ITEM 1.
BUSINESS.
Business Overview
Our objective as a small
mining company is to consolidate mining interests, claims, mineral rights, and operations within one company and to develop these
mining interests by drilling and proving mineral deposits specifically in our first two properties located in Washington and Montana.
Our Corporate History and Background
We were incorporated in
the State of Nevada on September 8, 2006. Prior to March 14, 2013, we were a developmental stage company that had a principal business
objective of offering premium baseball cap type headwear for women with exquisite taste and extravagant appetites as exclusive
accessories to differentiate themselves. However, due to lack of capital, the Company had not been able to commence any business.
In late 2011, we considered
entering into the directional well drilling industry and changed our name from Exclusive Apparel, Inc. to Helmer Directional Drilling
Corp (the “Company”). However, we were unable to attract the necessary capital and management to begin any operations.
On March 14, 2013 (the
“Closing Date”), the Company entered into a share exchange agreement (the “Exchange Agreement”) with Excelsior
Gold Corporation, a Utah corporation (“Excelsior”), and the shareholders of Excelsior, pursuant to which the Company
purchased all of the outstanding common stock of Excelsior in exchange for 1,000.999 shares of our Series M preferred stock, par
value $0.001 per share (the “Series M Preferred Stock”) (such transaction is sometimes referred to herein as the “Share
Exchange”). The Series M Preferred Stock is convertible into 302,000,000 shares of common stock, conditional upon the amendment
of the Company’s Articles of Incorporation to increase the number of authorized shares to 700,000,000. As a result of the
Share Exchange, we are now the holding company of Excelsior and operating a company in development of mining interests by drilling
and proving mineral deposits and formations specifically in our first two properties located in Washington and Montana. As a condition
to the Share Exchange, 155,466,645 shares of our common stock, par value $0.001 (the “Retired Stock”) then outstanding
were cancelled and retired.
As a result of the Share
Exchange, we will cease our prior operations and, we will operate as a mining exploration and development company.
Our Industry
The Mining Industry
The mining industry is
highly fragmented, as there are many gold and silver prospectors and producers, both small and large, in every market and region
throughout the world. As these metals are well established commodities with well established markets, we believe that a production-stage
mine will undoubtedly have a ready market for extracted minerals. Nevertheless, the global economic downturn has weakened the mining
sector, which is expected to witness greater consolidation and reliance on non-traditional sources of financing to develop mining
properties. In addition, we expect that the industry will also likely see a greater degree of vertical integration of mineral extraction
and distribution firms.
Our Business Strategy
Our objective is not to
extract gold, silver, and other precious metals, but only to prove these minerals exist on our claims and to compile data to attract
partners to develop the properties. We intend to seek joint venture partners with the financial and operational means to be able
to extract the minerals.
Our principal property
is a deposit 100% owned directly through our subsidiary Excelsior Gold Corporation, located in Northeast Washington where we hold
54 lode mining claims in respect of the Great Excelsior Mine (also sometimes referred to as the “Excelsior Claims”)
located in Whatcom County in the Mount Baker quadrangle in western Washington State as further detailed in Exhibit 99.1.
Location, Access and Physiography
The Excelsior claims are accessed by United
States Forest Service roads. The claims can be accessed by following I-5 south from the Canadian-U.S. border, to State Highway
542. Highway 542 is followed for 37 miles to the Glacier Creek road, located one mile east of the town of Glacier, Washington.
The Deadhorse road, which leads to the claims, is accessed immediately after turning onto the Glacier Creek road and is followed
for a distance of six miles. A mile long mine road leads to the workings and numerous drill roads.
The claim block is located
south of the North Fork of the Nooksack River, along Wells Creek. The topography is steep rising from 1400 ft. to 2400 ft. Most
of the area is heavily forested with cedar and fir. Power and water are available at the mine. More details about the claims and
property are attached herewith as Exhibit 99.1.
The explored portion of
the deposit is located on a large down-dropped landslide block. There are 105 core and reverse circulation holes. The Great Excelsior
Mine was a former gold and silver producer which was closed in 1918 due to falling metal prices and a shortage of supplies. This
mining property has been explored by numerous mining companies over the years, including ASARCO, Silver Standard, Ltd., Quintana
Resources, Inc., US Borax, Steelhead Resources, Inc, FMC Gold Corp., Stanford Metals, Ltd, and Arizuma Silver, Inc.
The Excelsior Mine is located
on the axis of an overturned anticline in the Wells Creek Volcanics, consisting of altered siltstone, tuff, and a sedimentary breccia
consisting of felsic volcanic ejecta (from a Jurassic “black smoker), fragments of tuf, and siltstone. The alteration is
typical of an epigenetic sequence with the host rock altered to sericite, adularia and calcite. The planned drilling will seek
to locate and develop high grade zones carrying up to 1 opt Au and 50 opt Ag, as are seen in the workings on the Blacksmith and
Mill levels.
The Excelsior mine is a
“development stage” project which is ready for production upon getting financing and approvals from the United States
Forest Service. Currently, the Excelsior Mine does not have a mining plant, mill or mining equipment. To date, the work completed
on the Excelsior property consists of approximately $3 million (inflation adjusted) of drilling and other exploration work that
has been performed, to include a portal replacement in 2011. Currently, a Plan of Operations is being processed by the Forest Service
for improvements to the haulage road. One hundred fifteen reverse, circulation, rotary and diamond drill holes have been drilled
on the Excelsior property by several companies. The company has all drill logs, assays, and reports generated by this work. A substation
is located within a mile and a half of the Excelsior Mine. Water is flowing from the portal, and a well can be drilled or water
trucked for domestic use. There are no plans to construct a mine plant on site, so water usage will be minimal. Development drilling
from within the existing workings is planned to determine and define the boundaries of any minerals prior to mining. The primary
focus of the company is to do the necessary development drilling prior to running a decline from the Blacksmith Level to beneath
the South Ore Zone, located 300 ft south of the Blacksmith Level. To accomplish this, the Plan of Operations must be approved,
mine road repaired, the Blacksmith Portal retimbered , and minor rehab work done on the Blacksmith Level. The budget
proposed
budget for this work is $400,000. The objective is to be shipping minerals by the end of the 2
nd
quarter of 2014. To
accomplish this we plan to sell crushed rocks at the mine head and are in discussions with buyers. Phase I is outlined above and
consist of repairing the haulage road, retimbering the Blacksmith portal, preparing underground drill sites, and drilling 300 ft
of NQ core. Phase II consist of driving the decline beneath the South Zone, collecting bulk samples to determine the best method
of extraction, joint venture the production phase and/or obtain $15M in financing, prior to mining. We believe that Phase I will
be funded through a bridge loan. We are presently seeking this financing with short term lenders. We anticipate that Phase II will
be funded through a joint venture or non-brokered private placement. The exploration work will be supervised by our staff, three
of whom are licensed Geologists, each with over 30 years of industrial experience in mining and mineral exploration. The Plan of
Operations, if approved, for the road improvements will contain the bonding requirements. No Plan of Operations is required for
drilling because the drilling will be done from underground and therefore is not regulated by the Forest Service, Whatcom County,
or the state of Washington. An additional Plan of Operations will be required to haul rocks on the Forest Service roads; however,
the US Forest Service Environmental Coordinator told us that the time frame will be relatively short to obtain approval; i.e.,
a few months.
A NI 43-101 compliant report
has not been produced in respect of the mining claims we hold.
If we were able to commence
production in respect of our Great Excelsior Claims, we would likely not construct milling facilities but would transport extracted
material to a nearby mill operated by other larger gold and silver producers. We also have rights in respect of a second property,
the Liver Peak property, which is also 100% owned directly through our subsidiary Excelsior Gold Corporation. Located in Montana,
this property comprises 30 unpatented federal mining claims covering 620 acres in the Lolo National Forest in Sanders County, Montana,
about 8 kilometers northeast of the town of Thompson Falls.
Location, Access and Physiography
The Liver Peak property
is accessed by improved United States Forest Service roads. The claims can be accessed by taking the Thompson River Road, approximately
1 mile east of Thompson Falls, MT, then the first improved USFS road (Spruce Creek Road), and then the Honeymoon Creek Road, which
goes through to the property. Further property and claim details are provided in Exhibit 99.2 to this report.
The Liver Peak claims are
centered on an elliptical area roughly 620 acres in size, of strong hydrothermal alteration and quartz veining. We believe Liver
Peak is rich in molybdenum, and we would expect to only incur an extraction cost of 5-10% per ton. There is power within 1 mile
of the property, and water could be pumped from the Thompson River, or a well drilled near the river and water pumped to the property.
Historic drilling on the
Liver Peak property between 1967 and 1981 by Bear Creek Mining, Asarco, and Noranda, totaled 10 holes for 6,600 meters drilled.
Falling molybdenum prices
in 1982 led Noranda to abandon the project and drop their claims. No significant work to determine the extent of the quartz-eye
porphyry and related molybdenum-tungsten silver mineralization has been done since that time.
Rising molybdenum prices
beginning in 2004 led Idaho General Mines (General Moly) to restake the district. For unknown reasons in 2006, Idaho General Mines
dropped the claims in the core of the district, and they were subsequently relocated by several affiliates of West Coast Resource
Associates, the principals of which are also newly-appointed officers and directors of the Company following the Share Exchange.
In early 2012, West Coast Resource Associates, LLC. consolidated its holdings by restaking the key ground in the district, directly
over the known molybdenum mineralization and the underlying quartz-eye porphyry. It is estimated that the total inflation adjusted
cost incurred by all parties on the Liver Peak project to date, is approximately $3.1 million dollars.
The Liver Peak property
currently does not have a mine plant, mill or mining equipment, and is considered an “advanced stage” exploration project,
and has no proven or probable reserves as defined by SEC Industry Guide 7. No exploration is planned for the Liver Peak project
prior to 2015, due to the shortage of investment capital and the substantial cost of drilling the greater than 4500 ft deep core
holes.
Property Interests and Mining Claims in General
All mining properties owned
and /or controlled by the company consist of lode mining claims on United States Forest Service land.
The
mineral rights were acquired by staking lode mining claims as per the Mining Law of 1872. Each lode mining claim in respect to
the Liver Peak Property and Excelsior projects consist of 20 acres. All claims are
subject to an annual maintenance fee
of $140/claim due by noon on
September 30 each year.
Mining
claims are subject to the same risk of defective title that is common to all real property interests. Additionally, mining claims
are self-initiated and self-maintained and therefore, possess some unique vulnerabilities not associated with other types of property
interests. It is impossible to ascertain the validity of unpatented mining claims solely from an examination of public real estate
records and, therefore, it can be difficult or impossible to confirm that all of the requisite steps have been followed for location
and maintenance of a claim. Furthermore, as these interests are derived from multiple jurisdictions, the risk of a defective claim
or other problems with ownership and development of the claim (including but not limited to the right of eminent domain) is compounded
further. If the validity of a patented mining claim or mineral interest is challenged by an applicable governmental body on the
grounds that mineralization has not been demonstrated, the claimant has the burden of proving the present economic feasibility
of mining minerals located thereon. Such a challenge might be raised at any stage of development or at the commencement of production,
or simply when the government seeks to include the land in an area to be dedicated to another use.
Market
Gold has increased in value
from $400 per Troy ounce in early 2005 to over $1,600 at the end of 2012. The price of gold has been on a relatively steady increase
over the long term, with some disruption in this trend during 2008 and 2012. Deleveraging in 2008, which caused many financial
institutions to sell hard assets, drove the price decline from a high of approximately $1,000 in late 2007 to a low of approximately
$700 in mid 2008. In 2010, gold outperformed most other asset classes, with the spot price appreciating more than 27% during the
year, but further appreciated by more than 10% in 2011 before receding slightly during 2012. Since one of the most widespread uses
of gold is as a store of value, interest in owning the metal has increased significantly since the lows of 2008. The large fiscal
stimulus of the US, Europe and China, combined with economic instability, has heightened the concern for future inflation, driving
additional interest in owning gold. Gold is a currency without a country, and as such is preferred when confidence falls in any
one of the major currencies, or when international tensions build.
Physical demand for gold
has outpaced the discovery of new deposits and the introduction of new supply from developing deposits in the past decade. The
supply and production shortfall has been partly offset by central banks selling and the recycling of scrap gold. In the wake of
the financial crisis of 2008, central banks have reversed course, holding and purchasing gold. China and India have both reported
increases in their gold deposits year over year.
We believe that concerns
over future US inflation may be valid, regardless of the actual magnitude of inflation in the future. The balance sheet of the
U.S. Federal Reserve grew from zero in 1913 to approximately $500 billion in 1997, over an 84 year time period. A second $500 billion
was added to the
Fed’s balance sheet from 1997 through
September 2008. An additional $1,000 billion was added in September and October of 2008 in an attempt to stave off a further deterioration
in the U.S. economy and provide additional liquidity necessary for a sustainable economic recovery. Since 2009, the present administration
has generated record deficits in an effort to stimulate the U.S. economy. Although such actions may have been necessary from a
macroeconomic perspective, we believe this has contributed to appreciable demand for gold by investors as a hedge against inflation
of the U.S. Dollar. We further believe that, rather than a temporary aberration which often occurs in commodity pricing, U.S. monetary
policy has contributed to systemic long-term upward pressure in the price of gold.
Competition
We face strong competition
for the limited supply of companies and mineral properties from other mining companies, in the United States and abroad, and some
of our competitors have greater financial resources than we do.
We also compete with other
mining companies to attract and retain key executives, skilled labor, contractors and other employees. We compete with other mining
companies for the services of skilled personnel and contractors and their specialized equipment, components and supplies, such
as drill rigs, necessary for exploration and development. We also compete with other mining companies for rights to mine properties.
We believe a high degree of competition in this industry will continue for the foreseeable future.
We believe that we can
distinguish the Company from our competition by providing a high degree of professionalism, precise accounting, exceptional technical
and practical knowledge of our management and consultants.
Employees
As of the date of this
report, we had two employees. We also utilize the services of various contract personnel from time to time.
Available Information
The Company is subject to the information requirements
of the Securities Exchange Act of 1934, as amended, and in accordance therewith files quarterly and annual reports, as well as
other information with the Securities and Exchange Commission (“Commission”) under File No. 333-14477. Such reports
and other information filed with the Commission can be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates, and at various regional and district offices
maintained by the Commission throughout the United States. Information about the operation of the Commission’s public reference
facilities may be obtained by calling the Commission at 1-800-SEC-0330. The Commission also maintains a website at
http://www.sec.gov
that contains reports and other information regarding the Company and other registrants that file electronic reports and information
with the Commission.
ITEM 1A. RISK FACTORS.
An investment in our Common Stock involves
a high degree of risk. You should carefully consider the risks described below, together with all of the other information included
in this Report, before making an investment decision. If any of the following risks actually occur, our business, financial condition
or
results of operations could suffer. In that
case, the trading price of our shares of Common Stock could decline, and you may lose all or part of your investment. You should
read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types
of statements are forward-looking statements, as well as the significance of such statements in the context of this Report.
Risks
Related to Our Business
We have a limited
operating history that you can use to evaluate us, and the likelihood of our success must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered by a small developing company.
We
were incorporated in Nevada in September 2006. We have no significant tangible assets or financial resources. The likelihood of
our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered
by a small developing company, particularly as it compares to other better capitalized firms in the mining industry. Since we have
a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate sufficient
revenues to meet our expenses and support our anticipated activities.
We need additional
capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of
our operations.
If
adequate additional financing is not available on reasonable terms, we may not be able to undertake our exploration and development
activities and we would have to modify our business plans accordingly. There is no assurance that additional financing will be
available to us.
In
connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital
to fund our anticipated operations without additional capital investments. Our capital needs will depend on numerous factors, including
(i) our profitability; (ii) the level of difficulty in proving extractable deposits for which we have claims; (iii) the level of
our investment in new projects; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that
we will be able to obtain capital in the future to meet our needs.
Even
if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional
capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the
holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to our Common Stock. We cannot give you any assurance that any additional
financing will be available to us, or if available, will be on terms favorable to us.
Our future success is dependent, in part,
on the performance and continued service of our officers.
We
are presently dependent to a great extent upon the experience, abilities and continued services of our management team. The loss
of services of any of the management staff could have a material adverse effect on our business, financial condition or results
of operation.
Risks
Related to Ownership of Our Common Stock
Though our common stock is quoted on
the OTCQB, there is no liquidity and no established public market for our common stock, which means that it will be difficult to
sell your shares.
Our common stock is quoted
on the OTCQB under the symbol “EXLA”. There is, however, presently no active public market in our shares. We cannot
assure you that such an active market for our common stock will develop. The over-the-counter market is a significantly more limited
market than established trading markets such as the New York Stock Exchange or Nasdaq. Broker dealers may not be willing to make
a market in our shares. In addition, the OTCQB and similar quotation services are often characterized by low trading volumes, and
price volatility, which may make it difficult for an investor to sell our common stock on acceptable terms.
Our common stock is subject to the “penny
stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome
and may reduce the value of an investment in our stock.
Under U.S. federal securities
legislation, our common stock will constitute “penny stock”. Penny stock is any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules
require that a broker or dealer approve a potential investor’s account for transactions in penny stocks, and the broker or
dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock
to be purchased. In order to approve an investor’s account for transactions in penny stocks, the broker or dealer must obtain
financial information and investment experience objectives of the person, and make a reasonable determination that the transactions
in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form sets forth
the basis on which the broker or dealer made the suitability determination. Brokers may be less willing to execute transactions
in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common
stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in
penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
Because we do not intend to pay any cash
dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We have never paid a dividend
and we intend to retain any future earnings to finance the development and expansion of our business. Consequently, we do not anticipate
paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be
able to receive a return on their shares unless they sell them. We cannot assure you that stockholders will be able to sell shares
when desired.
Future issuance
of our Common Stock could dilute the interests of existing shareholders.
We
may issue additional shares of our Common Stock in the future. The issuance of a substantial amount of Common Stock could have
the effect of substantially diluting the interests of our shareholders. In addition, the sale of a substantial amount of Common
Stock in the public market, either in the initial issuance or in a subsequent resale by the target company in an acquisition which
received such Common Stock as consideration or by investors who acquired such Common Stock in a private placement could have an
adverse affect on the market price of our Common Stock.
If we are unable to establish appropriate
internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the
restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors
to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common
Stock.
Effective internal controls are necessary for
us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial
reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal
financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
As a public company that files reports under
the Exchange Act, we have significant additional requirements for enhanced financial reporting and internal controls. We are required
to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.
The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and
react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a
system of internal controls that is adequate to satisfy our reporting obligations as a public company under the Exchange Act.
We cannot assure you that we will not, in the
future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures
we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls
over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal
financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement
of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose
confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
Lack of experience as officers
of publicly-traded companies of our management team may hinder our ability to comply with Sarbanes-Oxley Act.
It may be time consuming, difficult and costly
for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need
to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement
appropriate internal controls and reporting procedures.
Following the
Share
Exchange
, public company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act
and rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies that
file reports under the Exchange Act. As a public reporting company, we expect these rules and regulations to continue to increase
our compliance costs and to make certain activities more time consuming and costly. As a public company, these rules and regulations
may make it more difficult and expensive for us to obtain director and officer liability
insurance at commercially acceptable rates
and we may therefore be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our
board of directors or as executive officers.
Because our directors and executive
officers are among our largest shareholders, they can exert significant control over our business and affairs and have actual or
potential interests that may depart from those our other shareholders.
Our directors and executive
officers will own or control a significant percentage of the Common Stock following the Share Exchange. The interests of such persons
may differ from the interests of our other shareholders. As a result, in addition to their board seats and offices, such persons
will have significant influence over and control all corporate actions requiring shareholder approval, irrespective of how the
Company’s other shareholders, including participants in the Share Exchange, may vote, including the following actions:
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to elect or defeat the election of our directors;
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to amend or prevent amendment of our Articles of Incorporation or By-laws;
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to effect or prevent a merger, sale of assets or other corporate transaction; and
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to control the outcome of any other matter submitted to our shareholders for vote.
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Such persons’ stock ownership may discourage
a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could reduce
our stock price or prevent our shareholders from realizing a premium over our stock price.
