UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

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

 

For the quarterly period ended March 31, 2012

 

OR

 

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

 

  For the transition period from ______ to ______.

 

Commission File Number: 001-34996

 

SPARTAN GOLD LTD.

(Exact name of registrant as specified in its charter)

Nevada			27-3726384
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
13951 N. Scottsdale Rd., Suite 233 Scottsdale, AZ			85254
(Address of principal executive offices)			(Zip Code)

 

(480) 391-7400

 (Registrant’s telephone number, including area code)

   

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  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 filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act:

 

Large accelerated Filer  o	Accelerated Filer  o
Non-accelerated Filer  o	Smaller reporting company  x

 

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 as of May 4, 2012 the registrant had 31,694,658 shares of its Common Stock, $0.001 par value, outstanding.  

 

 

SPARTAN GOLD LTD.

FORM 10-Q

MARCH 31, 2012

INDEX

 

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011	1
	Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011 and for the Period July 8, 2010 (Inception of Exploration Stage) to March 31, 2012 (unaudited)	2
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 and for the Period July 8, 2010 (Inception of Exploration Stage) to March 31, 2012 (unaudited)	3
	Notes to Consolidated Financial Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1.A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
SIGNATURES		26

   

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Consolidated Balance Sheets

 

		March 31,				December 31,
		2012				2011
		(unaudited)
ASSETS
Current assets:
Cash		$	4,345			$	4,864
Prepaid expenses (Note 4)			20,632				4,163
Total current assets			24,977				9,027
Property and equipment, net			3,806				4,313
Total assets		$	28,783			$	13,340
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable		$	67,910			$	54,235
Accrued expenses			202,917				221,981
Due to related parties (Note 3)			140,000				50,000
Total current liabilities			410,827				326,216
Other liabilities			—				—
Total liabilities			410,827				326,216
Commitments and contingencies (Note 6)
Stockholders' deficit (Note 4):
Common stock $.001 par value 1,000,000,000 shares authorized, 31,644,658 shares issued and outstanding, at March 31, 2012 and December 31, 2011, respectively			31,645				31,645
Common stock issuable, 50,000 and nil shares issuable, at March 31, 2012 and December 31, 2011, respectively			50				—
Additional paid-in capital			17,667,755				17,525,805
Deficit accumulated from prior operations			(208,131	)			(208,131	)
Deficit accumulated during the exploration stage			(17,873,363	)			(17,662,195	)
Total stockholders' deficit			(382,044	)			(312,876	)
Total liabilities and stockholders' deficit		$	28,783			$	13,340

 

See accompanying notes to consolidated financial statements.

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Consolidated Statements of Operations

(unaudited)

 

		For the Three Months Ended								For the Period July 8, 2010 (Inception of Exploration Stage)
		March 31,								to March 31,
		2012				2011				2012
Operating expenses:
General and administrative (Note 3)		$	249,608			$	301,095			$	1,772,086
Mineral property impairment (Note 2)			—				—				104,027
Mineral property option payments (Note 2)			—				15,059,760				15,319,760
Mineral property expenditures (Note 2)			36,560				—				73,120
Mineral property exploration costs (Note 2)			—				46,175				300,316
Total operating expenses			286,168				15,407,030				17,569,309
Other income (expense):
Gain on settlement of debt (Note 5)			75,000				—				75,000
Interest expense (Note 3)			—				—				(379,054	)
Net loss		$	(211,168	)		$	(15,407,030	)		$	(17,873,363	)
Net loss per share - Basic and diluted		$	(0.01	)		$	(1.43	)
Weighted average number of shares outstanding during the period - Basic and diluted			31,646,856				10,779,383

 

 

 

See accompanying notes to consolidated financial statements.

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(unaudited)

 

		For the Three Months Ended March 31,								For the Period July 8, 2010 (Inception of Exploration Stage) to March 31,
		2012				2011				2012
Cash flows used in operating activities:
Net loss		$	(211,168	)		$	(15,407,030	)		$	(17,873,363	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation			507				254				2,283
Stock-based compensation			99,938				—				99,938
Stock issued for services			25,000				72,212				680,148
Accretion of discount on secured convertible promissory note for commitment shares and warrants			—				—				344,594
Accretion of beneficial conversion feature on secured convertible promissory note			—				—				30,405
Interest accrued on secured convertible promissory note			—				—				4,055
Non-cash mineral property expenditures			—				15,059,760				15,234,760
Impairment of mineral rights			—				—				104,027
Gain on settlement of debt			(75,000	)			—				(75,000	)
Changes in operating assets and liabilities:
Prepaid expenses			593				(41,666	)			(3,570	)
Accounts payable			13,675				(4,394	)			62,940
Accrued expenses			55,936				(24,255	)			277,917
Net cash used in operating activities			(90,519	)			(345,119	)			(1,110,866	)
Cash flows used in investing activities:
Purchase of property and equipment			—				(6,089	)			(6,089	)
Acquisition of mineral rights			—				—				(50,000	)
Net cash used in investing activities			—				(6,089	)			(56,089	)
Cash flows from financing activities:
Deferred issuance costs			—				(20,000	)			—
Advances from related parties, net			90,000				—				140,000
Proceeds from issuance of note payable, related parties			—				—				200,000
Proceeds from sale of common stock			—				500,000				831,300
Net cash provided by financing activities			90,000				480,000				1,171,300
Net increase (decrease) in cash			(519	)			128,792				4,345
Cash at beginning of period			4,864				21,834				—
Cash at end of period		$	4,345			$	150,626			$	4,345
Supplemental disclosure of cash flow information:
Cash paid for interest		$	—			$	—			$	—
Cash paid for taxes		$	—			$	—			$	—

  

See accompanying notes to consolidated financial statements. 

Continued

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows (Continued)

(unaudited)

 

		For the Three Months Ended March 31,								For the Period July 8, 2010 (Inception of Exploration Stage) to March 31,
		2012				2011				2012
Non-cash investing and financing activities:
Warrants issued for prepaid consulting fees		$	(19,500	)		$	—			$	—
Additional paid in capital		$	19,500			$	—			$	—
Stock issued for prepaid consulting services		$	—			$	(649,900	)		$	(649,900	)
Common stock		$	—			$	50			$	(50	)
Additional paid in capital		$	—			$	649,850			$	(649,850	)
Conversion of secured convertible promissory note and accrued interest to common stock
Secured convertible promissory note		$	—			$	—			$	(379,055	)
Common stock		$	—			$	—			$	18,953
Additional paid in capital on stock issued		$	—			$	—			$	360,102
Conversion of related party payable to capital		$	—			$	—			$	19,603
Additional paid in capital		$	—			$	—			$	(19,603	)
Value of mineral rights contributed to the Company		$	—			$	—			$	(54,027	)
Additional paid in capital		$	—			$	—			$	54,027
Contribution of 19,792,500 shares of common stock to treasury by principal shareholder:		$	—			$	—			$	(129,851	)
Additional paid in capital		$	—			$	—			$	129,851
Retirement and cancellation of 19,792,500 shares of common stock:
Common stock		$	—			$	—			$	(19,793	)
Treasury stock		$	—			$	—			$	129,851
Deficit accumulated from prior operations		$	—			$	—			$	(110,058	)

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 1 – Nature of Business, Presentation, and Going Concern

 

Organization

 

Spartan Gold Ltd., (the “Company”), was incorporated in Nevada on September 6, 2007.

 

On May 21, 2010, the Company experienced a change in control and the Company abandoned its original plan of developing and operating biodiesel facilities to concentrate on gold exploration. Concurrent with the change in control transaction, all related party obligations were settled.

 

On July 8, 2010, the Company filed an amendment to its Articles of Incorporation in the State of Nevada to change its name to Spartan Gold Ltd.  The Company now operates as a U.S. based junior gold exploration company.  The Company is engaged in gold exploration activities on its two Nevada properties.

 

Stock Splits

 

On July 19, 2010, the Company's Board of Directors declared a one-to-forty forward stock split of all outstanding shares of common stock.

 

On November 9, 2011, the Company's Board of Directors declared a one-for-twenty reverse stock split of all outstanding shares of common stock.  All common share and per common share data in these consolidated financial statements and related notes hereto have been retroactively adjusted to account for the effect of the reverse stock splits for all periods presented prior to November 9, 2011.  The total number of authorized common shares and the par value thereof was not changed by the split.

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. All intercompany transactions and accounts have been eliminated in consolidation. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

 

These unaudited financial statements should be read in conjunction with our 2011 annual financial statements included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on April 12, 2012.

 

 

SPARTAN GOLD LTD.

 (An Exploration Stage Company)

  Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 1 – Nature of Business, Presentation, and Going Concern (Continued)

 

Exploration Stage Company

 

As of July 8, 2010, the Company became an “exploration stage company” as defined in the Securities and Exchange Commission Industry Guide 7, and is subject to compliance with ASC Topic 915 “Development Stage Entities”. For the period from September 6, 2007 (Inception) to July 8, 2010, the Company was a “development stage company” in accordance with ASC Topic 915. Deficits accumulated prior to becoming an “exploration stage company” have been separately presented in the accompanying consolidated balance sheets. To date, the Company's planned principal operations have not fully commenced.

 

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred a net loss of $211,168 for the three months ended March 31, 2012 and has incurred cumulative losses since inception of $18,081,494.  The Company has a stockholders’ deficit of $382,044 at March 31, 2012.  These factors raise substantial doubt about the ability of the Company to continue as a going concern.  The Company’s continuation as a going concern is dependent upon its ability to generate revenues, its ability to continue to raise investment capital, and to implement its business plan.  No assurance can be given that the Company will be successful in these efforts.

 

These unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

   

 

 

 

 

 

 

  

 

  

SPARTAN GOLD LTD.

 (An Exploration Stage Company)

  Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 2 – Mineral Properties

 

For the three months ended March 31, 2012 and 2011, the Company has incurred $36,560 and $15,105,935 in mineral property costs which have been charged to operations.  A summary by property is as follows:

 

		Ziggurat Property				Poker Flats Property				Arbacoochee Gold Prospect				Total
Three Months Ended March 31, 2012
Acquisition costs		$	—			$	—			$	—			$	—
Option payments			—				—				—				—
Property expenditures			—				36,560				—				36,560
Exploration costs			—				—				—				—
		$	—			$	36,560			$	—			$	36,560
Three Months Ended March 31, 2011
Acquisition costs		$	—			$	—			$	—			$	—
Option payments			10,085,760				4,974,000				—				15,059,760
Property expenditures			—				—				—				—
Exploration costs			19,043				23,312				3,820				46,175
		$	10,104,803			$	4,997,312			$	3,820			$	15,105,935
From July 8, 2010 (Inception of Exploration Stage) to March 31, 2012
Acquisition costs		$	—			$	—			$	104,027			$	104,027
Option payments			10,263,010				5,056,750				—				15,319,760
Property expenditures			—				73,120				—				73,120
Exploration costs			185,517				110,979				3,820				300,316
		$	10,448,527			$	5,240,849			$	107,847			$	15,797,223

 

Ziggurat Property

 

On December 27, 2010, the Company entered into Option and Mining Claim Acquisition Agreement (the “Option Agreement”) with Mexivada Mining Corporation (“MMC”) and Sphere Resources, Inc. (“Sphere”) .  Pursuant to the option agreement, the Company was granted an option to acquire up to a 70% interest in MMC’s Ziggurat property. Upon earning a 70% interest, the Company was to grant a 35% interest to Sphere under the terms of a joint venture agreement. On December 27, 2010, the Company paid $25,000 to MMC.

 

 

 

 

 

 

 

 

SPARTAN GOLD LTD.

 (An Exploration Stage Company)

  Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 2 – Mineral Properties (Continued)

 

Ziggurat Property (Continued)

 

On March 28, 2011, the Option Agreement was amended pursuant to a Memorandum of Understanding dated March 9, 2011, such that Sphere’s option to acquire an interest in the Ziggurat property was cancelled and the Company was granted the option to acquire up to a 75% interest for the following consideration:

 

	●	Issuance of 393,125 shares of common stock (issued at a fair value of $7,076,250) and 41,875 shares of common stock (issued at a fair value of $753,750) to Sphere and MMC, respectively on execution of the amended Option Agreement;
	●	Issuance of a warrant to purchase 193,100 shares (recorded at a fair value of $1,853,760) and a warrant to purchase 41,875 shares (recorded at a fair value of $402,000) to Sphere and MMC, respectively, with an exercise price of $20.00 per share until March 28, 2016;
	●	Payment of $35,000 to MMC by May 27, 2011 (paid);
	●	Payment of $25,000 to MMC by December 22, 2012 (not paid); and
	●	Payment of $25,000 to MMC by December 22, 2013.

   

As additional consideration, the Company was to register 25,000 and 6,250 shares owned by Sphere and MMC, respectively, upon the filing of an S-1 Registration Statement with the SEC by May 1, 2011. The failure of filing this S-1 would not result in any legal action to enforce this provision. As of March 31, 2012, the Company has not filed the S-1 Registration Statement and has not registered such shares.

 

Further, the Company will pay $117,250 (See Note 3 – Related Party Transactions) and $16,750 (not paid) to Sphere and MMC, respectively, of which 50% is to be paid within 60 days after the effective date of a S-1 to be filed with the SEC and the remainder after such date of Spartan obtaining financing of $2,000,000. As of March 31, 2012, the Company has neither filed a S-1 nor obtained such financing.

 

The Company will be considered to have acquired a 51% interest in the Ziggurat property by incurring exploration expenditures of $1,500,000 on or before March 28, 2014 and may acquire an additional 24% by incurring an additional $1,000,000 by March 28, 2014 and completing a mining prefeasibility study on or before March 28, 2016.

 

In consideration of MMC transferring the option agreement to the Company, Sphere is required to issue certain shares of common stock to MMC.

 

Upon earning a 75% interest in the Ziggurat property, a joint venture will be formed on a 75/25 basis for the Company and MMC, respectively.

 

On December 22, 2011, the Company, MMC and Sphere entered into an Agreement for Grant of Net Smelter Return (“NSR”) of its Ziggurat property.  Under this Agreement, the Company grants, conveys and assigns to Sphere a two and one-half percent (2.5%) NSR and grants, conveys and assigns to MMC a one-half of one percent (0.5%) NSR on the Company's share of mineral production from the Ziggurat Property if and when there is production from the Ziggurat Property. It is the intent and understanding of the parties that the terms NSR and the term Exploration Expenditures shall have the same meanings and applications to the Ziggurat Property as those terms are defined and applied in the Poker Flats Option Agreement to the Poker Flats Property, notwithstanding any other verbal conversations between the parties.

 

The agreement further stipulates if and when the Company elects to sell and convey all or a portion of its interest in the Ziggurat Property, the Company shall have the right to purchase up to one hundred percent (100%) of the two and one-half percent (2.5%) NSR granted, conveyed and assigned by the Company to Sphere, under terms to be agreed upon by the parties.

 

 

SPARTAN GOLD LTD.

 (An Exploration Stage Company)

  Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 2 – Mineral Properties (Continued)

 

Poker Flats Property

 

On December 22, 2010, the Company entered into an Option and Mining Claim Acquisition Agreement (the “Option Agreement) between MMC and Sphere .  Pursuant to the Option Agreement, the Company was granted an option to acquire up to a 70% interest in MMC’s Poker Flats property located in Elko County, Nevada.  The Poker Flats Property is subject to a 3% NSR.  Upon earning a 70% interest, the Company was to grant a 35% interest to Sphere under the terms of a joint venture agreement. On December 22, 2010, the Company paid $25,000 to MMC.

 

On March 28, 2011, the Option Agreement was amended pursuant to a Memorandum of Understanding dated March 9, 2011, such that Sphere’s option to acquire an interest in the Poker Flats property was cancelled and the Company was granted the option to acquire up to a 75% interest for the following consideration:

 

	●	Issuance of 194,375 shares of common stock (issued and recorded at a fair value of  $3,498,750) and 20,625 shares of common stock (issued and recorded at a fair value of $371,250) to Sphere and MMC, respectively on execution of the amended Option Agreement; and
	●	Issuance of a warrant to purchase 94,375 shares (recorded at a fair value of $906,000) and a warrant to purchase 20,625 shares (recorded at a fair value of $198,000) of common stock to Sphere and MMC, respectively, with an exercise price of $20.00 per share until March 28, 2016.

   

As additional consideration, the Company was to register 25,000 and 6,250 shares of common stock owned by Sphere and MMC, respectively, upon the filing of a S-1 with the SEC by May 1, 2011. The failure of filing this S-1 would not result in any legal action to enforce this provision. As of March 31, 2012, the Company had not filed the S-1 and has not registered such shares.

 

Further, the Company will pay $57,750 (See Note 3 – Related Party Transactions) and $8,250 (not paid) to Sphere and MMC, respectively, of which 50% is to be paid within 60 days after the effective date of a S-1 to be filed with the SEC and the remainder after such date of the Company obtaining financing of $2,000,000. As of March 31, 2012, the Company has neither filed a S-1 nor obtained such financing.

 

The Company will be considered to have acquired a 51% interest in the Poker Flats property by incurring exploration expenditures of $500,000 on or before March 28, 2014 and may acquire an additional 24% by incurring an additional $250,000 and completing a mining prefeasibility study on or before March 28, 2016.

 

In consideration of MMC transferring the option agreement to Spartan, Sphere is required to issue tranches of shares of common stock to MMC.

 

Upon execution of the amended Option Agreement, 75% of the 3% NSR was granted to the Company and 25% to MMC. Each party will have the option to purchase up to a 3% interest of the NSR for $1,000,000 per percentage point. Further, a 2% NSR, for any bullion and other products, was granted to Sphere. Should the Poker Flats property be sold or conveyed to any third party, the Company will be granted the right to purchase the 2% NSR.

 

Upon earning a 75% interest in the Poker Flats property, a joint venture will be formed on a basis of a 75/25 basis for the Company and MMC, respectively.

 

On April 1, 2011, the Company entered into a Mining Lease and Agreement (the “Agreement”) with K & K Tomera Lands, LLC, a Nevada Limited Liability Company (“Tomera”). This Mining Lease and Agreement pertains to the Poker Flats property located within the Carlin Mining District in Elko County, Nevada. 

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 2 – Mineral Properties (Continued)

 

Poker Flats Property (Continued)

 

Under the terms of this Agreement, the Company agreed to pay Tomera a 5% NSR, as defined in the Agreement. In order to maintain this Agreement in effect, the Company shall pay to Tomera Advance Minimum Royalty (“AMR”) Payments. AMR payments are calculated based on the net mineral acres leased on an annual basis. The Company paid, at the execution of the Agreement, $30,800 for the first year of the lease based on the 1,760 net mineral acres leased at $17.50 per acre. Future AMR payments, on a per net mineral acre basis, are: $17.50 per acre on the first and second anniversaries of the Agreement, $21.00 per acre on the third and fourth anniversaries, $24.50 per acre on the fifth and sixth anniversaries, and $28.00 per acre on the seventh and any subsequent anniversaries. The term of the Agreement is for a period of ten years. The Company has the option to extend the initial term for an additional ten year period.

 

In connection with the Mining Lease and Agreement, the Company entered into a Surface Access and Use Agreement on April 1, 2011 with Kevin Tomera, a Nevada resident, which grants the Company general rights of ingress and egress over certain surface tracts and the right to use the surface tracts in conduct of its mineral exploration, development and mining activities.  Additionally, Tomera has granted the Company an option to purchase portions of the surface tracts.  Under the terms of the Surface Access and Use Agreement, the Company agrees to pay Kevin Tomera annual rental of $4.50 per acre for each acre of land included in the surface tracts.  The Company paid $5,760 during the year ended December 31, 2011.  The term of the Agreement is for ten years.

 

On December 22, 2011, the Company, MMC and Sphere entered into an Agreement for Grant of NSR of its Poker Flats property.  Under this Agreement, the Company grants, conveys and assigns to Sphere a two percent (2%) NSR, to be calculated in the same manner as the “Net Smelter Returns” defined in the Poker Flats Option Agreement, on its share of mineral production from the Poker Flats Property if and when there is production from the Poker Flats Property. This 2% NSR granted by the Company to Sphere on the Company's share of production from the Poker Flats Property is in addition to the three percent (3%) NSR retained by the owner of the mining claims leased to MMC and Area of Interest defined therein, subject to the Poker Flats Option Agreement.

 

The agreement further stipulates that:

 

a.

If and when the Company elects to sell and convey all or a portion of its interest in the Poker Flats Property, the Company shall have the right to purchase up to one hundred percent (100%) of the two percent (2%) NSR granted, conveyed and assigned by the Company to Sphere on its share of production from the Poker Flats Property, under terms to be agreed upon by the Company and Sphere, and

 

b.

If and when the Company elects to sell and convey all or a portion of its interest in the Poker Flats Property, the Company shall have the right to purchase up to seventy five percent (75%) and MMC shall have the right to purchase up to twenty five percent (25%) of the three percent (3%) NSR on mineral production from the Poker Flats Property retained by the owner of the mining claims subject to the Poker Flats Option Agreement, for one million U.S. dollars (U.S. $1,000,000.00) per NSR percentage point.

 

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 2 – Mineral Properties (Continued)

 

Arbacoochee Gold Prospect

 

On October 22, 2010, the Company acquired all of the mineral rights in the Arbacoochee Gold Prospect located in northeastern Alabama. The acquisition includes all legal rights and equitable title to the mineral rights held by deed in the name of Alabama Mineral Properties, LLC (“AMP”).

 

The mineral rights were acquired for cash of $50,000 and 5,563,468 shares of the Company’s issued and outstanding common stock at a fair value of $54,027.  The shares were a contribution from shareholders, resulting in a capital contribution.

 

The Company assumed an existing mineral royalty agreement which requires the payment of 6% NSR overriding royalty for any and all precious metals that are mined, processed or recovered from the Arbacoochee Gold Prospect to AMP.

 

At December 31, 2010, the Company impaired the Arbacoochee Gold Prospect and $104,027 was charged to operations.

 

Note 3 – Related Party Transactions 

 

The Company issued Sphere 587,500 shares of the Company’s common stock and warrants to purchase an additional 287,475 shares to Sphere in connection with the option agreements on the Poker Flats and Ziggurat properties (See Note 2 – Mineral Properties).  Additionally, cash payments to Sphere of $175,000 were due and recorded as part of the Convertible Promissory Note.  Mr. Malcolm Stevens, the Company’s Chief Executive Officer, Director and Chairman, is also the Executive Chairman and President of Sphere Resources, Inc., a Canadian Corporation.

 

On September 7, 2011, the Company issued a $375,000 Secured Convertible Promissory Note (the “Note”) to Sphere maturing on September 30, 2011. The Note was interest bearing at the rate of 8% per annum and payable upon maturity.  The principal was comprised of the following:

 

	●	$200,000 cash payments made by Sphere to the Company;
	●	$57,750 due to Sphere pursuant to the Poker Flats Property (See Note 2 – Mineral Properties); and
	●	$117,250 due to Sphere pursuant to the Ziggurat Property (See Note 2 – Mineral Properties).

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 3 – Related Party Transactions (continued)

 

The Company granted a security interest in substantially all of the assets of the Company as collateral for the Note.  The face amount of the note plus accrued interest was convertible into common stock of the Company at $0.02 per share, at the option of the holder.

 

Additionally, the Company issued commitment shares of common stock totaling 1,250,000, equivalent to $2,500,000, and 1,250,000 warrants, equivalent to $1,750,000, at the closing date to obtain the loan.  In accordance with ASC Topic 470-25 “Debt”, the Company utilized the market approach to value the debt instrument and allocated the net proceeds from the issuance of the Note based upon the pro rata portion of the fair value of the Note and the undiscounted value of the commitment shares and warrants, being $202,702 and $141,892, respectively.

 

The Company recognized the embedded beneficial conversion feature and the pro rata value of the commitment shares and warrants aggregated $374,999 and were accreted from the issuance date of the Note through maturity.  As of September 30, 2011, the maturity date of the Note, the entire beneficial conversion feature of $30,405, and discount accretion for the commitment shares and warrants, was recorded as interest expense.

 

On October 6, 2011 the Company received a demand letter from Sphere demanding payment of the principal and interest due by October 20, 2011.  As the Company was unable to pay the Note of $375,000 plus accrued interest of $4,055, the total balance was converted into 18,952,774 shares of common stock.

 

During the year ended December 31, 2011, the Company paid $6,772 to a family member of a Director and President of the Company for administrative services.

 

As of March 31, 2012, Sphere advanced a total of $140,000 to the Company.  The advance has no repayment date and does not bear interest.

 

As of March 31, 2012, the Company is obligated to issue 50,000 shares of common stock to the Chief Financial Officer of the Company pursuant to an employment agreement.

 

These transactions are in the normal course of business and are recorded at the exchange amount, which is the consideration agreed to by the related parties.

 

Note 4 – Stockholders’ Deficit 

 

On March 28, 2012, the Company’s Board of Directors approved and adopted the Spartan Gold Ltd. 2012 Equity Incentive Plan (the “Plan”) and reserved 4,750,000 shares of the Company’s common stock for issuance under the Plan to the Company’s directors, officers, consultants and other service providers.  The Plan allows for two types of grants: 1) options and 2) stock awards and stock purchase offers.  As of March 31, 2012, no options or stock awards have been granted.

 

As of March 31, 2012, the Company is obligated to issue 50,000 shares of its common stock to the Chief Financial Officer of the Company pursuant to an employment agreement. The fair value of these shares, totaling $25,000, was expensed and recorded in general and administrative expenses. These shares are disclosed as common stock issuable in the accompanying consolidated balance sheet. 

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 4 – Stockholders’ Deficit (Continue)

 

Warrants

 

On March 28, 2011, the Company issued warrants to purchase 349,975 shares of the Company’s common stock in connection with the option agreements for the Poker Flats and Ziggurat properties (See Note 2 – Mineral Properties).  These warrants have contractual lives of five years and were valued at a grant date fair value of $9.60 per warrant, or $3,359,760, using a Black-Scholes option pricing model with the following assumptions:

 

Stock price	$18.00
Contractual term	5 years
Expected volatility	87.6%
Risk free interest rate	0.81%
Dividend yield	0

 

The volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. The risk free interest rate was based on the five year treasury rates, as applicable to the contract term. The dividend yield was assumed to be zero.

 

On September 7, 2011, the Company issued warrants to purchase 1,250,000 shares of the Company’s common stock to Sphere as a financing fee related to the Note.  These warrants have contractual lives of five years and were valued at a grant date fair value of $1.40 per warrant, or $1,750,000, using a Black-Scholes option pricing model with the following assumptions:

 

Stock price	$2.00
Contractual term	5 years
Expected volatility	84.7%
Risk free interest rate	0.92%
Dividend yield	0

 

The volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. The risk free interest rate was based on the three year treasury rates, as applicable to the contract term. The dividend yield was assumed to be zero.

 

On March 1, 2012, the Company issued warrants to purchase 750,000 shares of the Company’s common stock to a consultant for services to be rendered (See Note 6 – Commitments and Contingencies).  These warrants have contractual lives of three years and were valued at a grant date fair value of $0.13 per warrant, or $97,500, using a Black-Scholes option pricing model with the following assumptions:

 

Stock price	$0.50
Contractual term	3 years
Expected volatility	77.7%
Risk free interest rate	0.43%
Dividend yield	0

 

 

SPARTAN GOLD LTD.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 4 – Stockholders’ Deficit (Continued)

 

Warrants (Continued)

 

The fair value of these warrants was expensed and recorded in general and administrative expenses.

 

The volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. The risk free interest rate was based on the three year treasury rates, as applicable to the contract term. The dividend yield was assumed to be zero.

 

On March 8, 2012, the Company issued warrants to purchase 150,000 shares of the Company’s common stock to a consultant for services to be rendered (See Note 6 – Commitments and Contingencies).  These warrants have contractual lives of three years and were valued at a grant date fair value of $0.13 per warrant, or $19,500, using a Black-Scholes option pricing model with the following assumptions:

 

Stock price	$0.51
Contractual term	3 years
Expected volatility	77.7%
Risk free interest rate	0.44%
Dividend yield	0

 

Of the total fair value, $2,438 was expensed and recorded in general and administrative expenses. At March 31, 2012, $17,062 remains in prepaid expenses (December 31, 2011 – $nil). The volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. The risk free interest rate was based on the three year treasury rates, as applicable to the contract term. The dividend yield was assumed to be zero.

 

The following table summarizes warrant transactions for the year ended December 31, 2011 and three months ended March 31, 2012:

 

				Number of warrants				Weighted average exercise price				Weighted average remaining contracted term (years)				Aggregate intrinsic value
	Outstanding at December 31, 2010				—			$	—
	Granted				1,599,975			$	5.94
	Outstanding at December 31, 2011				1,599,975			$	5.94				4.59			$	—
	Granted				900,000			$	1.40
	Outstanding at March 31, 2012				2,499,975			$	4.30				3.83			$	—
	Exercisable at March 31, 2012				2,499,975			$	4.30				3.83			$	—
	Weighted Average Grant Date Fair Value							$	2.09

 

 

SPARTAN GOLD LTD.

 (An Exploration Stage Company)

  Notes to Consolidated Financial Statements

March 31, 2012

(unaudited)

 

Note 5 – Settlement of Debt

 

On February 10, 2012, two parties, a consultant and a former employee of the Company, released the Company of remaining contractual amounts due to them totaling $75,000 which were recorded in accrued liabilities at December 31, 2011.

 

Note 6 – Commitments and Contingencies

 

See Note 2 – Mineral Properties.

 

On February 14, 2011, the Company entered into a 12 month lease agreement for its corporate offices in Scottsdale Arizona.  The lease is effective March 1, 2011, calls for monthly base rent payments of $2,900, and includes an option to extend the lease for an additional 12 months at the same base rent.

 

On March 1, 2012, the Company entered into a letter agreement (the “Letter Agreement”) with a financial advisor for assistance with raising equity and/or debt capital from investors (the “Transaction”), for the following consideration:

 

a)

Retainer: A retainer of a cashless exercise warrant to purchase 750,000 shares of common stock at an exercise price of the lowest of $1.40 per share, at the same price of those shares issued to management, or 85% of the common stock price at the next funding.

b)

Success Fee: A success fee, upon an investor introduced to the Company, equal to:

-

8.5% on any equity invested by an investor;

-

6% of any subordinated debt invested by an investor; and

-

warrants to purchase 10% of the securities issued or issuable to investors in the Transaction on the same terms and conditions.

c)

Reimburse the financial advisor for all expenses incurred.

 

On March 8, 2012, the Company entered into a consulting agreement (the “Consulting Agreement”) with a corporate advisor for assistance in the development of strategies and tactics to improve the Company’s external communication of its corporate strategy and asset value for the following consideration:

 

a)

Retainer: A retainer of a cashless exercise warrant to purchase 150,000 shares of common stock at an exercise price of the lowest of $1.40 per share, at the same price of those shares issued to management, or 85% of the common stock price at the next funding.

b)

Services Fee: A fee of $5,000 per day for each day that consultant provides the Company with the agreed services.

c)

Reimburse the consultant for all expenses incurred.

 

As of March 31, 2012, the Company is obligated to issue 50,000 shares of common stock to the Chief Financial Officer of the Company pursuant to an employment agreement.

 

Note 7 – Subsequent Events

 

On May 1, 2012, the Company issued 50,000 shares of common stock to the Chief Financial Officer of the Company pursuant to an employment agreement.

The Company has evaluated subsequent events through the date the financial statements were issued and filed with Securities and Exchange Commission. The Company has determined that there are no other events that warrant disclosure or recognition in the financial statements.

 

 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

We believe that it is important to communicate our future expectations to our security holders and to the public.  This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” ”will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions.  Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement.  Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.

 

Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and in our subsequent filings with the Securities and Exchange Commission.  The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.

 

Company Overview

 

Spartan Gold Ltd. (the "Company", “Spartan”, “we”, “us” or “our”) is a U.S. based junior gold exploration company with gold exploration and development activities centered in both the Carlin-Rain and Round Mountain-Northumberland Gold Trends in Nevada. Spartan’s Poker Flats gold prospect is located within the Carlin-Rain region, and the Ziggurat gold prospect is located within the Round Mountain-Northumberland Mining District.

 

Each of these regions is endowed with major gold deposits operated by many of the world leaders in the mining industry. Major mining projects in the Carlin Trend are currently operated by Newmont Mining Corporation (trading on the NYSE) to the north and west of the Poker Flats prospects.  Additionally, some of the major mining projects in the Round Mountain-Northumberland districts are currently operated by Barrick Gold Corporation / Kinross Gold Corporation (NYSE) and also Newmont Mining Corporation which exist in close proximity to the Ziggurat prospect.  The Company also has mining interests in the northeast region of Alabama in the historical Arbacoochee Mining District.  The Company is currently pursuing opportunities for several acquisition targets around the world and focusing on operational plans for current projects.  The directors, management and advisers of Spartan Gold have over 90 years of combined experience in the exploration and development of global mining projects.

 

Spartan's commitment to asset growth and increased shareholder value will be sustained by the development of highly prospective projects, accelerated exploration activities and the acquisition of viable resources. Spartan has selected an international board of directors experienced in undertaking exploration, development and funding of numerous energy and minerals projects around the world.

 

 

 

Company History

 

Spartan Gold Ltd. was incorporated in Nevada on September 6, 2007 under the name Powergae, Inc. with the purpose of profitably constructing and operating biodiesel production facilities, establishing them in strategic locations, and selling the biodiesel through existing petroleum manufacturers and distributors.  On September 24, 2009, the Company changed its name to Algoil, Inc.  The central concept of Algoil, Inc. was making the production of biodiesel independent of its traditional sources such as soy bean, rape, sunflower seed or palm oil.

 

On May 21, 2010, the Company experienced a change in control.  Magic Grace Ltd. (“Magic Grace”) acquired the majority of the issued and outstanding common stock of Algoil, Inc. in accordance with a stock purchase agreement by and between Andriy Kovalenko and Magic Grace.  On the closing date, May 21, 2010, pursuant to the terms of the Stock Purchase Agreement, Magic Grace purchased from Mr. Kovalenko 14,290,000 (pre-split) shares of Company’s outstanding common stock for $187,500.  In accordance with the agreement, all related party obligations were settled.   Also on May 21, 2010, Real Challenge Group, Ltd. (“Real Challenge”) acquired 935,000 (pre-split) free-trading shares of the Company’s outstanding common stock in accordance with a stock purchase agreement by and between Andriy Kovalenko, as a duly authorized representative of the selling shareholders, and Real Challenge for $187,500.   As a result of the change in control, the Company abandoned its original plan of developing and operating biodiesel facilities.

 

On July 8, 2010, the Company filed an amendment to its Articles of Incorporation in the State of Nevada to change its name to Spartan Gold Ltd.  The Company has adopted its new strategic plan of gold exploration, development and mining.

 

On July 19, 2010, the Company's Board of Directors declared a forty-to-one forward stock split of all outstanding shares of common stock.  Subsequently, on August 12, 2010, Magic Grace contributed to the treasury, and the Company retired, 9,896,250 common shares of stock (395,850,000 as adjusted for the stock split).  The effect of the stock split and retirement of shares increased the number of shares of common stock outstanding from 15,225,000 to 213,150,000 as of August 12, 2010.

 

On October 19, 2011, the Company issued 18,952,774 shares of its common stock to Sphere Resources, Inc. (“Sphere”) in conversion of a Secured Convertible Promissory Note totaling $379,055 (including accrued interest of $4,055).  As a result of the share issuance, Sphere became the majority shareholder of the Company.

 

On November 9, 2011, the Company's Board of Directors declared a one-for-twenty reverse stock split of all outstanding shares of common stock.  The effect of the reverse stock split decreased the number of shares of common stock outstanding from 632,892,868 to 31,644,658 as of November 9, 2011. 

 

Plan of Operation

 

The immediate goal of Spartan’s management is to secure and augment the prospective land holdings under the Mexivada option agreements located in the Carlin-Rain and Round Mountain-Northumberland Gold Trends in Nevada.  We have options for the mineral concession rights at two projects in this region: Poker Flats and Ziggurat, both of which are located near existing operations of large mining corporations and have available mining and transportation infrastructures in place.

 

Both properties, Ziggurat and Poker Flats, require geological and geochemical mapping and analysis, in conjunction with geophysical mapping involving gravity and magnetic survey work, in order to better define future drill and exploration targets.  Our strategy is to advance each of these projects to the drilling stage as aggressively as prudent financing will allow and to determine the presence of gold, silver or other precious mineral reserves.   An updated NI 43-101 technical report will be produced for Ziggurat and Poker Flats once the geological work, including subsequent interpretation of results, has been completed.

 

If we are successful in doing so, we believe we can attract the attention of the existing mining companies already operating in the area or new mining companies to either enter into development agreements with us or to acquire the projects from us outright.

 

Additionally, we are currently identifying additional acquisition opportunities.

 

 

Mineral Properties

 

Currently, we have completed two Option and Mining Claim Agreements to the mineral rights on two properties in the Carlin-Rain and Round Mountain-Northumberland Gold Trends in Nevada and own the mineral rights to one property in the northeast region of Alabama.  A description of each property is summarized below:

 

Poker Flats Property

 

On December 22, 2010, we entered into an Option and Mining Claim Acquisition Agreement between Mexivada Mining Corporation (“MMC” or the “Optionor”) and Sphere Resources, Inc. (“Sphere”).  The agreement was amended on March 28 2011.  MMC is the owner of a 100% interest in 92 mining claims known as “Poker Flats” located in the Carlin Mining District in Elko County Nevada.  The Optionor has agreed to grant a 70%, which was amended to 75%, interest in the mineral rights free of all charges, encumbrances and claims, except for the mining lease and royalty agreements currently in existence under the following terms and conditions: (a) an initial 51% interest in the property will be earned upon incurring exploration expenditures of $500,000 on or before the third anniversary date of the agreement, all of which will be paid by the Company, and (b) an additional 24% interest in the property will be earned upon incurring additional exploration expenditures of $250,000 and completing and delivering to Optionor an industry-standard mining feasibility study on or before the fifth anniversary date of the agreement.  Such additional expenditures and mining feasibility study were to be incurred and paid by Sphere.  Under the amendment, the Company will be obligated to pay these additional expenditures.

 

In order to maintain the option, the Company and Sphere have agreed to the following: (a) the Company will paid to Optionor $25,000 upon executing the Option Agreement, and (b) Sphere will issue to Optionor 200,000 shares of Sphere Resources, Inc. common stock within 60 days of the execution of the Option Agreement and an additional 300,000 shares within 60 days of Optionee acquiring a 51% interest in the property.  The amendment extended the issuance of the 150,000 shares by Sphere to 60 days from the execution of the amendment and the issuance of the 150,000 shares by Sphere when the Company obtains a 75% in the mineral rights.

 

Upon exercise of the option, the Company will assume a 75% interest in an existing Production Royalty Agreement which requires the payment of 3% Net Smelter Return (“NSR”) for any and all products that are produced from the Poker Flats mining claims to the lessor of the claims to MMC.  The terms of the Agreement provide MMC the right to purchase each of the three percentage points of the NSR for a lump sum payment of $1,000,000 per percent at any time during the Agreement.  Upon exercise of the option, the Company shall have the right to purchase up to 75% of the 3% NSR and MMC shall have the right to purchase up to 25% of the 3% NSR.

 

On March 28, 2011, the Company, MMC and Sphere entered into an Amendment to the Option and Mining Claim Acquisition Agreement.  This Amendment provides a) the Company retains the full 70% interest in the Poker Flats gold concession, b) the Company will acquire an additional 5% interest in the Poker Flats gold concession from MMC, and c) the Company shall assume the responsibility for the second phase of exploration, and the mining feasibility study, for which Sphere was previously responsible. As a result of this Amendment, when the Company fulfills its obligations under the Option and Mining Claim Acquisition Agreement, it shall own the majority 75% interest outright, free and clear of all charges, encumbrances and claims, save for the Mining Lease and Royalties.

 

On April 1, 2011, the Company entered into a Mining Lease and Agreement (the “Agreement”) with K & K Tomera Lands, LLC, a Nevada Limited Liability Company (“Tomera”). This Mining Lease and Agreement pertains to the property located within the Carlin Mining District in Elko County, Nevada.  Under the terms of the Agreement, Tomera grants, lets and leases exclusively to Spartan Gold the property, together will all ores and minerals of every kind, except geothermal resources, coal and oil and gas and other hydrocarbons, water and sand and gravel, in, or under the Property, with the exclusive right to prospect and explore for, mine by any method now known or hereafter discovered, process, mill, prepare for market, store, sell, and dispose of the same; and together with all such rights-of-way and easements to the extent owned by Tomera, if any, through, over, on or appertaining to the Property. The property initially contains 1,760 net mineral acres and may be modified to increase or decrease over time at the option of the Company.

 

 

On December 22, 2011, the Company, MMC and Sphere entered into an Agreement for Grant of NSR of its Poker Flats property.  Under this Agreement, the Company granted, conveyed and assigned to Sphere a two percent (2%) NSR, to be calculated in the same manner as the “Net Smelter Returns” defined in the Poker Flats Option Agreement, on its share of mineral production from the Poker Flats Property if and when there is production from the Poker Flats Property. This 2% NSR granted by the Company to Sphere on the Company's share of production from the Poker Flats Property is in addition to the three percent (3%) NSR retained by the owner of the mining claims leased to Mexivada and Area of Interest defined therein, subject to the Poker Flats Option Agreement.

 

The agreement further stipulates that:

   

a.

If and when the Company elects to sell and convey all or a portion of its interest in the Poker Flats Property, the Company shall have the right to purchase up to one hundred percent (100%) of the two percent (2%) NSR granted, conveyed and assigned by the Company to Sphere on its share of production from the Poker Flats Property, under terms to be agreed upon by the Company and Sphere, and

  

b.

If and when the Company elects to sell and convey all or a portion of its interest in the Poker Flats Property, the Company shall have the right to purchase up to seventy five percent (75%) and MMC shall have the right to purchase up to twenty five percent (25%) of the three percent (3%) NSR on mineral production from the Poker Flats Property retained by the owner of the mining claims subject to the Poker Flats Option Agreement, for one million U.S. dollars (U.S. $1,000,000.00) per NSR percentage point.

 

Poker Flats is located approximately 20 miles south-southwest of Elko, Nevada in the Carlin-Rain Trend.  Poker Flats began with 500 acres in the Carlin region which is home to some of the world's leaders in the mining industry.  Neighboring mining projects north and south of Poker Flats include Newmont Mining Corporation, Gold Standard Ventures Corporation, and Premier Gold Mines Limited.  The company has recently expanded Poker Flats to 3,600 acres and now holds an option for 75% majority ownership of this project.  The geological mapping process is under way and an updated NI 43-101 report was completed on November 22, 2011.  The new claim blocks and private mineral rights now included in the Poker Flats project are surrounded by Newmont Mining Corporation's Emigrant project on the northern border and several other productive projects including Newmont's Rain-Tess and Emigrant Mines, Premier Gold Mines Limited's Saddle gold prospect and Gold Standard Ventures Corporations' Railroad gold project.  The Company’s team is now conducting geological mapping and analysis, in conjunction with geophysical mapping involving gravity and magnetic survey work.  Once mapping and interpretations are completed, we will proceed with the finalization of an updated NI 43-101 compliant technical report encompassing the entire property that includes the private mineral rights to better define future drilling and exploration targets.

 

Additional drilling, geophysical and geological work is planned at Poker Flats by Spartan under a two-phase exploration program. Since the property is situated adjacent to other current gold mining properties such as Pinon and Railroad, and as the mineralization appears similar to those at Newmont's Emigrant and Rain Mines and at the Railroad deposit, additional exploration expenditures are justified for the Poker Flats property.

 

The exploration goal at the Poker Flats prospect is to identify a 500,000 to 1,000,000 ounce open-pit gold mining resource. A major mining project is currently being developed by Newmont Mining Corporation immediately north of the Poker Flats prospects.

 

 

 

 

Ziggurat Property

 

On December 27, 2010, we entered into an Option and Mining Claim Acquisition Agreement between MMC (the “Optionor”) and Sphere.  The agreement was amended on March 28 2011.  MMC is the owner of a 100% interest in 343 lode mining claims in Nye County, in the State of Nevada, known as the “Ziggurat” Prospect.  Under the terms of the agreement, the optionor has agreed to grant to Optionee a 70%, which was amended to 75%, interest in and to the property mineral rights free and clear of all charges, encumbrances and claims under the following terms and conditions: (a) Optionee will acquire a 51% interest in the property upon incurring exploration expenditures of $1,500,000 on or before the third anniversary date of the agreement, all of which will be paid by Spartan, and (b) Optionee will acquire an additional 24% interest in the property upon incurring additional exploration expenditures of $1,000,000 and completing and delivering to Optionor an industry-standard mining feasibility study on or before the fifth anniversary date of the agreement.  Such additional expenditures and mining feasibility study were to be incurred and paid by Sphere.  Under the amendment, the Company will be obligated to pay these additional expenditures.

 

In order to maintain the option, the Company was required to make the following cash payments: (a) $25,000 was paid upon execution of the agreement, (b) $35,000 was paid within 90 days of the execution of the agreement, (c) $25,000 on or before the second anniversary date of the agreement, and (d) $25,000 on or before the third anniversary date of the agreement.  Additionally, Sphere shall issue to Optionor 300,000 shares of its common stock within 60 days of the execution of the Option Agreement and an additional 400,000 shares within 60 days of Optionee acquiring a 51% interest in the property.  The amendment extends the issuance of the 250,000 shares by Sphere to 60 days from the execution of the amendment and the issuance of the 250,000 shares by Sphere when the Company obtains a 75% in the mineral rights.

 

On March 28, 2011, the Company, MMC and Sphere entered into an Amendment to the Option and Mining Claim Acquisition Agreement.  This Amendment provides a) the Company retains the full 70% interest in the Ziggurat gold concession, b) the Company will acquire an additional 5% interest in the Ziggurat gold concession from MMC, and c) the Company shall assume the responsibility for the second phase of exploration, and the mining feasibility study, for which Sphere was previously responsible. As a result of this Amendment, when the Company fulfills its obligations under the Option and Mining Claim Acquisition Agreement, it shall own the majority 75% interest outright, free and clear of all charges, encumbrances and claims.

 

On December 22, 2011, the Company, MMC and Sphere entered into an Agreement for Grant of NSR of its Ziggurat property.  Under this Agreement, the Company grants, conveys and assigns to Sphere a two and one-half percent (2.5%) NSR and grants, conveys and assigns to MMC a one-half of one percent (0.5%) NSR on the Company's share of mineral production from the Ziggurat Property if and when there is production from the Ziggurat Property. It is the intent and understanding of the parties that the terms NSR and the term Exploration Expenditures shall have the same meanings and applications to the Ziggurat Property as those terms are defined and applied in the Poker Flats Option Agreement to the Poker Flats Property, notwithstanding any other verbal conversations between the parties.

 

The agreement further stipulates if and when the Company elects to sell and convey all or a portion of its interest in the Ziggurat Property, the Company shall have the right to purchase up to one hundred percent (100%) of the two and one-half percent (2.5%) NSR granted, conveyed and assigned by the Company to Sphere, under terms to be agreed upon by the parties.

 

The Ziggurat property is located approximately 22 kilometers north of Kinross Gold Corporation and Barrick Gold Corporation’s Round Mountain and Gold Hill gold mines in Nye County, Nevada.  The Ziggurat property began with 1,140 acres in the prolific Round Mountain-Northumberland Trend. The neighboring Northumberland mining project is located eight kilometers to the northeast of Ziggurat, and is owned by mining industry world leader Newmont Mining Corporation.  The Company has recently expanded Ziggurat to 6,800 acres and now holds an option for 75% majority ownership of this project.  Previous geophysical and geological interpretations indicate that the Ziggurat property has favorable characteristics for Carlin-style gold mineralization.  Since the property is situated in close proximity to other current gold mining properties such as Northumberland, Gold Hill, and Round Mountain, and the geologic structure and surface-mineralized host rocks appear very favorable, the Ziggurat property justifies additional exploration expenditures. Spartan's team is now conducting geological mapping and analysis, in conjunction with geophysical mapping involving gravity and magnetic survey work.  Once mapping and interpretations are completed, Spartan will proceed with the finalization of an updated NI 43-101 compliant technical report encompassing the entire property to better define future drilling and exploration targets.

 

 

Additional drilling, geophysical and geological work is planned under a two-phase exploration program. Since the property is situated adjacent to other current gold mining properties such as Northumberland, Gold Hill, and Round Mountain, and the geologic structure and surface-mineralized host rocks appear very favorable, the Ziggurat property justifies additional exploration expenditure.

 

The exploration goal at the Ziggurat prospect is to identify a multi-million ounce open-pit gold mining resource. Major mining projects are currently operated by Barrick Gold Corporation and Newmont Mining Corporation which exist both south and north of the Ziggurat prospect, respectively.

 

Arbacoochee Gold Prospect

 

On October 22, 2010, we acquired the mineral rights to a Gold Prospect which is a tract of approximately 320 acres located in close proximity to the historic Arbacoochee Gold Mining District. This Prospect contains minable placer located in Cleburne County, Alabama, 9 miles southeast of the city of Heflin. The property is located adjacent to the historic Gold Hill and is the central drain point for that hill. Most of the area’s historic gold production came from placer deposits near Gold Hill and Clear Creek. This property has not been worked in over 120 years.  The recent price of gold has made the previously dormant properties a viable target to explore and bring online.

 

The Company assumed an existing mineral royalty agreement which requires the payment of 6% Net Smelter Return (NSR) overriding royalty for any and all precious metals that are mined, processed or recovered from the Arbacoochee Gold Prospect to AMP.

 

Results of Operations

 

For the three months ended March 31, 2012 compared to the three months ended March 31, 2011 and For the Period July 8, 2010 (Inception of Exploration Stage) to March 31, 2012

 

Revenues

 

The Company had no revenue for the period from July 8, 2010 (inception of exploration stage) to March 31, 2011 as we are still in the exploration stage.

 

Operating Expenses and Other Income

 

For the three months ended March 31, 2012 our total operating expenses were $286,168 compared to $15,407,030 for the three months ended March 31, 2011 resulting in a decrease of $15,120,862 The decrease is attributable to option payments (stock based compensation) on mineral properties of $15,059,760 and mineral exploration costs of $46,175 during the three months ended March 31, 2011 while no such costs were expended during the three months ended March 31, 2012, offset by an increase in mineral property expenditures of $36,560. General and administrative expenses decreased $51,487 due primarily to decreases in consulting, legal and professional fees of $53,698; stock compensation of $47,212; costs and fees associated with being a publicly-traded company of $18,536; and general office, travel and overhead expense of $31,979, offset by an increase of stock-based consulting expense of $99,938. During the three months ended March 31, 2012, a gain on the settlement of debt was realized in the amount of $75,000.

 

For the period from July 8, 2010 (inception of exploration stage) to March 31, 2012, total expenses and net loss were $17,873,363, composed of general and administrative expenses of $1,772,086, mineral exploration costs of $300,316, mineral property expenditures of $73,120, mineral property option payments of $15,319,760, impairment of mineral property costs of 104,027, and interest expense of 379,054, offset by a gain on the settlement of debts of $75,000.

 

 

Liquidity and Capital Resources

 

Overview

 

For the three months ended March 31, 2012, we funded our operations through advances from shareholders, while for the three months ended March 31, 2011 we funded our operations through financing activities consisting of private placements of equity securities with outside investors. Our principal use of funds during the three months ended March 31, 2012 has been for mineral property expenditures and general corporate expenses.

 

Liquidity and Capital Resources during the three months ended March 31, 2012 compared to the three months ended March 31, 2011

 

As of March 31, 2012, we had cash of $4,345 and deficit in working capital of $385,850.  The Company generated a negative cash flow from operations of $90,519 for the three months ended March 31, 2012 compared to cash used in operations of $345,119 for the three months ended March 31, 2011. The negative cash flow from operating activities for the three months ended March 31, 2012 is primarily attributable to the Company's net loss from operations of $211,168, offset by depreciation of $507, stock-based consulting fees of $99.938, stock issuable for services of $25,000, and net changes in operating assets and liabilities of $70,204, and increased by gain on settlement of debt of $75,000.  Cash used in operations for the three months ended March 31, 2011 is primarily attributable to the Company's net loss from operations of $15,407,030, offset by noncash mineral property expenditures (stock based compensation) of $15,059,760, stock issued for services of $72,212, depreciation of $254, and increased by changes in operating assets and liabilities of $70,315.

 

The decrease in investing activities is attributable the purchase of equipment of $6,089 during the three months ended March 31, 2011.

 

During the three months ended March 31, 2012, the Company received advances from Sphere Resources of $90,000. During the three months ended March 31, 2011, the Company raised $500,000 by issuing common stock to outside investors and spent $20,000 on deferred issuance costs.

 

We will require additional financing during the current fiscal year according to our planned exploration activities. We plan to spend approximately $3,400,000 in the next twelve months to carry out exploration and administration activities on our Nevada mineral properties. We presently do not have sufficient financing to enable us to complete these activities and will require additional financing to perform future exploration work on all of our mineral properties. Our actual expenditures on these activities will depend on the amount of funds we have available as a result of our financing efforts. There is no assurance that we will be able to raise the necessary financing.

 

In January, 2011, we entered into a $5,000,000 financing commitment agreement with Geneva Switzerland based Knightstown Business Ltd (“Knightstown”).  On January 25, 2011, the Company received the first tranche of $500,000 from Knightstown under the agreement and issued 833,334 shares of its restricted stock at $.60 per share in the private placement. A second investment of $150,000 was received on April 26, 2011 and the Company issued 250,000 shares of its restricted stock at $.60 per share in the private placement.  Knightstown had committed to additional funding of $4,500,000 over the following six month period from the date of the agreement.  As of the date of this report, the commitment period has expired with no additional investments made by Knightstown and the agreement has not been renewed.

 

In February, 2011, we entered into an investment banking agreement with Century Pacific Securities, Inc. (“Century Pacific”).  Under terms of the agreement, Century Pacific will represent the Company in a best-efforts capacity in a $10,000,000 Private Placement into Public Equity (PIPE) transaction.  If completed, the private placement will be for an offering of restricted equity securities in the form of Spartan Gold’s common stock.  Century Pacific is a licensed broker-dealer and a member of FINRA (Financial Industry Regulatory Authority).  There is no assurance that Century Pacific, or the Company, will be successful in these efforts to raise the $10,000,000.

On September 7, 2011, the company issued a $375,000 Secured Convertible Promissory Note (“Promissory Note”) to Sphere Resources Inc. (“Sphere”) for $200,000 of cash proceeds and conversion of the $175,000 due in connection with the March 28, 2011 Amendments to the Option and Mining Claim Acquisition Agreements dated December 22 and 27, 2010 for its Poker Flats and Ziggurat properties. The Promissory Note is secured by all of the assets and property of the Company, bears interest at 8 per annum, is due on or before March 31, 2012, and is convertible into shares of common stock of the Company at a conversion price of $0.001 per share.

 

 

Additionally, on September 7, 2011, the Company issued 1,250,000 restricted shares of its common stock and warrants to purchase an additional 1,250,000 restricted shares at $2.00 to Sphere in connection with the issuance of a $375,000 Promissory Note to Sphere.

 

As of September 30, 2011, the Company had not repaid the Promissory Note and was in default. On October 6, 2011 the Company received a demand letter from Sphere demanding payment of the principal and interest due by October 20, 2011. As the Company was unable to pay the Promissory Note of $375,000 plus accrued interest of $4,055, it agreed to convert the total amount owed of $379,055 into 18,952,774 shares of its restricted common stock, per the terms of the Promissory Note, on October 19, 2011.

 

Going Concern

 

Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the financial statements for the year ended December 31, 2011 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

 

Our unaudited financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

 

There is no assurance that our operations will be profitable. The Company has conducted private placements of its common stock, which have generated funds to satisfy the initial cash requirements of its planned Nevada exploration ventures. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies

   

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of 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. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

 

 

 

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our audited consolidated financial statements for the year ended December 31, 2011, included in our Annual Report on Form 10-K as filed on April 12, 2012, for a discussion of our critical accounting policies and estimates.

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

  

The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

 

Item 4.    Controls and Procedures.

  

(a) Evaluation of Disclosure Controls and Procedures

   

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to chief executive and chief financial officers to allow timely decisions regarding disclosure.

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of such date.  

 

(b) Changes in Internal Control over Financial Reporting

 

On January 3, 2012, the Company appointed John S. Wittler to serve as its Chief Financial Officer and as a Director of the Company.

 

Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1.    Legal Proceedings

   

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company's property is not the subject of any pending legal proceedings.

 

Item 1A.  Risk Factors

  

The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

 

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

   

None.

 

Item 3.    Defaults Upon Senior Securities.

  

None.

 

Item 4.    Mine Safety Disclosures.

 

As the Company is its exploration stage, no mining activities have occurred as of the date of this report.  Therefore, this item is not applicable.

 

Item 5.    Other Information.

 

None.

 

Item 6.    Exhibits

  

	Exhibit 31.1	Rule 13a-14(a) Certification by the Principal Executive Officer
	Exhibit 31.2	Rule 13a-14(a) Certification by the Principal Financial Officer
	Exhibit 32.1	Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.2	Certification by the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	Exhibit 101.INS	XBRL Instance Document
	Exhibit 101.SCH	XBRL Schema Document
	Exhibit 101.CAL	XBRL Calculation Linkbase Document
	Exhibit 101.DEF	XBRL Definition Linkbase Document
	Exhibit 101.LAB	XBRL Label Linkbase Document
	Exhibit 101.PRE	XBRL Presentation Linkbase Document

 

   

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

Date:  May 8, 2012		By:  /s/ Malcolm Stevens
		Malcolm Stevens
		Chief Executive Officer (Principal Executive Officer)

 

 

Date:  May 8, 2012		By:  /s/ John S. Wittler
		John S. Wittler
		Chief Financial Officer (Principal Financial Officer)