NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 1 - ORGANIZATION AND DESCRIPTION OF
BUSINESS
Organization
Pershing Gold Corporation (the “Company”),
formerly named Sagebrush Gold Ltd., was incorporated under the laws of the State of Nevada on August 2, 2007. The Company
is a gold and precious metals exploration company pursuing exploration and development opportunities primarily in Nevada. The Company
is currently focused on exploration of its Relief Canyon properties in Pershing County in northwestern Nevada. None of the Company’s
properties contain proven and probable reserves, and all of the Company’s activities on all of its properties are exploratory
in nature.
On August 30, 2011, the Company, through
its wholly-owned subsidiary, Gold Acquisition Corp. (“Gold Acquisition”), acquired the Relief Canyon Mine property
(“Relief Canyon”) located in Pershing County, near Lovelock, Nevada.
A wholly-owned subsidiary, Pershing Royalty
Company, a Delaware corporation, was formed on May 17, 2012 to hold royalty interests in two gold exploration properties.
A wholly-owned subsidiary, EXCX Funding
Corp., a Nevada corporation, was formed in January 2011 and held a note payable - related party, which was exchanged for the
Company’s Series E Convertible Preferred Stock (“Series E Preferred Stock”) and warrants in August 2013
and was cancelled. On April 6, 2014 EXCX Funding Corp. was liquidated and dissolved.
On June 17, 2015, the Board of Directors
of the Company approved a reverse stock split of the Company’s common stock, par value $0.0001 per share (the “Common
Stock”), at a ratio of 1-for-18 (the “Reverse Stock Split”) which became effective on June 18, 2015. In connection
with the Reverse Stock Split, the Company filed a Certificate of Amendment to its Amended and Restated Articles of Incorporation,
as amended, with the Nevada Secretary of State to reduce the number of shares of Common Stock the Company is authorized to issue
from 800,000,000 to 200,000,000. All share and per share values of the Company’s Common Stock for all periods presented in
the accompanying consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split in accordance
with Staff Accounting Bulletin Topic 4C: Equity Accounts – Change in Capital Structure (“SAB Topic 4C”).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation and Principle
of Consolidation
The consolidated financial statements are
prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and present the consolidated
financial statements of the Company and its majority-owned subsidiaries as of December 31, 2015. In the preparation of the
consolidated financial statements of the Company, intercompany transactions and balances have been eliminated.
Use of Estimates and Assumptions
In preparing the consolidated financial
statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ
significantly from those estimates. Significant estimates made by management include, but are not limited to, the useful life
of property and equipment, the valuation of deferred tax assets and liabilities, including valuation allowance, amounts and timing
of closure obligations, the assumptions used to calculate fair value of restricted stock units, options and warrants granted, stock-based
compensation, beneficial conversion on convertible notes payable and preferred stock, capitalized mineral rights, asset valuations,
timing of the performance criteria of restricted stock units and the fair value of common stock issued.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Cash and Cash Equivalents
The Company considers all highly liquid
investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high
credit quality financial institution. The Company’s accounts at this institution are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250,000. At December 31, 2015, the Company had bank balances exceeding the FDIC insurance
limit on interest bearing accounts. To reduce its risk associated with the failure of such financial institution, the Company evaluates
at least annually the rating of the financial institution in which it holds deposits.
Restricted Cash
Restricted cash consists of cash and investments
which are held as collateral under a surface management surety bond issued on the Company’s behalf.
Fair Value of Financial Instruments
The Company adopted Accounting Standards
Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets
and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied
to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework
for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an
impact on the Company’s financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs.
These inputs are prioritized below:
|
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
|
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data
|
|
Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The Company analyzes all financial instruments
with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting
standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
The carrying amounts reported in the consolidated
balance sheets for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate their estimated
fair market values based on the short-term maturity of these instruments. The carrying amount of the note payable at December 31,
2015 approximates its respective fair value based on the Company’s incremental borrowing rate.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets
of $899,228 and $798,633 at December 31, 2015 and 2014, respectively, consist primarily of costs paid for future services which
will occur within a year. Prepaid expenses principally include prepayments for consulting, investor relations and business advisory
services, insurance premiums, drilling services, mining claim fees and mineral lease fees which are being amortized over the terms
of their respective agreements.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Mineral Property Acquisition and Exploration
Costs
Costs of lease, exploration, carrying and
retaining unproven mineral lease properties are expensed as incurred. The Company expenses all mineral exploration costs as incurred
as it is still in the exploration stage. If the Company identifies proven and probable reserves in its investigation of its properties
and upon development of a plan for operating a mine, it would enter the development stage and capitalize future costs until production
is established.
When a property reaches the production
stage, the related capitalized costs are amortized using the units-of-production method over the estimated life of the proven and
probable reserves. If in the future the Company has capitalized mineral properties, these properties will be periodically assessed
for impairment.
To date, the Company has not established
the commercial feasibility of any exploration prospects; therefore, all exploration costs are being expensed.
ASC 930-805, “Extractive Activities-Mining:
Business Combinations” (“ASC 930-805”), states that mineral rights consist of the legal right to explore, extract,
and retain at least a portion of the benefits from mineral deposits. Mining assets include mineral rights. Acquired mineral rights
are considered tangible assets under ASC 930-805. ASC 930-805 requires that mineral rights be recognized at fair value as of the
acquisition date. As a result, the direct costs to acquire mineral rights are initially capitalized as tangible assets. Mineral
rights include costs associated with acquiring patented and unpatented mining claims.
ASC 930-805-30-1 and 30-2 provides that
in fair valuing mineral assets, an acquirer should take into account both:
·
The
value beyond proven and probable reserves (“VBPP”) to the extent that a market participant would include VBPP in determining
the fair value of the assets.
·
The
effects of anticipated fluctuations in the future market price of minerals in a manner that is consistent with the expectations
of market participants.
Property and equipment
Property and equipment are carried at cost.
The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are
retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the year of disposition. Depreciation is calculated on a straight-line basis over the estimated useful
life of the assets, generally one to twenty five years.
Impairment of long-lived assets
The Company accounts for the impairment
or disposal of long-lived assets according to the ASC 360, “Property, Plant and Equipment”. The Company continually
monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets, including mineral
rights, may not be recoverable. Long-lived assets in the exploration stage are monitored for impairment based on factors such as
the Company’s continued right to explore the area, exploration reports, assays, technical reports, drill results and the
Company’s continued plans to fund exploration programs on the property, and whether sufficient work has been performed to
indicate that the carrying amount of the mineral property cost carried forward as an asset will not be fully recovered. The tests
for long-lived assets in the exploration stage are monitored for impairment based on factors such as current market value of the
long-lived assets and results of exploration, future asset utilization, business climate, mineral prices and future undiscounted
cash flows expected to result from the use of the related assets.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected
to be generated by the asset. When necessary, impaired assets are written down to estimated fair value based on the best information
available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates. The Company recognizes an impairment loss when the sum of expected undiscounted future cash
flows is less than the carrying amount of the asset. The Company did not record any impairment of its long-lived assets at December
31, 2015 and 2014, respectively.
Asset Retirement
Obligations
Asset retirement obligations (“ARO”),
consisting primarily of estimated mine reclamation and closure costs at the Company’s Relief Canyon property, are recognized
in the period incurred and when a reasonable estimate can be made, and recorded as liabilities at fair value. Such obligations,
which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to
accretion expense. Corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived
asset and depreciated over the asset’s remaining useful life. Asset retirement obligations are periodically adjusted to reflect
changes in the estimated present value resulting from revisions to the estimated timing or amount of reclamation and closure costs.
The Company reviews and evaluates its asset retirement obligations annually or more frequently at interim periods if deemed necessary.
Income taxes
The Company accounts for income taxes pursuant
to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other
things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which
management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC
740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the
merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of
ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely
than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized
upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed
the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance
sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company
believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a
liability for uncertain tax benefits.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
The Company has adopted ASC 740-10-25,
“Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively
settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered
effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more
likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The
federal and state income tax returns of the Company
are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Stock-based Compensation
Stock-based compensation is accounted for
based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC
718”), which requires recognition in the consolidated financial statements of the cost of employee and director services
received in exchange for an award of equity instruments over the period the employee or director is required to perform the services
in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director
services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, “Equity
Based Payments to Non-employees”, for share-based payments to consultants and other third-parties, compensation expense is
determined at the measurement date. The expense is recognized over the vesting period of the award. Until the measurement date
is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date.
Related party transaction
Parties are considered to be related to
the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under
common control with the Company. Related parties also include principal stockholders of the Company, its management, members of
the immediate families of principal stockholders of the Company and its management and other parties with which the Company may
deal where one party controls or can significantly influence the management or operating policies of the other to an extent that
one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related
party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from
a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of
the cost is reflected as compensation or distribution to related parties depending on the transaction.
Recent Accounting Pronouncements
In August 2014, FASB issued Accounting
Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements—Going Concern” (“ASU
No. 2014-15”). The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a
going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically,
the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including
interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain
disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express
statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year
after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for
the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently
assessing the impact of this ASU on the Company’s consolidated financial statements.
In November 2014, FASB issued ASU No. 2014-17,
“Business Combinations: Pushdown Accounting” (“ASU No. 2014-17”). This ASU amended the Business Combination
Accounting Standards Codification to provide guidance on whether and at what threshold an acquired entity that is a business or
nonprofit activity can apply pushdown accounting in its separate financial statements. The Company’s adoption of ASU No.
2014-17 effective November 14, 2014 did not have an impact on the Company’s consolidated results of operations, financial
position and related disclosures.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In April 2015, FASB issued ASU 2015-03,
“Interest – Imputation of Interest” (Subtopic 835-30) which focuses on simplifying the presentation of debt issuance
costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition
and measurement guidance for debt issuance costs are not affected by the amendments in this update. The ASU will be effective for
periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The
Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17,
“Balance Sheet Classification of Deferred Taxes”
(“ASU 2015-17”), which requires entities to present
deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The ASU simplifies the current guidance
in ASC Topic 740, “Income Taxes”, which requires entities to separately present deferred tax assets and liabilities
as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15,
2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an interim
or annual reporting period. The Company does not expect the impact of ASU 2015-17 to be material on the Company’s consolidated
financial statements.
In February 2016, FASB issued ASU 2016-02,
Leases (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating
leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification
will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term
of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater
than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing
guidance for operating leases. The new guidance will be effective for annual reporting periods beginning after December 15, 2018,
including interim periods within that reporting period and is applied retrospectively. Early adoption is permitted. The Company
is currently in the process of assessing the impact the adoption of this guidance will have on the Company’s consolidated
financial statements.
Other accounting standards that have been
issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated
financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact
on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 — MINERAL PROPERTIES
The Company’s Relief Canyon property
rights currently total approximately 25,000 acres and are comprised of approximately 948 owned unpatented mining claims, 120 owned
millsite claims, 172 leased unpatented mining claims, and 2,235 acres of leased and 2,770 acres of subleased private lands. Most
of the property on which the Relief Canyon deposit is located is subject to a 2% net smelter return production royalty, with a
portion of that property subject to net smelter return production royalties totaling 4.5%. The rest of the property is subject,
under varying circumstances, to net smelter return production royalties ranging from 2% to 5%.
Pershing Pass Property
The Pershing Pass property consists of
over 700 unpatented mining claims covering approximately 12,000 acres and a mining lease of private lands covering approximately
600 acres. Out of the total unpatented mining claims, 17 unpatented mining claims are subject to a 2% net smelter return
royalty and 19 unpatented mining claims are leased with a purchase option.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 3 — MINERAL PROPERTIES (continued)
The primary term of the unpatented mining
claim lease referenced above is ten years ending in January 2023, which may be extended as long as mineral exploration, development
or mining continue on the property. Production from the lease is subject to a 1% net smelter return royalty on precious metals
and a 0.5% net smelter royalty on all other metals produced from the leased property. Prior to production, and starting in September 2016,
the Company is required to pay a $10,000 per year advance minimum royalty payment until September 2023. The annual advance
minimum royalty increases to $12,500 in September 2023, to $15,000 in September 2028 and to $20,000 in September 2033.
The Company has the right to buy the leased claims at any time for $250,000.
The primary term of the private lands lease
referenced above is ten years ending in January 2023, and that may be extended as long as mineral development work continues on
the property. Production from the lease is subject to a 2% net smelter return royalty on all metals produced other than gold, and
to a royalty on gold indexed to the gold price, ranging from 2% at gold prices of less than $500 per ounce to 3.5% at gold prices
over $1,500 per ounce.
Prior to one year after commercial production,
the Company can repurchase up to 3% of the royalty on gold production at the rate of $600,000 for each 1%.
Newmont Properties
On April 5, 2012, the Company purchased
from Victoria Gold Corp. and Victoria Resources (US) Inc. their interest in approximately 13,300 acres of mining claims and private
lands adjacent to the Company’s original landholdings at the Relief Canyon Mine in Pershing County, Nevada.
Approximately 8,900 acres of the lands
that the Company acquired from Victoria Gold Corporation were a leasehold interest comprised of unpatented mining claims and private
lands subject to a 2006 Mineral Lease and Sublease with Newmont USA Ltd. (“Newmont”), which the Company refers to as
the Newmont Leased property. At that time, the Newmont Leased property consisted of 155 unpatented lode mining claims owned
by Newmont comprising approximately 2,800 acres, approximately 4,900 acres of privately-owned fee minerals leased by Newmont
from the owners, and 62 unpatented mining claims that were owned by Victoria within the Newmont Leased property and area of interest.
On January 14, 2015, the Company entered
into an Asset Purchase Agreement with Newmont pursuant to which the Company acquired for $6.0 million 74 unpatented mining claims
totaling approximately 1,300 acres that the Company had previously leased from Newmont, and entered into a new mining lease directly
with New Nevada Resources, LLC and New Nevada Lands, LLC for approximately 1,600 acres of fee, or private, land that the Company
had previously subleased from Newmont.
New Mining Lease with New Nevada Resources
and New Nevada Lands, Replacing Portion of Newmont Sublease
As part of the January 2015 transactions
completed pursuant to the Asset Purchase Agreement, a subsidiary of the Company entered into a Mining Lease (the “2015 Mining
Lease”) with New Nevada Resources, LLC and New Nevada Lands, LLC (the “Owners”), covering certain fee lands (the
“Leased Properties”) included in the Company’s Relief Canyon properties. The 2015 Mining Lease has a term of
twenty years and for as long thereafter as any mining, development or processing operations are being conducted on a continuous
basis. The 2015 Mining Lease contains customary terms and conditions, including an advance royalty and a 2.5% net smelter returns
production royalty on the Leased Properties payable to the Owners.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 3 — MINERAL PROPERTIES (continued)
Newmont Leased Property
As part of the Asset Purchase Agreement
transactions, Newmont and the Company entered into an amendment of the 2006 Minerals Lease and Sublease (the “Third Amendment”),
pursuant to which the Company agreed to a $2.6 million work commitment on the properties remaining subject to the 2006 Minerals
Lease and Sublease to be expended by the seventh anniversary of the effective date of the Third Amendment. As of December 2015,
the most recent cost reporting date, the Company can credit $2.6 million in exploration expenditures already incurred against the
work commitment of $2.6 million.
Also as part of the transactions completed
pursuant to the Asset Purchase Agreement, Newmont and the Owners entered into a new Mining Lease (the “2015 Newmont Lease”)
covering about 2,770 acres of private lands included in the Company’s Relief Canyon properties (the “Subleased Properties”)
and subleased by the Company from Newmont pursuant to the 2006 Minerals Lease and Sublease. The 2015 Newmont Lease has a term of
twenty years and for as long thereafter as any mining, development or processing operations are being conducted or a continuous
basis. The 2015 Newmont Lease contains customary terms and conditions, including an advance royalty and a 2.5% net smelter returns
production royalty on the Subleased Properties payable to the Owners. The Company continues to hold rights to the Subleased Properties
pursuant to its 2006 Minerals Lease and Sublease with Newmont.
General
The Company has posted a statewide surface
management surety bond with the United States Department of the Interior Bureau of Land Management (“BLM”) as required
by the State of Nevada in an amount of approximately $5.6 million, which is approximately $108,000 in excess of the coverage requirement
as of December 31, 2015, to reclaim land disturbed in its exploration and mining operations. The surface management surety bond
is provided through a third-party insurance underwriter. When the bond was issued in November 2013, the Company was required to
place $2,250,000, or 45% of the original $5.0 million bond, in a collateral account. No further collateral has been required for
subsequent increases in the bond amount. The funds deposited in the collateral account are classified as restricted cash on the
Company’s consolidated balance sheet.
As of December 31, 2015, based on management’s
review of the carrying value of mineral rights, management determined that there is no evidence that the cost of these acquired
mineral rights will not be fully recovered and accordingly, the Company has determined that no adjustment to the carrying value
of mineral rights was required. As of the date of these consolidated financial statements, the Company has not established any
proven or probable reserves on its mineral properties and has incurred only acquisition and exploration costs.
Mineral properties consisted of the following:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Relief Canyon Mine — Gold Acquisition
|
|
$
|
8,501,071
|
|
|
$
|
8,501,071
|
|
Relief Canyon Mine — Newmont Leased Properties
|
|
|
13,709,441
|
|
|
|
7,709,441
|
|
Pershing Pass Property
|
|
|
576,400
|
|
|
|
576,400
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,786,912
|
|
|
$
|
16,786,912
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
Estimated Life
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Furniture and fixtures
|
|
|
5 years
|
|
|
$
|
56,995
|
|
|
$
|
56,995
|
|
Office and computer equipment
|
|
|
1 - 5 years
|
|
|
|
402,835
|
|
|
|
402,835
|
|
Land
|
|
|
—
|
|
|
|
358,886
|
|
|
|
266,977
|
|
Building and improvements
|
|
|
5 - 25 years
|
|
|
|
812,967
|
|
|
|
817,187
|
|
Site costs
|
|
|
10 years
|
|
|
|
1,400,197
|
|
|
|
1,407,465
|
|
Crushing system
|
|
|
20 years
|
|
|
|
2,482,976
|
|
|
|
2,495,865
|
|
Process plant and equipment
|
|
|
10 years
|
|
|
|
3,486,864
|
|
|
|
3,504,964
|
|
Vehicles and mining equipment
|
|
|
5 - 10 years
|
|
|
|
699,025
|
|
|
|
699,025
|
|
|
|
|
|
|
|
|
9,700,745
|
|
|
|
9,651,313
|
|
Less: accumulated depreciation
|
|
|
|
|
|
|
(4,378,850
|
)
|
|
|
(3,253,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,321,895
|
|
|
$
|
6,398,221
|
|
For the years ended December 31, 2015
and 2014, depreciation expense amounted to $1,125,758 and $1,020,232 respectively.
NOTE 5 — NOTES PAYABLE
In August 2012, the Company issued a note
payable in the amount of $92,145 in connection with the acquisition of mining equipment. The note payable bears interest at approximately
7% per annum and is secured by a lien on the mining equipment. The note is payable in 48 equal monthly payments of $2,226. Notes
payable — short and long term portion consisted of the following:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Total notes payable
|
|
$
|
17,319
|
|
|
$
|
41,742
|
|
Less: current portion
|
|
|
(17,319
|
)
|
|
|
(24,423
|
)
|
Long term portion
|
|
$
|
-
|
|
|
$
|
17,319
|
|
NOTE 6 – ASSET RETIREMENT OBLIGATIONS
In conjunction with the permit approval permitting
the Company to resume mining in the existing open pits at the Relief Canyon Mine during the third quarter of 2014, the Company
has recorded an asset retirement obligation based upon the reclamation plan submitted in connection with the permit.
The following table summarizes activity in
the Company’s ARO:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Balance, beginning of year
|
|
$
|
798,605
|
|
|
$
|
-
|
|
Accretion expense
|
|
|
46,148
|
|
|
|
11,200
|
|
Reclamation obligations settled
|
|
|
(18,737
|
)
|
|
|
-
|
|
Additions and changes in estimates
|
|
|
(42,477
|
)
|
|
|
787,405
|
|
Balance, end of year
|
|
$
|
783,539
|
|
|
$
|
798,605
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 7 — STOCKHOLDERS’ EQUITY
On June 17, 2015, the Board of Directors of
the Company approved a reverse stock split of the Company’s Common Stock at a ratio of 1-for-18 (the “Reverse Stock
Split”) which became effective on June 18, 2015. In connection with the Reverse Stock Split, the Company filed a Certificate
of Amendment to its Amended and Restated Articles of Incorporation, as amended, with the Nevada Secretary of State to reduce the
number of shares of Common Stock the Company is authorized to issue from 800,000,000 to 200,000,000. All share and per share values
of the Company’s Common Stock for all periods presented in the accompanying consolidated financial statements are retroactively
restated for the effect of the Reverse Stock Split in accordance with SAB Topic 4C.
Preferred Stock
The Company is authorized within the limitations
and restrictions stated in the Amended and Restated Articles of Incorporation to provide by resolution or resolutions for the issuance
of 50,000,000 shares of Preferred Stock, par value $0.0001 per share in such series and with such designations, preferences and
relative, participating, optional or other special rights and qualifications, limitations or restrictions as the Company’s
Board of Directors establish.
Series A Convertible Preferred Stock
As of December 31, 2015 and 2014, 2,250,000
shares of Series A Preferred Stock, $0.0001 par value were authorized with none outstanding.
Series B Convertible Preferred Stock
As of December 31, 2015 and 2014, 8,000,000
shares of Series B Preferred Stock, $0.0001 par value were authorized with none outstanding.
Series C Convertible Preferred Stock
As of December 31, 2015 and 2014, 3,284,396
shares of Series C Preferred Stock, $0.0001 par value were authorized with none outstanding.
9% Series D Cumulative Preferred Stock
As of December 31, 2015 and 2014, there
were 7,500,000 shares of Series D Preferred Stock authorized and none outstanding.
Series E Preferred Stock
As of December 31, 2015 and 2014, there
were 15,151 shares of Series E Preferred Stock authorized and 9,375 and 9,425 shares issued and outstanding, respectively.
During February and March 2014 certain
holders of the Company’s Series E Preferred Stock converted 1,529 shares into 254,833 shares of common stock of the
Company in accordance with the Series E Preferred Stock certificate of designation. The conversion rate applied to these exchanges
was 166.667 shares of common stock for each share of Series E Preferred Stock which was equivalent to a conversion price of
$5.94 per share of common stock.
During April 2014 a certain holder of
the Company’s Series E Preferred Stock converted 50 shares into 8,333 shares of common stock of the Company in accordance
with the Series E Preferred Stock certificate of designation. The conversion rate applied to these exchanges was 166.667 shares
of common stock for each share of Series E Preferred Stock which was equivalent to a conversion price of $5.94 per share of
common stock.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
During July 2014 certain holders of the
Company’s Series E Preferred Stock converted 181 shares into 30,167 shares of common stock of the Company in accordance
with the Series E Preferred Stock certificate of designation. The conversion rate applied to these exchanges was 166.667 shares
of common stock for each share of Series E Preferred Stock which was equivalent to a conversion price of $5.94 per share of
common stock.
As a result of the October 2014 private placement,
the conversion price for the Series E Preferred Stock was reduced effective October 20, 2014 from $5.94 to $5.04 per share of Series
E Preferred Stock. Following this adjustment, each share of Series E Preferred Stock is convertible into the number of shares of
Common Stock obtained by dividing the Series E Original Issue Price (as defined in the Certificate of Designation), of is $990.00,
by the adjusted conversion price, resulting in each share of Series E Preferred Stock being convertible into approximately 196.429
shares of Common Stock. The adjusted conversion price generated additional value to the convertibility feature of the Series E
Preferred Stock. Accordingly, the Company recorded a deemed dividend of approximately $1.7 million for the additional value of
the beneficial conversion feature during the year ended December 31, 2014.
As a result of the Reverse Stock Split on June
17, 2015, the conversion price of the Company’s Series E Preferred Stock was proportionately adjusted to $5.04, with each
share of Series E Preferred Stock convertible into approximately 196.429 shares of the Company’s Common Stock.
During September 2015, a certain holder of
the Company’s Series E Preferred Stock converted 50 shares into 9,822 shares of Common Stock of the Company in accordance
with the Series E Preferred Stock certificate of designation.
As a result of the February 4, 2016 private
placement (see Note 11), the conversion price for the Series E Preferred Stock was reduced effective February 4, 2016 from $5.04
to $3.40 per share of Series E Preferred Stock. Following this adjustment, each share of Series E Preferred Stock is convertible
into the number of shares of common stock obtained by dividing the Series E Original Issue Price, of $990.00, by the adjusted conversion
price, resulting in each share of Series E Preferred Stock being convertible into approximately 291.176 shares of common stock.
A total of 9,375 shares of Series E Preferred Stock remained outstanding, and as a result of the adjustment, were convertible into
approximately 2,729,780 shares of common stock in the aggregate, compared to 1,841,528 shares of Common Stock prior to the adjustment.
The adjusted conversion price generated additional value to the convertibility feature of the Series E Preferred Stock. Accordingly,
the Company will record a preferred deemed dividend of approximately $3.0 million for the additional value of the beneficial conversion
feature in February 2016, the period of the adjustment.
During February 2016 a holder of Series E Preferred
Stock converted one Series E share into 292 shares of the Company’s Common Stock (see Note 11).
As a result of the February 25, 2016 private
placement (see Note 11), the conversion price for the Series E Preferred Stock was reduced effective February 25, 2016 from $3.40
to $3.25 per share of Series E Preferred Stock. Following this adjustment, each share of Series E Preferred Stock is convertible
into the number of shares of Common Stock obtained by dividing the Series E Original Issue Price, of $990.00, by the adjusted conversion
price, resulting in each share of Series E Preferred Stock being convertible into approximately 304.615 shares of Common Stock.
A total of 9,374 shares of Series E Preferred Stock remain outstanding, and as a result of the adjustment, are convertible into
approximately 2,855,469 shares of Common Stock in the aggregate, compared to 2,729,489 shares of Common Stock prior to the adjustment.
The adjusted conversion price generated additional value to the convertibility feature of the Series E Preferred Stock. Accordingly,
the Company will record an additional preferred deemed dividend of approximately $580,000 for the additional value of the beneficial
conversion feature in February 2016, the period of the adjustment.
During March 2016 a holder of Series E Preferred
Stock converted 100 Series E share into 30,461 shares of the Company’s Common Stock (see Note 11).
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Common Stock
Private Placements
The Company completed two private placements
in the third quarter of 2014. In the first private placement, the Company issued 1,476,603 Units on July 2, 2014 and an additional
136,764 Units on July 14, 2014, with each Unit comprised of one share of Common Stock and a 30 month warrant to purchase 0.4 of
a share of Common Stock at an exercise price of $8.10, for a total of 1,613,367 shares of Common Stock and warrants to acquire
an additional 645,368 shares of Common Stock, all pursuant to subscription agreements and a unit purchase agreement entered into
with accredited investors. The gross proceeds totaled approximately $9.8 million and net proceeds of approximately $8.9 million
after commissions and expenses.
The warrants sold as part of the units are
exercisable immediately at an exercise price of $8.10 per share of Common Stock, subject to adjustment in the event of stock dividends,
recapitalizations or certain other transactions. The warrants will expire on January 2, 2017. Certain FINRA broker-dealers
acted on behalf of the Company and were paid aggregate cash commissions of approximately $784,000 and reimbursed for expenses of
approximately $136,000 and were issued 30 month warrants to purchase an aggregate of 118,078 shares of Common Stock at an exercise
price of $6.12.
In the second private placement, the Company
issued 378,535 Units on July 30, 2014, with each Unit comprised of one share of Common Stock and a 30 month warrant to purchase
0.4 of a share of Common Stock at an exercise price of $8.10, for a total of 378,535 shares of Common Stock and warrants to acquire
an additional 151,419 shares of Common Stock, all pursuant to subscription agreements and a unit purchase agreement entered into
with accredited investors. The gross proceeds totaled approximately $2.3 million and the net proceeds totaled approximately
$2.2 million after commissions and expenses.
In connection with this private placement,
certain FINRA broker-dealers acted on behalf of the Company and were paid aggregate cash commissions of approximately $100,000
and reimbursed for expenses of approximately $18,000 and were issued 30 month warrants to purchase an aggregate of 19,048 shares
of Common Stock at an exercise price of $6.12.
Additionally, the Company paid a total of approximately
$174,000 of legal fees in connection with the July 2014 private placements thereby resulting in total net proceeds of $10.9 million
to the Company.
On October 20, 2014, the Company issued
1,984,128 shares of Common Stock in a private placement with accredited investors. The gross proceeds totaled approximately
$10.0 million and net proceeds of approximately $9.9 million after commissions and expenses. The Company paid a total of approximately
$102,000 of legal fees in connection with the October 2014 private placements.
In April 2015, the Company raised approximately
$11.5 million in gross proceeds through a private placement to certain accredited investors of a total of 1,962,501 Units priced
at $5.85 per Unit, with each Unit comprised of one share of the Company’s Common Stock and a 24 month warrant to purchase
0.4 of a share of Common Stock at an exercise price of $7.92. Net proceeds totaled approximately $10.5 million after commissions
and legal fees. A total of 1,962,501 shares of Common Stock and warrants to acquire 785,045 shares of Common Stock were issued
in the private placement, with 30 month warrants to acquire an additional 120,187 shares of Common Stock at an exercise price of
$5.85 issued to broker-dealers acting on behalf of the Company in the placement.
On February 4, 2016, the Company issued 367,647
shares of the Company’s Common Stock. The gross proceeds for this issuance totaled approximately $1.25 million. The shares
were issued pursuant to subscription agreements entered into on February 4, 2016 between the Company and two accredited investors
affiliated with Barry Honig, one of the Company’s directors (see Note 11).
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
On February 25, 2016, the Company issued 2,120,882
Units, with each Unit comprised of one share of Common Stock and a 30 month warrant to purchase 0.5 of a share of Common Stock
at an exercise price of $5.06, for a total of 2,120,882 shares of Common Stock and warrants to acquire an additional 1,060,429
shares of Common Stock. The Company received gross proceeds of approximately $6.9 million, and net proceeds of approximately $6.1
million after commissions and legal and other fees and expenses. The Company also issued warrants to acquire an aggregate of 261,590
shares of Common Stock to a certain FINRA broker-dealer who acted on behalf of the Company (see Note 11).
Common stock for services
On January 1, 2014, pursuant to an employment
agreement, the Company granted 13,889 shares of restricted common stock to an employee of the Company which were valued at fair
market value on the date of grant at approximately $6.30 per share. These restricted shares vest one third at the end of each of
the first three years from the date of issuance.
On June 11, 2014, the Company and Mr. Steve
Alfers, the Company’s CEO, entered into the Second Amendment to the Restricted Stock Agreement (the “Alfers Amendment”)
to amend that certain Restricted Stock Agreement, dated as of May 13, 2013, and amended by the First Amendment to the Restricted
Stock Agreement dated December 23, 2013 by and between the Company and Mr. Alfers. Pursuant to the Alfers Amendment,
the vesting of 92,583 restricted shares, of a total of 277,778 restricted shares that were granted on June 18, 2012, was extended
from June 18, 2014 to March 14, 2015. 92,583 shares had previously vested in March 2014 and the vesting schedule
for the remaining 92,612 shares vesting on June 18, 2015 remains unchanged.
On December 11, 2014, the Company granted
an aggregate of 19,157 shares of restricted stock units to the Company’s non-employee members of the board of directors.
The fair market value on the date of grant was approximately $99,700 or $5.22 per share. The restricted stock units vested over
a one year period and were 100% vested as of December 31, 2015. For each vested restricted stock unit, the holder will be entitled
to receive one unrestricted share of the Company's common stock upon the holder's termination of service on the Company's board
of directors or upon a change in control.
On December 16, 2014, the Company granted
an aggregate of 189,444 shares of restricted common stock to certain employees and consultants of the Company, which were valued
at fair market value on the date of grant at approximately $954,800 or $5.04 per share. These restricted shares vest one third
at the end of each of the first three years from the date of issuance.
Restricted Stock Units
On June 8, 2015 and June 9, 2015, the Company
granted an aggregate of 66,668 restricted stock units to certain of the Company’s non-employee members of the board of directors.
The fair market value on the date of grant was approximately $406,000. The restricted stock units vest over a three year period.
For each vested restricted stock unit, the holder will be entitled to receive one unrestricted share of the Company's Common Stock
upon the holder's termination of service on the Company's board of directors or upon a change in control. On September 4, 2015,
as a result of the death of one of the non-employee members of the board of directors, 5,556 restricted stock units vested in full,
and accordingly stock-based compensation was recognized as of December 31, 2015 reflecting the full vesting of the restricted stock
units. As a result of the vesting, the Company issued 5,556 shares of Common Stock in September 2015.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
On June 28, 2015, the Company granted an aggregate
of 700,000 restricted stock units to Mr. Stephen Alfers, the Company’s Chief Executive Officer and President. Under the terms
of the agreement, 300,000 restricted stock units (the “Initial RSUs”) are subject to vesting upon Mr. Alfers’
continuous employment through December 31, 2018, with earlier vesting upon certain events, such as a change in control. The remaining
400,000 restricted stock units (the “Incentive RSUs”) are subject to vesting upon the attainment of certain performance-based
milestones set forth in the agreement and become fully vested upon a change in control. For each fully vested restricted stock
unit, Mr. Alfers will be entitled to receive one share of Common Stock upon the earlier of December 31, 2018, Mr. Alfers’
separation from service or death, or a change in control. The fair market value on the date of grant of Mr. Alfers’ restricted
stock units was approximately $1,755,000 and $2,340,000 for the Initial RSU’s and Incentive RSU’s, respectively. Compensation
expense will be recognized on the Incentive RSU’s as the targets are obtained.
On December 9, 2015, the Company granted 12,500
restricted stock units to one of the Company’s non-employee members of the board of directors. The fair market value on the
date of grant was approximately $45,750. The restricted stock units vest immediately. For each vested restricted stock unit, the
holder will be entitled to receive one unrestricted share of the Company's Common Stock upon the holder's termination of service
on the Company's board of directors or upon a change in control.
On December 23, 2015, the Company granted an
aggregate of 50,000 restricted stock units to employees of the Company. The fair market value on the date of grant was approximately
$175,000. The shares granted to employees vest one third on the date of grant and one third at the end of each of the years ending
one and two years after the date of issuance. For each vested restricted stock unit, the holder will be entitled to receive one
unrestricted share of the Company's Common Stock upon the holder's termination of employment under certain circumstances or upon
a change in control.
During the years ended December 31, 2015
and 2014, the Company recorded stock-based compensation expense in connection with restricted stock and restricted stock unit awards
of $2,025,258 and $2,504,223, respectively. During the year ended December 31, 2014, the Company reversed $76,007 of
previously recognized compensation cost related to restricted stock awards that did not vest due to the holder’s termination
of employment. At December 31, 2015, there was a total of $4,689,685 unrecognized compensation expense in connection with
restricted stock awards.
A summary of the status of the restricted stock
units as of December 31, 2015 and 2014, and of changes in restricted stock units outstanding during the period, is as follows:
|
|
Restricted Stock Units
|
|
|
Weighted Average
Grant-Date
Fair Value
Per Share
|
|
Balance at December 31, 2013
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
19,158
|
|
|
|
5.20
|
|
Vested and converted
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2014
|
|
|
19,158
|
|
|
|
5.20
|
|
Granted
|
|
|
829,168
|
|
|
|
5.69
|
|
Vested and converted
|
|
|
(5,556
|
)
|
|
|
5.94
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2015
|
|
|
842,770
|
|
|
$
|
5.60
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Common Stock Options
A summary of the Company’s stock options
as of December 31, 2015 and 2014 and changes during the period are presented below:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
Balance at December 31, 2013
|
|
|
1,827,778
|
|
|
$
|
7.56
|
|
|
|
8.18
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(16,657
|
)
|
|
|
6.12
|
|
|
|
7.97
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2014
|
|
|
1,811,121
|
|
|
|
7.20
|
|
|
|
7.15
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance outstanding at December 31, 2015
|
|
|
1,811,121
|
|
|
$
|
7.20
|
|
|
|
6.15
|
|
Options exercisable at end of year
|
|
|
1,811,121
|
|
|
$
|
7.20
|
|
|
|
|
|
Options expected to vest
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the period
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
Common Stock Warrants
A summary of the Company’s outstanding
stock warrants as of December 31, 2015 and 2014 and changes during the period then ended is as follows:
|
|
Number of Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual
Life (Years)
|
|
Balance at December 31, 2013
|
|
|
1,458,006
|
|
|
$
|
8.10
|
|
|
|
2.22
|
|
Granted
|
|
|
933,913
|
|
|
|
7.74
|
|
|
|
2,50
|
|
Cancelled
|
|
|
(277,731
|
)
|
|
|
10.80
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2014
|
|
|
2,114,188
|
|
|
|
7.74
|
|
|
|
1,83
|
|
Granted
|
|
|
913,566
|
|
|
|
7.62
|
|
|
|
1.62
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(217,175
|
)
|
|
|
9.00
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2015
|
|
|
2,810,579
|
|
|
$
|
7.55
|
|
|
|
1.07
|
|
Warrants exercisable at December 31, 2015
|
|
|
2,810,579
|
|
|
$
|
7.55
|
|
|
|
1.07
|
|
Weighted average fair value of warrants granted during the year ended December 31, 2015
|
|
|
|
|
|
$
|
7.60
|
|
|
|
|
|
In April 2014, 277,731 warrants to purchase
shares of the Company’s common stock at a price of $10.80 per share were forfeited as the warrants were not exercised prior
to their expiration date.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
The Company completed two private placements
in July 2014. In the first private placement, the Company granted 30 month warrants to purchase 645,368 shares of Common Stock
at an exercise price of $8.10.The warrants were exercisable immediately upon grant and will expire on January 2, 2017. Certain
FINRA broker-dealers acted on behalf of the Company and were issued 30 month warrants to purchase an aggregate of 118,078 shares
of Common Stock at an exercise price of $6.12.
In the second private placement, the Company
granted 30 month warrants to purchase 151,419 shares of Common Stock. The warrants were exercisable immediately upon grant
and will expire on January 30, 2017. In connection with this private placement, certain FINRA broker-dealers acted on behalf of
the Company and were issued 30 month warrants to purchase an aggregate of 19,048 shares of Common Stock at an exercise price of
$6.12.
On January 28, 2015, the Company issued four-year
warrants to purchase 8,334 shares of Common Stock to a consultant. The warrants vested on March 1, 2015 and are exercisable at
$5.40 per share. The 8,334 warrants were valued on the grant date at approximately $2.88 per warrant or a total of approximately
$24,300 using a Black-Scholes option pricing model with the following assumptions: stock price of $5.40 per share (based on the
quoted trading price on the date of grant), volatility of 72%, expected term of 4 years, and a risk free interest rate of 1.25%.
The Company recognized stock-based consulting expense of approximately $24,300 during the year ended December 31, 2015.
In April 2015, in connection with the private
placement, the Company issued 24 month warrants to purchase shares of Common Stock at an exercise price of $7.92 per share, for
a total of 785,045 shares of Common Stock. The Company also issued 30 month warrants to purchase 120,187 shares of Common Stock
at an exercise price of $5.85 to broker-dealers acting on behalf of the Company in the private placement.
In December 2015, 217,175 warrants to purchase
shares of the Company’s common stock at a price of $9.00 per share were forfeited as the warrants were not exercised prior
to their expiration date.
On February 25, 2016, the Company issued 30
month warrants to purchase shares of Common Stock at an exercise price of $5.06 per share, for a total of 1,060,429 shares of Common
Stock. The warrants are exercisable six months and a day after issuance and will expire on August 25, 2018. The Company also issued
warrants to acquire an aggregate of 261,590 shares of common stock to a certain FINRA broker-dealer who acted on behalf of the
Company (see Note 11).
Treasury Stock
The Company accounts for treasury stock under
the cost method. Between February 2014 and March 2014, the Company reacquired 27,362 shares of its common stock from
certain employees of the Company. The reacquisition by the Company of its common stock is the result of certain employees electing
to surrender shares in order to satisfy their minimum applicable withholding obligation due to the vesting of restricted stock
awards. The Company recorded charges of $181,421 and $0, respectively, in connection with the 2014 and 2015 stock surrenders. In
July 2014, 22,222 unvested restricted stock awards were returned to treasury stock as a result of an employee termination. The
value of the treasury stock was reflected separately as a deduction from stockholders’ equity. In December 2014, all treasury
stock were cancelled and as a result at December 31, 2015 and 2014, there were no treasury stock issued and outstanding.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 8 — NET LOSS PER COMMON SHARE
Net loss per common share is calculated in
accordance with ASC Topic 260, “Earnings Per Share”. Basic loss per share is computed by dividing net loss available
to common stockholder, adjusted for preferred dividends, by the weighted average number of shares of Common Stock outstanding during
the period. The computation of diluted net loss per share does not include anti-dilutive Common Stock equivalents in the weighted
average shares outstanding. The following table sets forth the computation of basic and diluted loss per share:
|
|
For the
year ended
December 31,
2015
|
|
|
For the
year ended
December 31,
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(19,123,933
|
)
|
|
$
|
(18,159,240
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share (weighted-average shares)
|
|
|
21,165,083
|
|
|
|
16,913,621
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.90
|
)
|
|
$
|
(1.07
|
)
|
The following were excluded from the computation
of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s loss from continuing operations
and loss from discontinued operations. In periods where the Company has a net loss, all dilutive securities are excluded.
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,811,121
|
|
|
|
1,811,121
|
|
Stock warrants
|
|
|
2,810,579
|
|
|
|
2,114,188
|
|
Restricted stock units
|
|
|
842,770
|
|
|
|
19,158
|
|
Convertible preferred stock
|
|
|
1,841,528
|
|
|
|
1,851,340
|
|
Total
|
|
|
7,305,998
|
|
|
|
5,795,807
|
|
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its corporate facility,
and certain office equipment, in Lakewood, Colorado under operating leases with expiration dates through 2018. In April 2015, the
Company executed a new operating lease agreement for its corporate facility in Lakewood, Colorado. The new lease is for a period
of 39 months commencing in May 2015 and expiring in July 2018. The Company recognized total deferred rent of $15,988 ($5,217 current
portion and $10,771 long term portion) in connection with this lease agreement as of December 31, 2015. Rent expense was $62,364
and $47,403 for the years ended December 31, 2015 and 2014, respectively.
Future minimum rental payments required under operating leases are
as follows:
2016
|
|
$
|
81,345
|
|
2017
|
|
|
83,343
|
|
2018
|
|
|
45,455
|
|
|
|
$
|
210,143
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 9 — COMMITMENTS AND CONTINGENCIES
(continued)
As more fully discussed in Note 5 — Mineral
Properties the Company leases certain mineral properties on its Pershing Pass Property. The future minimum lease payments under
these mining leases are as follows:
2016
|
|
$
|
20,000
|
|
2017
|
|
|
25,000
|
|
2018
|
|
|
25,000
|
|
2019
|
|
|
25,000
|
|
2020
|
|
|
25,000
|
|
Thereafter
|
|
|
67,500
|
|
|
|
$
|
187,500
|
|
The Company incurred mining lease payments
of $10,000 and $10,000 for the years ended December 31, 2015 and 2014, respectively.
NOTE 10 - INCOME TAXES
The Company accounts for income taxes under
ASC Topic 740: Income Taxes which requires the recognition of deferred tax assets and liabilities for both the expected impact
of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit
to be derived from tax losses and tax credit carryforwards. ASC Topic 740 additionally requires the establishment of
a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net operating loss carryforward
for tax purposes totaling approximately $55.6 million at December 31, 2015, expiring through the year 2035. Internal Revenue
Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after certain ownership
shifts
The table below summarizes the differences
between the Company’s effective tax rate and the statutory federal rate as follows for the year ended December 31, 2015
and 2014:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Tax benefit computed at “expected” statutory rate
|
|
$
|
(6,502,139
|
)
|
|
$
|
(5,596,958
|
)
|
State income taxes, net of benefit
|
|
|
—
|
|
|
|
—
|
|
Permanent differences :
|
|
|
|
|
|
|
|
|
Stock based compensation and consulting
|
|
|
18,886
|
|
|
|
628,292
|
|
Prior year true-ups
|
|
|
833,847
|
|
|
|
1,431,485
|
))
|
Other
|
|
|
13,512
|
|
|
|
9,549
|
|
Increase in valuation allowance
|
|
|
5,635,894
|
|
|
|
3,527,632
|
|
Net income tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
The table below summarizes the differences
between the Company’s effective tax rate and the statutory federal rate as follows for the year ended December 31,
2015 and 2014:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Computed “expected” tax expense (benefit)
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes
|
|
|
0
|
%
|
|
|
0
|
%
|
Permanent differences
|
|
|
4.53
|
%
|
|
|
12.59
|
%
|
Change in valuation allowance
|
|
|
29.47
|
%
|
|
|
21.41
|
%
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 10 - INCOME TAXES (continued)
The Company has a deferred tax asset which
is summarized as follows at December 31, 2015 and 2014:
Deferred tax assets:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Net operating loss carryover
|
|
$
|
18,920,702
|
|
|
$
|
12,878,543
|
|
Stock based compensation
|
|
|
4,986,677
|
|
|
|
5,826,392
|
|
Depreciable and depletable assets
|
|
|
(367,352
|
)
|
|
|
(463,793
|
))
|
Mining explorations
|
|
|
3,028,546
|
|
|
|
2,706,134
|
|
Capital loss carryforward
|
|
|
1,482,863
|
|
|
|
1,482,863
|
|
Other
|
|
|
27,062
|
|
|
|
12,465
|
|
Less: valuation allowance
|
|
|
(28,078,498
|
)
|
|
|
(22,442,604
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
After consideration of all the evidence, both
positive and negative, management has recorded a full valuation allowance at December 31, 2015, due to the uncertainty of
realizing the deferred income tax assets. The valuation allowance was increased by approximately $5.6 million.
NOTE 11 — SUBSEQUENT EVENTS
February 4, 2016 Private Placement
On February 4, 2016, the Company issued 367,647
shares of the Company’s common stock. The gross proceeds for this issuance totaled approximately $1.25 million. The shares
were issued pursuant to subscription agreements entered into on February 4, 2016 between the Company and two accredited investors
affiliated with Barry Honig, one of the Company’s directors.
As a result of the February 4, 2016 private
placement, the conversion price for the Series E Preferred Stock has been reduced effective February 4, 2016 from $5.04 to $3.40
per share of Series E Preferred Stock. Following this adjustment, each share of Series E Preferred Stock is convertible into the
number of shares of Common Stock obtained by dividing the Series E Original Issue Price (as defined in the Certificate of Designation),
of $990.00, by the adjusted conversion price, resulting in each share of Series E Preferred Stock being convertible into approximately
291.176 shares of Common Stock. A total of 9,375 shares of Series E Preferred Stock remained outstanding, and as a result of the
adjustment, were convertible into approximately 2,729,780 shares of Common Stock in the aggregate, compared to 1,841,528 shares
of Common Stock prior to the adjustment. The adjusted conversion price generated additional value to the convertibility feature
of the Series E Preferred Stock. Accordingly, the Company will record a deemed dividend of approximately $3.0 million for the additional
value of the beneficial conversion feature in February 2016, the period of the adjustment.
Series E Preferred Stock Conversion
During February 2016 a holder of Series E Preferred
Stock converted one Series E share into 292 shares of the Company’s Common Stock.
During March 2016 a holder of Series E Preferred
Stock converted 100 Series E share into 30,461 shares of the Company’s Common Stock.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 11 — SUBSEQUENT EVENTS (continued)
February 25, 2016 Private Placement
On February 25, 2016, the Company issued 2,120,882
Units, with each Unit comprised of one share of Common Stock and a 30 month warrant to purchase 0.5 of a share of Common Stock
at an exercise price of $5.06, for a total of 2,120,882 shares of Common Stock and warrants to acquire an additional 1,060,429
shares of Common Stock. The Company received gross proceeds of approximately $6.9 million, and net proceeds of approximately $6.1
million after commissions and legal and other fees and expenses.
The Company also issued warrants to acquire
an aggregate of 261,590 shares of Common Stock to a certain FINRA broker-dealer who acted on behalf of the Company.
As a result of the February 25, 2016 private
placement, the conversion price for the Series E Preferred Stock has been reduced effective February 25, 2016 from $3.40 to $3.25
per share of Series E Preferred Stock. Following this adjustment, each share of Series E Preferred Stock is convertible into the
number of shares of Common Stock obtained by dividing the Series E Original Issue Price (as defined in the Certificate of Designation),
of $990.00, by the adjusted conversion price, resulting in each share of Series E Preferred Stock being convertible into approximately
304.615 shares of Common Stock. A total of 9,374 shares of Series E Preferred Stock remain outstanding, and as a result of the
adjustment, are convertible into approximately 2,855,469 shares of Common Stock in the aggregate, compared to 2,729,489 shares
of Common Stock prior to the adjustment. The adjusted conversion price generated additional value to the convertibility feature
of the Series E Preferred Stock. Accordingly, the Company will record a deemed dividend of approximately $580,000 for the additional
value of the beneficial conversion feature in February 2016, the period of the adjustment.