENTS
Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date and establishes a three level hierarchy for measuring fair
value. Fair value measurements are classified and disclosed in one of the
following categories:
Level 1
:
Quoted prices
(unadjusted) in active markets for identical assets and liabilities that we have
the ability to access at the measurement date.
Level 2
:
Inputs other
than quoted prices included within Level 1 that are either directly or
indirectly observable for the asset or liability, including quoted prices for
similar assets or liabilities in active markets, quoted prices for identical or
similar assets or liabilities in inactive markets, inputs other than quoted
prices that are observable for the asset or liability, and inputs that are
derived from observable market data by correlation or other means. Instruments
categorized in Level 2 include non-exchange traded derivatives such as
over-the-counter forwards and swaps.
Level 3
:
Unobservable inputs
for the asset or liability, including situations where there is little, if any,
market activity for the asset or liability.
The
valuation assumptions utilized to measure the fair value of the Company’s
derivatives were observable inputs based on market data obtained from
independent sources and are considered Level 2 inputs (quoted prices for
similar assets, liabilities (adjusted) and market-corroborated
inputs).
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 5 –
FAIR VALUE MEASUREMENTS (Continued)
The
following table presents for each hierarchy level our assets and liabilities,
including both current and non-current portions, measured at fair value on a
recurring basis, as of December 31, 2008 (no assets are measured at fair
value on a recurring basis at December 31, 2009):
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
Total
|
|
|
Assets —
Current
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Liabilities —
Current
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
– conversion feature of debt
|
|
$
|
--
|
|
|
$
|
112,500
|
|
|
$
|
--
|
|
|
$
|
--
|
|
In
consideration of credit risk, the Company considers that it is of substantial
credit quality and has the financial resources and willingness to meet its
potential repayment obligations associated with the derivative
transactions.
The
estimated fair value of financial instruments is the amount at which the
instrument could be exchanged currently between willing parties. The carrying
amounts reported in the consolidated balance sheet for cash and cash held in
trust, and accounts payable approximate fair value due to the immediate or
short-term maturity of these financial instruments. We use available marketing
data and valuation methodologies to estimate the fair value of debt. The
following disclosure does not impact our financial position, results of
operations or cash flows.
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Short-Term
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Debt
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
--
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
--
|
|
|
$
|
150,000
|
|
NOTE 6 –
COMMITMENTS AND CONTINGENCIES
Litigation
The
Company is party to various legal actions arising in the ordinary course of
business. Matters that are probable of unfavorable outcomes to the Company and
which can be reasonably estimated are accrued. Such accruals are based on
information known about the matters, the Company’s estimates of the outcomes of
such matters and its experience in contesting, litigating and settling similar
matters. None of the actions are believed by management to involve future
amounts that would be material to our financial position or results of
operations after consideration of recorded accruals although actual amounts
could differ materially from management’s estimate that are reasonably possible
to occur will not have a material adverse affect on the Company’s financial
position or results of operations
.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 6 –
COMMITMENTS AND CONTINGENCIES (Continued)
Mining
Lease
The
Company is required under the terms of our property lease to make annual lease
payments. The Company is also required to make annual claim maintenance payments
to Federal Bureau of Land Management and to the county in which its property is
located in order to maintain its rights to explore and, if warranted, to develop
its property. If the Company fails to meet these obligations, it will lose the
right to explore for gold on its property.
The
Company’s property lease is for an initial period of ten years from May 2007 and
may be extended in five year increments for up to a total term of 99 years. The
Company may terminate this lease at any time. Until production is achieved, the
Company’s lease payments (deemed “advance minimum royalties”) consist of an
initial payment of $5,000, which was made upon the effectiveness of the lease,
followed by annual payments according to the following schedule:
|
Due Date of Advance
Minimum Royalty Payment
|
|
Amount of Advance
Minimum Royalty Payment
|
|
|
|
|
|
|
|
January
15, 2008 (paid)
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
January
15, 2009 (paid)
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
January
15, 2010 (paid)
|
|
$
|
30,000
|
|
|
|
|
|
|
|
|
January
15, 2011
|
|
$
|
45,000
|
|
|
|
|
|
|
|
|
January
15, 2012 and annually thereafter during the term of the
lease
|
|
The
greater of $60,000 or the dollar
equivalent
of 90 ounces of gold
|
|
The
Company is required to make annual claim maintenance payments to the Bureau of
Land Management and to the counties in which its property is located. If the
Company fails to make these payments, it will lose its rights to the property.
As of the date of this Report, the annual maintenance payments are $133.50 per
claim, consisting of payments to the Bureau of Land Management and to the
counties in which the Company’s properties are located. The Company’s property
consists of an aggregate of 206 lode claims. The aggregate annual claim
maintenance costs are currently $32,256.
NOTE
7 – SUBSEQUENT EVENTS
On
February 5, 2010, the Company entered into a financing arrangement with JMJ
Financial (“JMJ”), pursuant to which the JMJ may lend the Company up to
$3,200,000. The Company issued convertible promissory notes to JMJ in
an aggregate principal amount of $3,200,000. The Company received
$200,000 from JMJ pursuant to these notes on February 5, 2010. The
Notes bear a one-time interest of 8% and mature three years from the date of
issuance. Prepayment under the Notes is not permitted, unless
approved by the JMJ. Under the terms of the Notes, JMJ is entitled,
at its option, to convert all or part of the principal amount and accrued
interest into shares of the Company’s Common Stock at a conversion price equal
to 70% of the lowest trade price of the Common Stock in the twenty (20) trading
days immediately prior to the conversion, subject to adjustment in certain
circumstances.
On
February 17, 2010, the Company entered into a six month consulting agreement
whereby the Company receives certain investor relation and corporate
communications services in exchange for the issuance of 1,000,000 post-split
shares of the Company’s common stock as of the date of the
agreement. The agreement can be terminated immediately by either
party upon written notice.
NEVADA
GOLD HOLDINGS, INC.
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
NOTE 8
- CORRECTION OF AN ERROR
The
Company has restated the consolidated balance sheet, consolidated
statements of operations and cash flows as of and for the period ended December
31, 2008 for matters related to the following errors: (i) an overstatement of
current liabilities, (ii) an overstatement of general and administrative
expenses, and (iii) the incorrect classification of the cost of
the Tempo Mineral Prospect.
Following
is a description of the errors related to the overstatement of current
liablities at December 31, 2008, and the overstatement of general and
administrative expenses for the period from inception through December 31,
2008: The Company overstated current liabilities due to the Company’s
accounting consultant misconstruing certain transactions taking place within the
Company’s trust account, which is maintained by an external
accountant. Certain cash payments on prior period liabilities were
incorrectly recorded as accruals of new accounts payable and accrued
expenses. This overstatement was offset by $112,500 that the Company
recorded as additional paid in capital instead of as a current liability related
to the derivative liability on the conversion feature of a convertible note
payable.
Following
is a description of the error related to the overstatement of general and
administrative expenses for the period from inception through December 31,
2008: The Company overstated general and administrative expenses, as
certain expense payments were incorrectly recorded as accruals of
liabilities.
Following
is a description of the error related to the incorrect classification of the
cost of the Tempo Mineral Prospect: The asset was originally
classified as an asset and valued at the predecessor owner’s cost of
$20,465. In accordance with SEC Staff guidance, since there has not
been a final or bankable feasibility study and the designation of proven and
probable reserves, the Tempo Mineral Prospect was considered to be an
exploration cost for the period ended December 31, 2008.
The
effects on the Company’s previously issued consolidated financial statements for
the fiscal year ended December 31, 2008, of the aforementioned errors are
summarized as follows:
|
|
|
As
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
As
|
|
|
Increase
|
|
|
December
31, 2008
|
|
Reported
|
|
|
Restated
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
held in trust
|
|
$
|
253,440
|
|
|
$
|
253,440
|
|
|
$
|
-
|
|
|
Total
current assets
|
|
|
253,440
|
|
|
|
253,440
|
|
|
|
-
|
|
|
Mining
claims
|
|
|
20,465
|
|
|
|
-
|
|
|
|
(20,465
|
)
|
|
Mining
reclamation bond
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
assets
|
|
|
273,905
|
|
|
|
253,440
|
|
|
|
(20,465
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
363,996
|
|
|
|
233,354
|
|
|
|
(130,642
|
)
|
|
Derivative
liability
|
|
|
-
|
|
|
|
112,500
|
|
|
|
112,500
|
|
|
Total
liabilities
|
|
|
363,996
|
|
|
|
345,854
|
|
|
|
18,142
|
|
|
Total
stockholders’ equity (deficit)
|
|
|
(90,091
|
)
|
|
|
(92,414
|
)
|
|
|
(2,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Period Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
costs
|
|
|
-
|
|
|
|
20,465
|
|
|
|
20,465
|
|
|
General
and administrative expense
|
|
|
90,282
|
|
|
|
431
|
|
|
|
89,851
|
|
|
Net
loss
|
|
|
(90,282
|
)
|
|
|
(20,896
|
)
|
|
|
69,386
|
|
|
Net
loss per share, basic and diluted
|
|
|
(0.00)
|
|
|
|
(0.00)
|
|
|
|
(0.00)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) operating activities
|
|
|
(25)
|
|
|
|
31,480
|
|
|
|
31,455
|
|
|
Cash
provided by (used in) investing activities
|
|
|
-
|
|
|
|
(253,440)
|
|
|
|
(253,440)
|
|
|
Cash
provided by (used in) financing activities
|
|
|
-
|
|
|
|
221,960
|
|
|
|
221,960
|
|