MV Portfolios, Inc. - FORM 10-Q - September 24, 2013

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
o
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended July 31, 2013
 
OR
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission File Number: 000-54706
 
CALIFORNIA GOLD CORP.
(Exact Name of Registrant as Specified in its Charter)
 
Nevada
  
83-483725
(State of Incorporation)
  
(IRS Employer Identification No.)
 
4515 Ocean View Blvd., Suite 305, La Cañada, CA 91011
(818) 542-6891
(Address of principal executive offices and telephone number)
 
Indicate whether the registrant (1) 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  o  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  o  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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer  o
Smaller reporting company  þ
   
(Do not check if a smaller Reporting company)
  
 
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No þ
 
There were 115,201,260 shares of common stock issued and outstanding as of September 23, 2013.
 
 
 
 
 
INDEX
 
     
Page
  
     
         
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    27  
         
Exhibit - Certification of Principal Executive Officer and Principal Financial Officer
        
         
Exhibit - Certification of Chief Executive Officer and Chief Financial Officer
        
 
 
FINANCIAL INFORMATION
 
 
The financial statements of California Gold Corp. (the “Company”) required to be filed with this Quarterly Report on Form 10-Q were prepared by management and commence on the following page, together with the related Notes. In the opinion of management, these consolidated financial statements fairly present the financial condition of the Company, but should be read in conjunction with the financial statements of the Company for the period ended January 31, 2013, previously filed on Form 10-K with the Securities and Exchange Commission, File No. 000-54706.
 
 
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
   
July 31,
 2013
    
January 31,
 2013
  
             
ASSETS
                 
Current assets:
                
Cash
  
$
44,584
    
$
259,200
  
Prepaid expenses
    
9,370
      
16,283
  
Total current assets
    
53,954
      
275,483
  
                 
Property and equipment, net
    
5,223
      
6,104
  
Mining rights
    
91,250
      
91,250
  
Total assets
  
$
150,427
    
$
372,837
  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                 
Current liabilities:
                
Accounts payable
  
$
67,390
    
$
47,466
  
Accounts payable - related party
    
64,627
      
101,873
  
Derivative liabilities
    
410,129
      
327,661
  
Other accrued liabilities - related party
    
83,500
      
56,500
  
Total current liabilities
    
625,646
      
533,500
  
Total liabilities
    
625,646
      
533,500
  
                 
Stockholders' deficit:
                
Preferred stock, par value $0.001 per share, 22,000,000 shares authorized; 22,000,000 shares issued and outstanding at July 31, 2013 and at January 31, 2013, respectively
    
22,000
      
22,000
  
Common stock, par value $0.001 per share, 300,000,000 shares authorized; 115,201,260 shares issued and outstanding at July 31, 2013 and at January 31, 2013, respectively
    
115,201
      
115,201
  
Additional paid-in capital
    
2,684,583
      
2,534,588
  
Deficit accumulated during the exploration stage
    
(3,297,003)
      
(2,832,452)
  
Total stockholders' deficit
    
(475,219)
      
(160,663)
  
Total liabilities and stockholders' deficit
  
$
150,427
    
$
372,837
  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF EXPENSES
 (Unaudited)
 
               
April 19, 2004
  
   
Three Months Ended
    
Six Months Ended
    
(Inception)
  
   
July 31,
    
July 31,
    
to July 31,
  
   
2013
    
2012
    
2013
    
2012
    
2013
  
                               
Expenses:
                                        
Mineral property expenses
  
$
3,361
    
$
119,882
    
$
29,924
    
$
182,885
  
 
 $
697,397
  
Bad debt expense
    
-
      
-
      
-
      
-
      
559,483
  
Depreciation expense
    
440
      
441
      
881
      
881
      
3,586
  
General and administrative expenses
    
131,756
      
150,054
      
351,386
      
690,813
      
3,507,376
  
                                         
Total operating expenses
    
135,557
      
270,377
      
382,191
      
874,579
      
4,767,842
  
                                         
Loss from operations
    
(135,557)
      
(270,377)
      
(382,191)
      
(874,579)
      
(4,767,842)
  
                                         
Other income (expenses):
                                        
Interest income
    
35
      
305
      
108
      
674
      
3,397
  
Interest expense
    
-
      
-
      
-
      
-
      
(1,763
)
Realized and unrealized gain (loss) on derivatives, net
    
(124,231)
      
930,571
      
(82,468)
      
1,681,998
      
1,479,413
  
Amortization of debt discount
    
-
      
-
      
-
      
-
      
(9,618)
  
Foreign currency exchange loss
    
-
      
-
      
-
      
(221)
      
(590)
  
                                         
Total other income (expenses)
    
(124,196)
      
930,876
      
(82,360)
      
1,682,451
      
1,470,839
  
                                         
Net income (loss)
  
$
(259,753)
    
$
660,499
    
$
(464,551)
    
$
807,872
    
$
(3,297,003)
  
                                         
Income (loss) per common share:
                                        
Income (loss) per common share - basic and diluted
  
$
(0.00)
    
$
0.01
    
$
(0.00)
    
$
0.01
          
                                         
Weighted average number of common shares outstanding - basic and diluted
    
115,201,260
      
114,962,130
      
115,201,260
      
118,100,717
          
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Six Months Ended
    
April 19, 2004
(Inception)
  
   
July 31,
    
to July 31,
  
   
2013
    
2012
    
2013
  
Cash flows from operating activities:
                        
Net income (loss)
  
$
(464,551
)
  
$
807,872
    
$
(3,297,003
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                        
Depreciation expense
    
881
      
881
      
3,586
  
Stock-based compensation
    
-
      
125,000
      
125,000
  
Stock-based compensation - related party
    
149,995
      
157,782
      
1,466,424
  
Amortization of debt discount
    
-
      
-
      
9,618
  
Unrealized and realized (gain) loss on derivatives, net
    
82,468
      
(1,681,998
)
    
(1,479,413
)
Changes in operating assets and liabilities:
                        
Other receivables
    
-
      
5,907
      
-
  
Prepaid expenses
    
6,913
      
(2,104
)
    
(9,370
)
Prepaid expenses - related party
    
-
      
-
      
-
  
Accounts payable
    
19,924
      
33,062
      
9,043
  
Accounts payable - related party
    
(37,246)
      
68,146
      
222,292
  
Other accrued expenses - related party
    
27,000
      
27,000
      
83,642
  
Interest accrued on notes payable from related party
    
-
      
-
      
1,621
  
Net cash used in operating activities
    
(214,616
)
    
(458,452
)
    
(2,864,560
)
Cash flows from investing activities:
                        
Purchase of property and equipment
    
-
      
-
      
(8,809
)
Acquisition of mining rights
    
-
      
-
      
(70,000
)
Net cash used in investing activities
    
-
      
-
      
(78,809
)
Cash flows from financing activities:
                        
Proceeds from related party loans
    
-
      
-
      
92,430
  
Proceeds from common and preferred stock issued, net of offering costs
    
-
      
168,250
      
2,958,523
  
Payments from cancellation of common stock
    
-
      
-
      
(63,000)
  
Net cash provided by financing activities
    
-
      
168,250
      
2,987,953
  
Net increase (decrease) in cash
    
(214,616)
      
(290,202)
      
44,584
  
Cash - beginning of period
    
259,200
      
828,181
      
-
  
Cash - end of period
  
$
44,584
    
$
537,979
    
$
44,584
  
                         
Supplemental disclosure of cash flow information:
                        
Cash paid during the period for:
                        
Interest
  
$
-
    
$
-
    
$
-
  
Income taxes
  
$
-
    
$
-
    
$
-
  
                         
Noncash investing and financing activities:
                        
                         
Contributed capital - loss on extinguishment of debt owed to related party
  
$
-
    
$
-
    
$
374
  
Debt discount due to derivative liabilities
  
$
-
    
$
-
    
$
9,618
  
Contributed capital - payables settled by stockholder
  
$
-
    
$
-
    
$
157,665
  
Issuance of common stock for convertible notes
  
$
-
    
$
-
    
$
3,660
  
Re-class of derivatives related to convertible notes
  
$
-
    
$
-
    
$
91,365
  
Issuance of derivative warrant instruments
  
$
-
    
$
101,985
    
$
1,969,152
  
Related party note receivable write-off
  
$
-
    
$
-
    
$
557,927
  
Common stock cancellation
  
$
-
    
$
50,000
    
$
62,700
  
Issuance of common stock for acquisition of mining rights
  
$
-
    
$
-
    
$
21,250
  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1 - GENERAL ORGANIZATION AND BUSINESS
 
California Gold Corp. (“California Gold” or the “Company”) is a Nevada corporation whose principal focus is the identification, acquisition, and development of rare and precious metals mining properties in the Americas. The Company is still in the exploration stage and has not generated any revenues from its mining properties to date.
 
The Company was incorporated on April 19, 2004 under the name of Arbutus Resources, Inc. On August 9, 2007, the Company changed its name to US Uranium, Inc. On March 9, 2009, the Company changed its name to California Gold Corp.
 
NOTE 2 - BASIS OF PRESENTATION
 
The accompanying unaudited interim consolidated financial statements as of July 31, 2013 and 2012 and for the three and six months then ended have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual audited consolidated financial statements. The consolidated financial statements as of and for the three and six months ended July 31, 2013 and 2012 are unaudited. In the opinion of management, these consolidated financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The balance sheet at January 31, 2013 has been derived from audited consolidated financial statements; however, the notes to the consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 31, 2013 as filed with the SEC.
 
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, CalGold de Mexico, S. de R.L. de C.V., formed to explore mining opportunities in Mexico. Equity investments in which we exercise significant influence, but do not control and are not the primary beneficiary, are accounted for using the equity method of accounting. Investments in which we do not exercise significant influence over the investee are accounted for using the cost method of accounting. All material intercompany balances and transactions have been eliminated.

Mineral Rights, Exploration and Development Costs
 
Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Such costs are carried as an asset of the Company until it becomes apparent through exploration activities that the cost of such properties will not be realized through mining operations. As of July 31, 2013 and January 31, 2013, the Company capitalized $91,250 of costs to acquire an interest in mineral rights related to the AuroTellurio Property (Note 5).
 
Under U.S. GAAP, all mineral exploration expenditures associated with efforts to search for and establish mineral reserves are expensed as incurred. Costs to acquire properties are capitalized. Mine development costs incurred to construct the infrastructure necessary to extract the reserves and prepare the mine for production are also capitalized once proven and probable reserves exist, and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. For the three months ended July 31, 2013 and 2012, the Company recorded $3,361 and $119,882 of mineral exploration and development expenditures, respectively. For the six months ended July 31, 2013 and 2012, the Company recorded $29,924 and $182,885 of mineral exploration and development expenditures, respectively. These expenditures were expensed as incurred and recorded as mineral property expenses in the Company’s consolidated statements of expenses.
 
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Stock-Based Compensation
 
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under FASB ASC Topic 718, Compensation - Stock Compensation, which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the vesting period.
 
The Company also adopted FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees, to account for equity instruments issued to parties other than employees for acquiring goods or services. Such awards for services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable.

For the three months ended July 31, 2013 and 2012, the Company recorded $74,998 and $75,285 in stock-based compensation, respectively. For the six months ended July 31, 2013 and 2012, the Company recorded $149,995 and $282,782 in stock-based compensation, respectively. The Company’s stock-based compensation was recorded as a component of general and administrative expenses.

New Accounting Pronouncements
 
The Company does not expect adoption of the new accounting pronouncements will have a material effect on the Company’s consolidated financial statements.
 
NOTE 4 - EXPLORATION STAGE ACTIVITIES AND GOING CONCERN
 
The Company is currently in the exploration stage and has engaged in limited operations. While management of the Company believes that it will be successful in its planned capital formation and operating activities, there can be no assurance that the Company will be successful in the development of its planned objectives and generate sufficient revenues to earn a profit or sustain the operations of the Company.
 
The Company’s activities through July 31, 2013 have been supported by debt and equity financing. It has a cumulative loss since inception of $3,297,003 as of July 31, 2013. Management continues to seek funding from its shareholders and other qualified investors to pursue its business plan. In the alternative, the Company may be amenable to a sale, merger, or other acquisition in the event such transaction is deemed by management to be in the best interests of the shareholders.
 
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred a cumulative loss since inception and its cash resources are insufficient to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
 
 
8
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 5 - MINING RIGHTS
 
As of July 31, 2013 and January 31, 2013, the Company had $91,250 of mineral rights related to the AuroTellurio Property, discussed below.
 
On February 11, 2011, the Company entered into a property option agreement (the “AuroTellurio Option Agreement”) with Mexivada Mining Corp. (“Mexivada”) to acquire up to an 80% interest in Mexivada’s concessions comprising its AuroTellurio tellurium-gold-silver property (the “La Viuda Concessions,” the “AuroTellurio Property,” or the “Property”) in Mexico.
 
Under the terms of the AuroTellurio Option Agreement, the Company will acquire up to an 80% legal and beneficial ownership interest in the AuroTellurio Property by making certain cash payments and share issuances to Mexivada and incurring certain exploration expenditures on the Property. See Note 11 for the Company’s commitments under the AuroTellurio Option Agreement.
 
Mexivada and its Mexican subsidiary hold only the mineral rights in the AuroTellurio Property, which rights were granted by the government of Mexico. Neither Mexivada nor its Mexican subsidiary owns the real property rights to the land underlying the La Viuda Concessions. Prior to the first closing under the AuroTellurio Option Agreement on August 4, 2011, the Company obtained a surface rights agreement with the landowner on whose property the La Viuda Concessions are located to conduct its mineral exploration program. The agreement became effective June 17, 2011, runs for a term of 12 months, and may be extended for two additional years under the same terms. The Company will pay the land owner $14,400 for each year in which the Company carries out exploration work on this land. In June 2012, the agreement was extended for an additional year.
 
On August 4, 2011, the Company conducted the first closing under the AuroTellurio Option Agreement. The purchase price for the first closing was $30,000 in cash and 250,000 common shares, fair valued at $17,500 based on the market price on the date of issuance. The $30,000 in cash includes the $20,000 deposits paid to Mexivada in December 2010 in connection with signing the binding offer letter agreement, which provided the Company with additional time to perform its due diligence, raise financing, and prepare a definite purchase agreement. At the closing, the Company paid the remaining $10,000 cash and issued the 250,000 common shares.
 
In exchange, the Company received from Mexivada four fully executed title deeds, each transferring to the Company a twenty percent (20%) interest in the La Viuda Concessions comprising the AuroTellurio Property, to be held in escrow by the Company's counsel until fully vested in accordance with their terms. If the Company defaults on its commitments under the AuroTellurio Option Agreement or otherwise determines not to proceed with the acquisition of the AuroTellurio Property, all unvested interests and related title deeds in the AuroTellurio Property will be returned to Mexivada.
 
On the first anniversary of the closing, the first $750,000 requirement per year was reached by the Company, per the AuroTellurio Option Agreement (Note 11). The Company made a payment of $40,000 on August 10, 2012 and issued 250,000 shares on August 28, 2012, fair valued at $3,750, based on the market price on the date of issuance. Having met all the required conditions, the first 20% interest in the La Viuda Concessions has vested in the Company as of August 28, 2012.
 
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 6 - RELATED PARTY TRANSACTIONS
 
Compensation of Officers and Directors
 
Officers and directors fees totaled $13,500 and $13,500 for the three months ended July 31, 2013 and 2012, respectively. Officers and directors fees totaled $27,000 and $27,000 for the six months ended July 31, 2013 and 2012, respectively. The total compensation of officers and directors was recorded as a component of general and administrative expenses.

As of July 31, 2013 and January 31, 2013, the Company owed its officers and directors $83,500 and $70,000, respectively, which were recorded as other accrued liabilities - related party in its consolidated balance sheets.
 
Legal Fees
 
Effective December 1, 2010, the Company entered into a 12-month retainer agreement with a stockholder, pursuant to which the Company shall pay a monthly fee of $5,500 for providing legal services relating to SEC regulatory compliance and reporting requirements. After the agreement expired in November 2011, the stockholder continued to provide these legal services on a month-to-month basis, with the fee subsequently increased to $6,000 per month. For the three and six months ended July 31, 2013, the Company incurred $18,000 and $36,000 in legal fees relating to these services, respectively. For the three and six months ended July 31, 2012, the Company incurred $18,500 and $40,500 in legal fees under this agreement, respectively.

The Company also paid legal fees (calculated and billed on an hourly basis) for the preparation and filing of its resale registration statement of the Form S-1 covering the shares of the Company’s common stock underlying the warrants contained in the units sold in the 2010/2011 private placement offering. For the three and six months ended July 31, 2013, the Company incurred $69,234 and $99,816 in legal fees for preparation of its registration statements of the Form S-1, respectively. As of July 31, 2013, the stockholder provided a discount amounting to $57,005 for past legal fees. For the three and six months ended July 31, 2012, the Company incurred $12,337 and $38,777 in fees relating to these services, respectively.

The same stockholder also provides the Company with legal services related to general corporate matters, which are billed on an hourly basis. During the three months ended July 31, 2013 and 2012, the Company incurred $5,363 and $10,229, respectively. During the six months ended July 31, 2013 and 2012, the Company incurred $7,901 and $26,369, respectively.
 
For the three months ended July 31, 2013 and 2012, the Company’s professional legal fees to the stockholder above totaled $74,597 and $41,067, respectively. For the six months ended July 31, 2013 and 2012, the Company’s professional legal fees to the stockholder above totaled $107,717 and $105,646, respectively. The legal fees incurred were included as a component of general and administrative expenses. As of July 31, 2013, the stockholder provided a discount amounting to $57,005 for past legal fees related to the preparation of its registration statements of the Form S-1. A total of $64,627 outstanding payable for legal services provided was included in the Company’s consolidated balance sheets as of July 31, 2013, compared to $101,873 outstanding as of January 31, 2013.
 
 
10
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Consulting and Other Professional Fees
 
In January 2011, the Company entered into an administrative services agreement with Incorporated Communications Services (“ICS”), a California corporation. George Duggan, the Company’s Chief Operations Officer, is the Vice President of ICS. Pursuant to the agreement with ICS, ICS will make available its address in La Canada, California to serve as the Company’s corporate headquarters and communications office, and provide the Company with basic administrative services, including coordinating and routing incoming telephone calls, handling investor inquiries, assisting in the preparation of press releases, developing an informational website, and coordinating with the auditors and financial statement preparers. The Company pays ICS a monthly fee of $6,000 for these services. This agreement with ICS became effective January 1, 2011, ran for 12 months and was extended for an additional 12 months beginning January 1, 2012 and January 1, 2013. The Company incurred $18,000 and $36,000 for the three and six months ended July 31, 2013, and $18,000 and $36,000 for the three and six months ended July 31, 2012, respectively, which were included as a component of general and administrative expenses. Additionally, the Company reimbursed ICS for the expenses related to the services provided of $814 and $2,106 for the three and six months ended July 31, 2013, respectively. The Company reimbursed ICS for the expenses related to the services provided of $3,346 and $9,139 for the three and six months ended July 31, 2012, respectively. As of July 31, 2013 and January 31, 2013, the Company had no outstanding payables to ICS.

On June 6, 2011, the Company entered into a consulting agreement with a stockholder of the Company. The Company engaged the stockholder to provide certain consulting services related to the Company’s business for the period through June 5, 2013, for a monthly compensation fee of $6,000. Beginning February 6, 2012, the monthly consulting fee was reduced to $3,000 and then reversed back to $6,000 per month starting June 6, 2012. Additionally, in May 2012, the Company paid back the reduced fees for the months of March 2012 through May 2012 to the stockholder. The Company incurred $18,000 and $36,000 in consulting fees related to this agreement for the three and six months ended July 31, 2013, respectively, which were included as a component of general and administrative expenses. For the three and six months ended July 31, 2012, the Company recorded $24,000 and $36,000, respectively, in consulting fees to this stockholder. As of July 31, 2013 and January 31, 2013, the Company recorded payables to the stockholder in the amount of $2,500.

NOTE 7 - DERIVATIVE LIABILITIES
 
Derivative Warrant Instruments
 
In the December 2010 and January 2011 Unit Offering, the Company incurred liabilities for the estimated fair value of derivative warrant instruments in the form of warrants. The estimated fair value of the derivative warrant instruments was calculated using the Black-Scholes option pricing model and amounted to $1,323,133 at the grant dates as of December 22, 2010 and January 13, 2011. These estimates were re-valued as being $137,866 at the balance sheet date as of July 31, 2012. The Company recorded a $710,567 and $1,245,609 change in value as unrealized gain in non-operating income for the three and six months ended July 31, 2012, respectively. The estimated fair value of the derivative warrant instruments was calculated using a probability-weighted scenario analysis model as being $308,513 and $246,355 as of July 31, 2013 and January 31, 2013, respectively (See the Company’s model review and summary of July 31, 2013 and January 31, 2013 assumptions below). The Company recorded the change in value of the derivative liability in non-operating income for the three and six months ended July 31, 2013.
 
The fair value of warrants issued in the December 2010 and January 2011 Unit Offering has been estimated on the dates of grant using the Black-Scholes option pricing model, under the following assumptions:
 
Common stock issuable upon exercise of warrants
    
30,739,129
  
Market price of the Company’s common stock on the measurement dates
  
$
0.05 and 0.09
  
Exercise price
  
$
0.125
  
Risk free interest rate (1)
    
0.475
%
Dividend yield
    
0.00
%
Volatility
    
257.95
%
Expected exercise term in years
    
1.5
  

 
(1)
The risk-free interest rate was determined by management using the average of 1- and 2-year Treasury Bill yield as of the grant dates.
 
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In April 2011, the Company added to the Unit Offering a first over-allotment option. As such, the Company incurred liabilities for the estimated fair value of derivative warrant instruments in the form of warrants. The estimated fair value of the derivative warrant instruments was calculated using the Black-Scholes option pricing model and amounted to $71,973, $131,077, and $88,824 at the grant dates of April 7, 2011, April 13, 2011, and April 30, 2011, respectively. The April 2011 grants were re-valued as being $36,993 at the balance sheet date as of July 31, 2012. The Company recorded an $84,482 and $174,124 change in value as unrealized gain in non-operating income for the three and six months ended July 31, 2012, respectively. The estimated fair value of the derivative warrant instruments was calculated using a probability-weighted scenario analysis model as being $40,176 and $32,177 as of July 31, 2013 and January 31, 2013, respectively (See the Company’s model review and summary of July 31, 2013 and January 31, 2013 assumptions below). The Company recorded the change in value of the derivative liability in non-operating income for the three and six months ended July 31, 2013.
 
The fair value of warrants issued in the April 2011 Unit Offering has been estimated on the dates of grant using the Black-Scholes option pricing model, under the following assumptions:
 
Common stock issuable upon exercise of warrants
    
4,000,000
  
Market price of the Company’s common stock on the measurement dates
  
$
0.08 and 0.10
  
Exercise price
  
$
0.125
  
Risk free interest rate range (1)
    
0.61 - 0.81
%
Dividend yield
    
0.00
%
Volatility range
    
268.16 - 284.75
%
Expected exercise term in years
    
1.5
  
 
 
(1)
The risk-free interest rate was determined by management using the 2-year Treasury Bill yield as of the grant dates.
 
In June and July 2011, the Company closed its first and second over-allotment options. The Company incurred liabilities for the estimated fair value of derivative warrant instruments in the form of warrants. The estimated fair value of the derivative warrant instruments was calculated using the Black-Scholes option pricing model and amounted to $149,203 and $102,957 at the grant dates of June 15, 2011 and July 15, 2011, respectively. The grants were re-valued as being $38,930 at the balance sheet date as of July 31, 2012.

The Company recorded an $86,968 and $183,578 change in value as unrealized gain in non-operating income for the three and six months ended July 31, 2012, respectively. The estimated fair value of the derivative warrant instruments was calculated using a probability-weighted scenario analysis model as being $40,388 and $32,237 as of July 31, 2013 and January 31, 2013, respectively (See the Company’s model review and summary of July 31, 2013 and January 31, 2013 assumptions below). The Company recorded the change in value of the derivative liability in non-operating income for the three and six months ended July 31, 2013.
 
The fair value of warrants issued in the June and July 2011 Unit Offering has been estimated on the dates of grant using the Black-Scholes option pricing model, under the following assumptions:
 
Common stock issuable upon exercise of warrants
    
4,000,000
  
Market price of the Company’s common stock on the measurement dates
  
$
0.07 and 0.08
  
Exercise price
  
$
0.125
  
Risk free interest rate range (1)
    
0.37 - 0.38
%
Dividend yield
    
0.00
%
Volatility range
    
257.60 - 259.63
%
Expected exercise term in years
    
1.5
  

 
(1)
The risk-free interest rate was determined by management using the 2-year Treasury Bill yield as of the grant dates.
 
 
12
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
As of February 1, 2012, the Company amended the terms of the warrants issued during the 2010/2011 private placement offerings, such that (i) their term has been extended by six months and (ii) one-half of the warrants (19,369,565) retain the exercise price of $0.125 per share, and the other one-half of the warrants (19,369,564) have an exercise price of $0.05 per share.
 
As a result of the issuance of the March 2012 Units at $0.04 per unit (Note 9), a weighted average anti-dilution adjustment was made with respect to those warrants exercisable for 19,369,565 of the shares being offered at the original exercise price of $0.125 per share. Since the $0.04 price per unit of the March 2012 Units was lower than the $0.125 warrant exercise price, the exercise price with respect to these 19,369,565 warrants was lowered to $0.12, post March 2012 Unit Offering, and the aggregate number of shares issuable upon exercise of these warrants was increased to 20,176,630. Because the anti-dilution provisions of the warrants call for rounding to the nearest cent, no adjustments were required for the other 19,369,564 warrants, which have an exercise price of $0.05 per share.
 
In March 2012, pursuant to a private placement offering, the Company issued 4,250,000 warrants to purchase 0.5 shares of common stock per unit. The Company recorded a derivative liability upon issuance of the warrants. The estimated fair value of the derivative warrant instruments was calculated using the Black-Scholes option pricing model and amounted to $101,985 at the grant date of March 16, 2012. The grants were re-valued as being $23,299 at the balance sheet date as of July 31, 2012. The Company recorded a $48,553 change in value as unrealized gain in non-operating income for the three months ended July 31, 2012, and a $23,299 change in value as unrealized loss in non-operating income for the six months ended July 31, 2012. The estimated fair value of the derivative warrant instruments was calculated using a probability-weighted scenario analysis model as being $21,052 and $16,892 as of July 31, 2013 and January 31, 2013, respectively (See the Company’s model review and summary of July 31, 2013 and January 31, 2013 assumptions below). The Company recorded the change in value of the derivative liability in non-operating income for the three and six months ended July 31, 2013.

The fair value of warrants issued in the March 2012 Unit Offering has been estimated on the dates of grant using the Black-Scholes option pricing model, under the following assumptions:
 
Common stock issuable upon exercise of warrants
    
2,125,000
  
Market price of the Company’s common stock on the measurement date
  
$
0.05
  
Exercise price
  
$
0.06
  
Risk free interest rate (1)
    
0.37
%
Dividend yield
    
0.00
%
Volatility
    
295.28
%
Expected exercise term in years
    
2.0
  

 
(1)
The risk-free interest rate was determined by management using the 2-year Treasury Bill yield as of the grant date.
 
As of December 19, 2012, the Company amended the terms of the warrants issued during the 2010/2011 private placement offerings, such that (i) their term shall be extended for a period of an additional three years from its date of expiration as previously amended and (ii) the exercise price of all of the warrants, exercisable for an aggregate of 39,546,194 shares of common stock, including anti-dilution adjustments, sold in the Offering shall be reduced to $0.03 per whole share through the third year of the extended term of the warrants, then increased to $0.04 per whole share during the fourth year of the term, and to $0.05 per whole share during the fifth year of the term. The valuation of the warrants at July 31, 2013 and January 31, 2013 reflects the new terms. The estimated fair value of the derivative warrant instruments was calculated using a probability-weighted scenario analysis model as being $389,077 and $310,769 as of July 31, 2013 and January 31, 2013, respectively (See the Company’s model review and summary of July 31, 2013 and January 31, 2013 assumptions below). The Company recorded the change in value of the derivative liability in non-operating income for the three and six months ended July 31, 2013.
 
 
13
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
During the fourth quarter of the year ended January 31, 2013, the Company completed a review of the valuation of its derivative warrant instruments. The Company determined that as a result of the aforementioned amendments to the exercise price during the year ended January 31, 2013, the Company should adopt the probability-weighted scenario analysis model for the year ended January 31, 2013. The estimated fair value of all derivative warrant instruments was calculated as being $410,129 and $327,661 at the balance sheet dates as of July 31, 2013 and January 31, 2013, respectively. The Company recorded an $82,468 net change in value of the derivative liability as unrealized loss in non-operating income for the six months ended July 31, 2013.
 
The following is a summary of the assumptions used in the probability-weighted scenario analysis model to estimate the fair value of the warrants as of the balance sheet dates as of July 31, 2013 and January 31, 2013, respectively:
 
   
July 31,
2013
    
January 31,
2013
  
             
Common stock issuable upon exercise of warrants
     41,671,195       41,671,195  
Market price of the Company’s common stock on the measurement dates
     0.010       0.008  
Exercise price range
     0.03 - 0.06       0.03 - 0.06  
Risk free interest rate range (1)
     0.61 - 0.99 %     0.42 - 0.65 %
Dividend yield
     0.00 %     0.00 %
Volatility range
     318.59 - 342.02 %     306.62 - 327.98 %
Expected exercise term in years
     2.39 - 3.63       2.89 - 4.12  

 
(1)
The risk-free interest rate was determined by management using the 3-year and the average of the 3- and 5-year Treasury Bill as of July 31, 2013 and January 31, 2013.
 
NOTE 8 - FAIR VALUE MEASUREMENTS
 
As defined in FASB ASC Topic 820, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Topic requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:
 
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
 
Level 2: Pricing inputs other than quoted market prices included in Level 1 that are based on observable market data and are directly or indirectly observable for substantially the full term of the asset or liability. These include quoted market prices for similar assets or liabilities, quoted market prices for identical or similar assets in markets that are not active, adjusted quoted market prices, inputs from observable data such as interest rate and yield curves, volatilities or default rates observable at commonly quoted intervals or inputs derived from observable market data by correlation or other means.
 
 
14
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Level 3: Pricing inputs that are unobservable or less observable from objective sources. Unobservable inputs should only be used to the extent observable inputs are not available. These inputs maintain the concept of an exit price from the perspective of a market participant and should reflect assumptions of other market participants. An entity should consider all market participant assumptions that are available without unreasonable cost and effort. These are given the lowest priority and are generally used in internally developed methodologies to generate management's best estimate of the fair value when no observable market data is available.
 
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
 
Certain assets and liabilities are reported at fair value on a recurring or nonrecurring basis in the Company’s consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:
 
Cash, Prepaid expenses, Mining rights, Accounts payable, and Accrued liabilities
 
The carrying amounts approximate fair value because of the short-term nature or maturity of the instruments.
 
Derivative liabilities
 
The Company’s determination of fair value of its derivative instruments incorporates various factors required under FASB Topic ASC 815. The fair values of the Company’s derivatives are valued using less observable data from objective sources as inputs into internal valuation models. Therefore, the Company considers the fair value of its derivatives to be Level 3 hierarchy.
 
The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of July 31, 2013 and January 31, 2013, respectively:
 
   
Fair Value Measurements at
July 31, 2013 and January 31, 2013
  
Description
  
(Level 1)
    
(Level 2)
    
(Level 3)
    
Total
Carrying
Value
  
                                 
Derivative liability - July 31, 2013
  
$
-
    
$
-
    
$
410,129
    
$
410,129
  
Derivative liability - January 31, 2013
  
$
-
    
$
-
    
$
327,661
    
$
327,661
  
 
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as level 3 in the fair value hierarchy:
 
   
Significant Unobservable Inputs
(Level 3)
  
   
Six Months Ended
July 31,
  
   
2013
    
2012
  
Derivative liabilities - beginning balance at January 31, 2013 and 2012
  
$
327,661
    
$
1,817,100
  
Additions
    
-
      
101,985
  
Reductions
    
-
      
-
  
Change in fair value
    
82,468
      
(1,681,998)
  
Derivative liabilities - ending balance at July 31, 2013 and 2012
  
$
410,129
    
$
237,087
  
                 
Realized and unrealized gain (loss) on derivatives, net, included in earnings for the six-month periods ended July 31, 2013 and 2012
  
$
(82,468)
    
$
1,681,998
  
 
NOTE 9 - STOCK-BASED COMPENSATION
 
Stock Options
 
The Company has a stock-based compensation plan known as the 2007 Stock Option Plan (the “Plan”). The Plan provides for the granting of incentive and non-qualified stock options to acquire common shares in the capital of California Gold Corp. The number of shares authorized under the Plan is 16,000,000. As of July 31, 2013, 6,000,000 shares remain available for future grants under the Plan.

On July 27, 2011, the Company granted options to purchase 11,000,000 shares of its common stock to its employees and outside consultants. These options have a 10-year term and were granted with an exercise price of $0.09. One-third of these options, or 3,666,667, vested on the date of the grant, with the remaining two-thirds vesting on the first and second anniversaries of the date of grant. As of July 31, 2013, a total of 10,000,000 options had vested, which included an additional 3,333,333 options which vested on July 27, 2012, the first anniversary of the grant date, and an additional 3,333,333 options which vested on July 27, 2013, the second anniversary of the grant date. All vested options are exercisable, in full or in part, at any time after vesting, until termination. On May 4, 2012, one of the Company’s directors resigned and therefore, all of his 666,667 non-vested options terminated on that date and his vested but unexercised options totaling 333,333 expired and were forfeited on August 4, 2012.
 
The Company recorded the stock-based compensation expense - related party attributable to options of $74,998 and $149,995 during the three and six months ended July 31, 2013, respectively. The Company recorded the stock-based compensation expense - related party attributable to options of $75,284 and $157,782 during the three and six months ended July 31, 2012. As of July 31, 2013, there was no unrecognized compensation cost related to non-vested stock options. Outstanding options had $0 intrinsic value at July 31, 2013, due to the exercise price being greater than the value of the Company’s common stock at the reporting date.
 
 
16
 
CALIFORNIA GOLD CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The fair value of options granted in July 2011 was measured at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
 
Market price of the Company’s common stock on grant date
   $ 0.09  
Risk free interest rate (1)
     3.01 %
Dividend yield
     0.00 %
Volatility
     259.13 %
Expected life
  
6 years
  
Expected forfeiture rate
     0.00 %

(1) The risk-free interest rate was determined by management using the 10-year Treasury Bill yield as of the grant date.
 
NOTE 10 - COMMITMENTS AND CONTINGENCIES
 
In addition to a $30,000 cash payment and a 250,000 stock issuance made at the First Closing under the AuroTellurio Option Agreement on August 4, 2011 (Note 5), assuming the Company exercises its right to acquire each of the four twenty percent (20%) interests in the AuroTellurio Property, the Company will make the following cash payments and share issuances to Mexivada: (i) $40,000 and 250,000 shares on the first anniversary of the Closing; (ii) $50,000 and 300,000 shares on the second anniversary of the Closing; (iii) $70,000 and 350,000 shares on the third anniversary of the Closing; and (iv) $100,000 and 500,000 shares on the fourth anniversary of the Closing. In connection with the AuroTellurio Option Agreement, the Company will pay an aggregate total of $290,000 in cash and 1,650,000 common shares.
 
Under the terms of the AuroTellurio Option Agreement, the Company is also committed to incur $3,000,000 in cumulative exploration expenditures on the Property over a four-year period at an investment rate of at least $750,000 per year. The Company will earn a 20% vested interest in the AuroTellurio Property in the first year of the AuroTellurio Option Agreement by investing $750,000 in an exploration program and up to an additional 60% interest in the Property, in blocks of 20% each, by investing an additional $750,000 in the exploration program in each of the following three years, or sooner, and meeting all of the other required terms of the AuroTellurio Option Agreement. Each 20% interest will vest earlier if each year’s cash and stock payments to Mexivada and $750,000 exploration expenditure investment are completed earlier than scheduled.
 
Under the terms of the Agreement, the Company will act as “Operator,” exclusively responsible, in consultation with Mexivada, for carrying out and administering exploration, development and mining work on the AuroTellurio Property. If costs of the exploration program exceed the agreed upon $3,000,000 investment, the Company will share additional costs with Mexivada on a proportionate share basis. Once the Company has earned its full 80% interest in the AuroTellurio Property, the Company will form a joint venture with Mexivada applicable to the further development and commercialization of the AuroTellurio Property.
 
The Company obtained a surface rights agreement, with the landowner on whose property the La Viuda Concessions are located, to conduct its mineral exploration program, effective June 17, 2011. The Company will pay the land owner $14,400 for each year in which the Company carries out exploration work on this land. The Company has completed the majority of Phase 1 of its 2011/2012 exploration program and has conducted mapping, trenching and sampling programs at the AuroTellurio Property, as well as gravity and magnetic geophysical surveys, including a helicopter-borne magnetics and radiometric survey, in preparation for an initial 3,000-meter drilling program that is planned for implementation in 2013.
 
As of July 31, 2013, the Company incurred approximately $1,500,000 since inception in its exploration and development expenditures, which are expensed as incurred. In addition to the Company’s mineral exploration expenditures, Mexivada accepted certain other Company expenses towards its minimum requirement of $750,000 per year, such as a percentage of its accounting, legal and consulting fees, compensation of its officers and directors, and management support services, which were included as a component of general and administrative expenses in the Company’s consolidated statements of expenses. Mexivada accepted approximately $1,089,407 of total expenses as of June 30, 2012 (the date in which the Company’s expenses were reviewed by Mexivada), and confirmed that the amounts over $750,000 would be applied towards the second-year requirements. Mexivada also confirmed that it would grant the first 20% interest in the AutoTellurio project to the Company, after the Company made the $40,000 cash payment and issued 250,000 of its shares to Mexivada in connection with the AuroTellurio Option agreement. The $40,000 payment was made on August 10, 2012 and the 250,000 shares were issued to Mexivada on August 28, 2012.
 
 
This report contains forward-looking statements. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, our ability to identify and successfully participate in any future acquisition, joint venture or other new business initiative.
 
OVERVIEW
 
California Gold is an exploration stage mining company, whose principal focus is the identification, acquisition, and development of rare and precious metals mining properties in the Americas. We are still in the exploration stage and have not generated any revenues from our mining exploration activities.
 
The Mexivada Property Option Agreement
 
On February 11, 2011, we entered into a property option agreement (the “AuroTellurio Option Agreement”) with Mexivada Mining Corp. (“Mexivada”) to acquire up to an 80% interest in Mexivada’s La Viuda and La Viuda-1 concessions comprising its AuroTellurio tellurium-gold-silver property (the “La Viuda Concessions,” the “AuroTellurio Property” or, the “Property”) south of Moctezuma, Sonora, Mexico. Our primary focus is on the exploration and development of the La Viuda Concessions where, we believe, deposits of tellurium, gold and silver may exist in economically minable quantities.
 
Under the terms of the AuroTellurio Option Agreement, we will acquire up to an 80% legal and beneficial ownership interest in the AuroTellurio Property by, in addition to making certain cash payments and share issuances to Mexivada (as discussed above), incurring up to $3,000,000 in cumulative exploration expenditures on the Property over a four-year period at an investment rate of at least $750,000 per year. We will earn a 20% vested interest in the AuroTellurio Property in the first year of the AuroTellurio Option Agreement by investing $750,000 in an exploration program (the “Exploration Program”) and up to an additional 60% interest in the Property, in blocks of 20% each, by investing an additional $750,000 in the exploration program in each of the following three years, or sooner, and meeting all of the other required terms of the AuroTellurio Option Agreement. Each 20% interest will vest earlier if each year’s cash and stock payments to Mexivada and $750,000 exploration expenditure investment are completed earlier than scheduled.

Although we are acquiring up to an 80% interest in the La Viuda Concessions from Mexivada, neither we nor Mexivada owns the land where the Property is located. We have entered into a surface rights agreement with the local landowner enabling us to begin our exploration program. This agreement is renewable through May 16, 2014. If we need additional time after that date to continue our exploration program or if we discover meaningful quantities of minerals on the Property, we will need to further extend the surface rights exploration agreement or enter into additional agreements (whether lease or purchase) with the landowner to enable us to mine such minerals. There can be no assurance that the landowner will agree to such further agreements or, if he does, that they will be on terms economically acceptable to us. If we cannot reach an agreement with the land owner with respect to our future exploration or potential mining activities, we would not be able to continue with the AuroTellurio project, our business plan would be negatively impacted and our business prospects would be damaged.
 

Vesting of First 20% Interest in the La Viuda Concessions

On August 10, 2012, we made a payment to Mexivada of $40,000 and on August 28, 2012 we issued to Mexivada 250,000 shares of our restricted common stock. Having met all the required conditions for the vesting of the first 20% interest in the La Viuda Concessions under the AuroTellurio Option Agreement, including the required exploration program expenditure of $750,000, the first 20% interest in the La Viuda Concessions vested in us as of August 28, 2012. Although the terms of the AuroTellurio Option Agreement required that all conditions for the vesting of the first 20% interest in the AuroTellurio Property were to be met by the one year anniversary of the First Closing, that is, by August 4, 2012, Mexivada agreed to extend this deadline to August 28, 2012. We have made the appropriate filings with the Ministry of Mines in Mexico recording this 20% interest in our name.
 
The AuroTellurio Property Exploration Program
 
Recent Developments
 
As of August 4, 2013, we had expended the required $750,000 in exploration program costs towards the second 20% interest.  Approximately $339,000 of this amount has already been approved by Mexivada as exploration expenses to be counted towards the second 20% interest in the La Viuda Concessions.  We expect that the balance of exploration expenses to be applied towards the second 20% interest in the La Viuda Concessions not yet approved by Mexivada will be so approved at or prior to the time we notify Mexivada that we have completed all requirements for the vesting of the second 20% interest, including the required exploration program expenditure of $750,000, and that we intend to exercise our option for the second 20% interest.

According to the terms of the AuroTellurio Option Agreement, in addition to completing the $750,000 exploration program expenditures by August 4, 2013, we were supposed to have paid Mexivada an additional $50,000 in cash and issued to Mexivada an additional 300,000 restricted shares of our common stock by that date.  As of this date, we have not made this $50,000 payment to Mexivada due to our limited funds and we have not yet issued the 300,000 additional shares.  We intend to renegotiate the terms and timing of these two deliverables with Mexivada.  Although there can be no assurance, we expect that Mexivada will agree to revised terms that will enable us to exercise our option for the second 20% interest in the La Viuda Concessions.

We have completed the majority of Phase 1 of our exploration program including mapping, trenching and sampling programs, as well as gravity and magnetic geophysical surveys at the AuroTellurio Property.  We renewed our surface rights agreement with the land owner in Moctezuma, where the La Viuda Concessions are located, to allow us to conduct our exploration of the La Viuda Concessions through May 16, 2013, and we have the option to further renew this agreement for an additional year, through May 2014.  We expect to renew this agreement once we have funds sufficient to proceed with our Phase I drilling program.  Our Phase I exploration activities have enabled us to delineate two primary drilling areas on the Property.  We anticipate that that we will need approximately $350,000 for our Phase I drilling program at the La Viuda Concessions which we expect to begin once we raise the required funds.  We have not raised any of these funds to date and there can be no assurance that we will be successful in raising the required drilling program funds.  If we are unable to raise these funds, we will not be able to proceed with our Phase I drilling program and our entire investment in the AuroTellurio project and future business prospects will be jeopardized.
 
Results of Operations
 
Three Months Ended July 31, 2013 and 2012
 
We are still in our exploration stage and have generated no revenues to date.
 
We incurred total operating expenses of $135,557 and $270,377 for the three months ended July 31, 2013 and 2012, respectively. These expenses decreased during the three months ended July 31, 2013 by $134,820 due to lower exploration expenses and general and administrative expenses we incurred during the three months ended July 31, 2013. Our exploration expenses amounted to $3,361 in the three months ended July 31, 2013, compared to $119,882 incurred during the three months ended July 31, 2012. This decrease was primarily due to our completion of the majority of Phase 1 of our 2011/2012 exploration program. Our general and administrative expenses amounted to $131,756 in the three months ended July 31, 2013, compared to $150,054 incurred during the three months ended July 31, 2012. The $18,298 decrease in overall general and administrative expenses was primarily attributable to an increase in stock-based compensation; $74,998 for the three months ended July 31, 2013, when compared to $75,285 for the three months ended July 31, 2012, which was offset by lower consulting expenses resulting from the overall decreased level of activity relating to our exploration activities in the AuroTellurio property in 2013.
 
 
In the three months ended July 31, 2013, we had non-operating loss of $124,196, compared to non-operating income of $930,876 in the three months ended July 31, 2012. The net overall decrease of $1,055,072 from the prior comparative period was primarily due to a realized and unrealized net loss on derivative instruments relating to the issuance of the warrants as a result of the private placement offerings completed in December 2010 and January 2011, and the over-allotments in April, June, and July 2011, as well as the March 2012 private placement offering. In the three months ended July 31, 2013 and 2012, we reported a $124,231 realized and unrealized net loss on derivative warrant instruments and a $930,571 realized and unrealized net gain on derivative warrant instruments, respectively.
 
We had a net loss of $259,753 for the three months ended July 31, 2013, compared to net income of $660,499 for the same period in 2012. The $920,252 net decrease from net income to net loss over the same period in the prior year resulted primarily from the realized and unrealized net gain to net loss position on derivative warrant instruments discussed above.
 
We have generated no operating revenues and our net loss from inception through July 31, 2013 was $3,297,003.

Six Months Ended July 31, 2013 and 2012

We incurred total operating expenses of $382,191 and $874,579 for the six months ended July 31, 2013 and 2012, respectively. The $492,388 decrease over the prior year was primarily due to decreased general and administrative expenses. General and administrative expenses decreased from $690,813 for the six months ended July 31, 2012 to $351,386 for the six months ended July 31, 2013, primarily due to lower consulting expenses resulting from the overall decreased level of activity relating to our exploration activities in the AuroTellurio Property in 2013. Accordingly, we incurred lower mineral property expenses relating to the AuroTellurio project during the six months ended July 31, 2013 compared to the same period last year. In addition, general and administrative expenses decreased primarily due to a decrease in stock-based compensation; $282,782 for the six months ended July 31, 2012 to $149,995 for the six months ended July 31, 2013. Our total mineral property expenses were $29,924 and $182,885 for the six months ended July 31, 2013 and 2012, respectively.

We also reported non-operating loss of $82,360 for the six months ended July 31, 2013, compared to non-operating income of $1,682,451 for the six months ended July 31, 2012. The net overall decrease of $1,764,811 over the prior year was primarily due to a $1,764,466 net decrease in realized and unrealized gain/loss on derivative warrants instruments, partially offset by a $221 foreign currency exchange loss incurred during the six months ended July 31, 2012, and a $566 decrease in interest income over the prior year.

Our net loss for the six months ended July 31, 2013 was $464,551, compared to net income of $807,872 for the six months ended July 31, 2012.

LIQUIDITY AND CAPITAL RESOURCES
 
Our cash and cash equivalents balance as of July 31, 2013 was $44,584, compared to $259,200 as of January 31, 2013.
 
In July 2011, we completed the final closing of the 2010/2011 Private Placement, in which we sold an aggregate of 77,478,258 Units of our securities for gross proceeds of $1,936,956, at an offering price of $0.025 per Unit. 55,478,258 of the Units consisted of one share of our common stock and an 18-month warrant to purchase one-half of one share of our common stock at an exercise price of $0.125 per whole share. As of February 1, 2012, we amended the terms of these warrants such that (i) their term has been extended by six months and (ii) one half of them (19,369,565) retain the exercise price of $0.125 per share and one half (19,369,564) have an exercise price of $0.05 per share. The remaining 22,000,000 Units included our Series A Preferred Stock instead of our common stock and warrants exercisable for our common stock.
 
 
On December 19, 2012, our Board of Directors resolved to further amend the provisions of the warrants issued in the 2010/2011 Private Placement such that, effective as of December 19, 2012, (i) the term of each of the warrants has been extended for an additional three years and (ii) the exercise price of the warrants shall be reduced to $0.03 per whole share through the third year, $0.04 per whole share through the fourth year, and $0.05 per whole share through the fifth year.

On March 16, 2012, we completed the closing of a private placement offering pursuant to which we sold to various accredited investors and non-U.S. persons 4,250,000 Units of our securities (the “2012 Units”) for gross proceeds of $170,000, at an offering price of $0.04 per Unit. Each of these Units consisted of one share of our common stock and a warrant to purchase one-half share of our common stock at an exercise price of $0.06 per whole share. These warrants will be exercisable from issuance until twenty four (24) months after the closing of this offering. We raised these funds for general working capital purposes separate from our first year exploration program commitments under the AuroTellurio Agreement.

Due to our brief history and historical operating losses, our operations have not been a source of liquidity, and our sources of liquidity primarily have been debt and proceeds from the sale of units in our 2010/2011 Private Placement and in our March 2012 offering. Although we have begun the acquisition of the AuroTellurio Property, this property will require exploration and development that could take years to complete before it begins to generate revenues. There can be no assurances that the AuroTellurio Property will be successfully developed to the revenue producing stage. If we are not successful in our proposed rare and precious metals mining operations, our business, results of operations, liquidity and financial condition will suffer materially.
 
As a result of the 2010/2011 Private Placement, we had sufficient funds to meet our first year requirements under the AuroTellurio Agreement, including the requirement that we invest $750,000 in the exploration program by August 4, 2012, and our second year requirement to invest $750,000 in the exploration program by August 4, 2013. If we determine to proceed with the exploration of the AuroTellurio Property after the second year, we will be required under the terms of the AuroTellurio Agreement to invest an additional $750,000 in the exploration program per year for each of the following two years. We currently do not have sufficient funds to make these expenditures. We will also be required to pay Mexivada $40,000 upon the first anniversary of the First Closing, which amount we have already paid, $50,000 upon the second anniversary of the First Closing, which amount we have not yet paid, $70,000 upon the third anniversary of the First Closing, and $100,000 upon the fourth anniversary of the First Closing, for a total of $220,000 in payments yet to be made. We will also need additional funds for working capital purposes. We do not have this capital at this time and we will have to raise these amounts, plus additional amounts for general working capital purposes, in the capital markets.

We plan to seek to raise such capital through additional sales of our equity or debt securities. There can be no assurance, however, that such financing will be available to us or, if it is available, that it will be available on terms acceptable to us and that it will be sufficient to fund our expected needs. If we are unable to obtain sufficient financing, we may not be able to proceed with our exploration and development plans for the AuroTellurio Property after the first year of our exploration program or meet our ongoing operational working capital needs.

Various factors outside of our control, including the price of rare and precious metals, overall market and economic conditions, the downturn and volatility in the US equity markets and the trading price of our common stock may limit our ability to raise the capital needed to execute our plan of operations in the following years. We recognize that the US economy is currently experiencing a period of uncertainty and that the capital markets have been depressed from recent levels. These or other factors could adversely affect our ability to raise additional capital. As a result of an inability to raise additional capital, our short-term or long-term liquidity and our ability to execute our plan of operations, including our ability to exercise our rights to acquire up to an additional 60% interest in the La Viuda Concessions, could be significantly impaired.
 

Phase I Drilling Program Needs

We have determined to proceed with the exploration of the AuroTellurio Property into the second year, for the second 20% interest in the La Viuda Concessions. Most immediately, we need to raise at least $350,000 to begin and fund our AuroTellurio Phase I drilling program. We currently do not have sufficient capital to finance this drilling program.

We filed a registration statement with the SEC to register for sale 100,000,000 shares of our common stock at an offering price of $0.005 per share. This registration statement was declared effective by the SEC on May 22, 2013. Under this registration statement, there is no minimum number of shares of our common stock that we must sell and no guarantee that we will be able to sell any of these shares.
 
As indicated above, we anticipate that that we will need approximately $350,000 for our Phase I drilling program at the La Viuda Concessions. If we sell at least 75% of the 100,000,000 shares we expect to be offering pursuant to the prospectus contained within the registration statement, we will use the net proceeds of the offering for our drilling program with any excess funds (at the 100% level only) to be used for corporate overhead expenses. At the 75% level, no net proceeds of this offering would be available for corporate overhead and at both the 75% and 100% levels, net corporate overhead expenses would be paid out of existing capital reserves. Should we sell less than 75% of the 100,000,000 shares we expect to be offering pursuant to the prospectus, we will not have sufficient funds to begin our 2013 Phase I drilling program and we will use any net proceeds for corporate overhead purposes, with a reserve for remediation costs.

We are calculating a monthly overhead cost, at a reduced level of operations, of approximately $25,000 per month. Under the 25% scenario, we would have sufficient net funds from the offering to support this overhead burn rate for approximately two months, while under the 50% scenario, we would have overhead funds from the offering sufficient for approximately seven months. We estimate environmental remediation costs of $15,000 if we are forced due to lack of funds to terminate our AuroTellurio exploration project prior to beginning our Phase I drilling program and $80,000 if we determine to terminate our exploration project after we complete the Phase I drilling program.

If we net less than $350,000 from the sale of our shares in the offering, we will be required to raise additional funds to meet the minimum estimated $350,000 cost requirements of our phase I Drilling Program and to cover overhead costs. There can be no assurances that we will be able to raise these funds at all, or at a reasonable cost to us. If we are not able to raise these funds, we may have to scale back or curtail entirely our Phase I drilling program. To date, we have not sold any shares in the offering.

OFF-BALANCE SHEET ARRANGEMENTS
 
We have no off-balance sheet arrangements.
 
SIGNIFICANT ACCOUNTING POLICIES
 
It is suggested that these financial statements be read in conjunction with our January 31, 2013, audited financial statements and notes thereto, which can be found in our Form 10-K filing on the SEC website at www.sec.gov under our SEC File Number 000-54706.
 
 
 
Not applicable.
 
 
Evaluation of Disclosure Controls and Procedures
 
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 Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. This information is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
 
Under the supervision and with the participation of our senior management, consisting of James D. Davidson, our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were not effective.

As reported in our Annual Report on Form 10-K for the fiscal year ended January 31, 2013, our management has identified a control deficiency regarding inadequate accounting resources. Management believes that this material weakness is due to the small size of our accounting staff. To mitigate the current limited resources and limited employees, we rely heavily on the use of external legal and accounting professionals.
 
Subject to availability of funds, we will look to hire additional personnel with technical accounting expertise to further support our current accounting personnel. If and when implemented, the internal accounting department will be responsible for performing regular internal audits over financial functions and other operation functions. As necessary, we will continue to engage consultants or an outside accounting firm in order to ensure proper accounting for our consolidated financial statements.
 
Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our internal accounting staff consists of only one officer overseeing all transactions, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.
 

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls over Financial Reporting
 
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
 
 
OTHER INFORMATION
 
 
None.
 
ITEM 1.A.
 
There have been no material changes from the risk factors disclosed in our 2013 Form 10-K under Part I, Item 1A, therein.
 
 
None.
 
 
Not applicable.
 

Not applicable.
 
 
None.
 
 
ITEM 6.
 
The following exhibits are included with this quarterly report.
 
Exhibit
    
Number
  
Description
     
 
Certification of Principal Executive and Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Certification of Chief Executive and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 
101 INS
XBRL Instance Document**

101 SCH
XBRL Schema Document**

101 CAL
XBRL Calculation Linkbase Document**

101 LAB
XBRL Labels Linkbase Document**

101 PRE
XBRL Presentation Linkbase Document**

101 DEF
XBRL Definition Linkbase Document**
______________________
*
This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
 
**
The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
 
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: September 24, 2013
California Gold Corp.
  
     
 
By
/s/ James D. Davidson
  
   
James D. Davidson
  
   
President, Treasurer, Principal
  
   
Executive Officer, Principal
  
   
Financial Officer
  
 
 
 
27

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