ITEM 1A.
RISK FACTORS.
The following are some of the important factors that could
affect our financial performance or could cause actual results to differ
materially from estimates contained in our forward-looking statements. We may
encounter risks in addition to those described below. Additional risks and
uncertainties not currently known to us, or that we currently deem to be
immaterial, may also impair or adversely affect our business, financial
condition or results of operation.
If we do not obtain additional financing, we may not be able
to continue our operations at our Facilities, enter into the proposed Joint
Venture with Golden Anvil or complete our exploration and development programs
on the Piute Valley Property.
As of January 31, 2013, we had cash on hand of $6,772 and
accumulated net loss of $14,090,400 since inception. Our plan of operation calls
for significant expenses in connection with the operation of our Phoenix
Facility and Scottsdale Facility, the entry into the proposed Joint Venture with
Golden Anvil, and the exploration and development of our Piute Valley Property.
If we are unable to raise sufficient financing there is a substantial risk that
we will be unable to meet payments of principal and interest to our creditors
and pay our consultants and employees. In November 2012, we temporarily shut
down our Phoenix Facility until the required funding is received to continue
that operation. In addition, we will require substantial financing in order to
implement our plan of operation over the next twelve months. There is no
assurance that this will satisfy all of our working capital requirements for the
next twelve months or that these funds will be sufficient to complete our
planned exploration and development programs.
Because we are an exploration stage company, we face a high
risk of business failure.
Our previously earned revenues, although minimal, from the
processing of ore at our Phoenix and Scottsdale Facilities. In November 2012, we
temporarily shut down our Phoenix Facility until the required funding is
received to continue that operation. Our primary business activities have
involved the exploration and development on the Piute Valley Property and the
commencement of operations at our Phoenix Facility and Scottsdale Facility.
Potential investors should be aware of the difficulties normally encountered by
exploration stage companies and the high rate of failure of such enterprises.
The likelihood of success must be considered in light of the problems, expenses,
difficulties, complications and delays encountered in connection with the
exploration of the mineral properties that we plan to undertake. These potential
problems include, but are not limited to, unanticipated problems relating to
exploration, and additional costs and expenses that may exceed current
estimates.
Because we anticipate our operating expenses will increase
prior to our earning significant revenues, we may never achieve profitability.
Prior to completion of our exploration stage, we anticipate
that we will incur increased operating expenses prior to realizing any
significant revenues. We therefore expect to incur significant losses into the
foreseeable future. We recognize that if we are unable to generate significant
revenues from the operation of our Scottsdale Facility or the exploration and
development of our mineral property and the production of minerals thereon, if
any, we will not be able to earn profits or continue operations. There is no
history upon which to base any assumption as to the likelihood that we will
prove successful, and we may not be able to ever generate any operating revenues
or achieve profitable operations. If we are unsuccessful in addressing these
risks, our business will most likely fail.
Because of the speculative nature of exploration of mining
properties, there is substantial risk that no commercially exploitable minerals
will be found and our business will fail.
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The search for valuable minerals as a business is extremely
risky. We may not find commercially exploitable reserves of precious metals on
our mineral claims. Exploration for minerals is a speculative venture,
necessarily involving substantial risk. The expenditures to be made by us in the
upcoming exploration of the mineral claims may not result in the discovery of
commercial quantities of ore. Problems such as unusual or unexpected formations
and other conditions are involved in mineral exploration and often result in
unsuccessful exploration efforts. In such a case, we would be unable to complete
our business plan.
Because of the inherent dangers involved in mineral
exploration, there is a risk that we may incur liability or damages if and when
we conduct mineral exploration activities.
The search for valuable minerals involves numerous hazards. As
a result, if and when we conduct exploration activities we may become subject to
liability for such hazards, including pollution, cave-ins and other hazards
against which we cannot insure or against which we may elect not to insure. The
payment of such liabilities may have a material adverse effect on our financial
position.
There is no assurance that any or all of our loan to Golden
Anvil will be repaid.
Under the terms of the Memorandum of Understanding with Golden
Anvil, we loaned Golden Anvil a total of $983,055 bearing interest at a rate of
18% per annum. There is no assurance that Golden Anvil will complete a
transaction for the sale of its assets and repay all or any of our loan.
Even if we discover commercial reserves of precious metals
on our Piute Valley Property, we may not be able to successfully obtain
commercial production.
Our Piute Valley Property does not contain any known bodies of
ore. If our exploration programs are successful in discovering ore of commercial
tonnage and grade, we will require additional funds in order to place those
mineral claims into commercial production. At this time, there is a risk that we
will not be able to obtain such financing as and when needed.
In order to maintain our rights to the Piute Valley
Property, we will be required to make annual filings with federal and state
regulatory agencies and/or be required to complete assessment work on those
properties.
In order to maintain our rights to the Piute Valley Property,
we will be required to make annual filings with federal and state regulatory
authorities. Currently the amount of these fees is minimal; however, these
maintenance fees are subject to adjustment. In addition, we may be required by
federal and/or state legislation or regulations to complete minimum annual
amounts of mineral exploration work on the Piute Valley Property. A failure by
us to meet the annual maintenance requirements under federal and state laws
could result in the loss of our rights to the Piute Valley Property.
As we undertake exploration of our Piute Valley Property, we
will be subject to compliance with government regulation that may increase the
anticipated cost of our exploration program.
There are several government regulations that materially
restrict the exploration of minerals. We may be required to obtain work permits,
post bonds and perform remediation work for any physical disturbance to the land
in order to comply with these laws. While our planned exploration program
budgets for regulatory compliance, there is a risk that new regulations could
increase our costs of doing business and prevent us from carrying out our
exploration program.
Certain work to be performed on our mineral projects may
require us to apply for permits from federal, state or local regulatory bodies.
If our applications for permits from the relevant regulatory
bodies are denied, we may not be able to proceed with our exploration and
development programs as disclosed above, which could have a negative effect on
our business.
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If we receive positive results from our exploration program
and we decide to pursue commercial production, we may be subject to an
environmental review process that may delay or prohibit commercial
production.
If the results of our geological exploration program indicate
commercially exploitable reserves, and we decide to pursue commercial production
of our mineral property, we may be subject to an environmental review process
under environmental assessment legislation. Compliance with an environmental
review process may be costly and may delay commercial production. Furthermore,
there is the possibility that we would not be able to proceed with commercial
production upon completion of the environmental review process if government
authorities did not approve our mine or if the costs of compliance with
government regulation adversely affected the commercial viability of the
proposed mine.
If we are unable to hire and retain key personnel, we may
not be able to implement our business plan and our business will fail.
Our success will largely depend on our ability to hire highly
qualified personnel with experience in geological exploration. These individuals
may be in high demand and we may not be able to attract the staff we need. In
addition, we may not be able to afford the high salaries and fees demanded by
qualified personnel, or may lose such employees after they are hired. Our
failure to hire key personnel when needed could have a significant negative
effect on our business.
If we complete additional financings through the sale of
shares of our common stock, our existing stockholders will experience dilution.
The most likely source of future financing presently available
to us is through the issuance of our common stock. The only other anticipated
alternative for the financing of further exploration would be the offering by us
of an interest in our properties to be earned by another party or parties
carrying out further exploration thereof, which is not presently contemplated.
Issuing shares of our common stock, for financing purposes or otherwise, will
dilute the interests of our existing stockholders.
Because our stock is a penny stock, stockholders will be
more limited in their ability to sell their stock.
Our common stock is considered to be a penny stock since it
does not qualify for one of the exemptions from the definition of penny stock
under Section 3a51-1 of the Exchange Act. Our common stock is a penny stock
because it meets one or more of the following conditions (i) the stock trades at
a price less than $5.00 per share; (ii) it is not traded on a recognized
national exchange; (iii) it is not quoted on the Nasdaq Stock Market, or even if
so, has a price less than $5.00 per share; or (iv) is issued by a company that
has been in business less than three years with net tangible assets less than $5
million.
The principal result or effect of being designated a penny
stock is that securities broker-dealers participating in sales of our common
stock will be subject to the penny stock regulations set forth in Rules 15-2
through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2
requires broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document at least two business days
before effecting any transaction in a penny stock for the investor's account.
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the
account of any investor for transactions in such stocks before selling any penny
stock to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.
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