NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS
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.
On July 5, 2016 a wholly-owned subsidiary, Blackjack Gold Corporation, a Nevada corporation, was formed for potential purchases
of exploration targets.
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 principles 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 wholly-owned subsidiaries as of September 30, 2016. All intercompany transactions and
balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s
financial position as of September 30, 2016, and the results of operations and cash flows for the nine months ended September 30,
2016 have been included. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative
of the results to be expected for the full year. The accounting policies and procedures employed in the preparation of these consolidated
financial statements have been derived from the audited financial statements of the Company for the fiscal year ended December 31,
2015, which are contained in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”)
on March 22, 2016. The consolidated balance sheet as of December 31, 2015, contained herein, was derived from those financial
statements.
Use of estimates
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 preferred stock, capitalized mineral rights, asset valuations, timing of the performance
criteria of restricted stock units and the fair value of common stock issued.
Cash and cash equivalents
The Company considers all highly liquid investments
with an original maturity of three months or less when acquired to be cash equivalents. The Company places its cash with high credit
quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250,000.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
At September 30, 2016, 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 institutions, the Company evaluates at least annually the rating of the financial institutions 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, other receivables, prepaid expenses, accounts payable and accrued
expenses approximate their estimated fair market values based on the short-term maturity of these instruments.
Prepaid expenses and other current assets
Prepaid expenses and other current assets of
$477,906 and $899,228 at September 30, 2016 and December 31, 2015, respectively, consist primarily of costs paid for future
services which will occur within a year. Prepaid expenses principally include prepayments for consulting, public 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.
Mineral property acquisition and exploration
costs
Costs of leasing, 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 provide 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 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.
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 September
30, 2016 and December 31, 2015, 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 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 owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements
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 is effective for periods beginning
after December 15, 2015 for public companies. The Company’s adoption did not have an impact on the Company’s consolidated
results of operations, financial position and related disclosures.
In November 2015, 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. ASU 2015-17 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 fiscal years beginning after December 15, 2018, and interim
periods within those annual periods 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.
In March 2016, FASB issued ASU 2016-09, “Compensation
- Stock Compensation (Topic 718)” (“ASU 2016-09”). as part of FASB's simplification initiative focused on improving
areas of GAAP for which cost and complexity may be reduced while maintaining or improving the usefulness of information disclosed
within the financial statements. ASU 2016-09 focuses on simplification specifically with regard to share-based payment transactions,
including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash
flows. The guidance in ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within
those annual periods. Early adoption is permitted. The Company will evaluate the effect of ASU 2016-09 for future periods.
In August 2016,
FASB issued ASU 2016-15
, “
Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15
addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest
rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance
claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies);
distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable
cash flows and application of the predominance principle. This guidance will be effective for the Company on January 1, 2018. The
Company does not believe the guidance will have a material impact on its 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
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.
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 annual advance minimum royalty payment until September 2023. The annual advance minimum
royalty payment 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.
Prior to one year after commercial production
begins, 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. (collectively, “Victoria”) 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 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 (the “Asset Purchase Agreement”) 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.
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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
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. Upon the eighth anniversary
of the effective date of the Third Amendment, the Company shall pay an annual rental payment of $10.00 per acre if the Company
does not incur $500,000 in qualified expenditures during the preceding year. Expenditures incurred in excess of the annual work
commitment or rental payment obligation may be carried forward as credits against future annual work commitment obligations or
rental payment obligations. As of June 15, 2016, the most recent cost reporting date, the Company can credit approximately $2.8
million in exploration expenditures already incurred against the $2.6 million work commitment and future rental payment obligations.
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 on 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 $30,000 in excess of the coverage requirement
as of September 30, 2016, 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 balance sheet.
As of September 30, 2016, 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 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:
|
|
September 30,
2016
(Unaudited)
|
|
|
December 31,
2015
|
|
Relief Canyon Mine — Gold Acquisition
|
|
$
|
8,501,071
|
|
|
$
|
8,501,071
|
|
Relief Canyon Mine — Newmont Properties
|
|
|
13,709,441
|
|
|
|
13,709,441
|
|
Pershing Pass Property
|
|
|
576,400
|
|
|
|
576,400
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,786,912
|
|
|
$
|
22,786,912
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
Estimated Life
|
|
September 30,
2016
(Unaudited)
|
|
|
December 31,
2015
|
|
Furniture and fixtures
|
|
5 years
|
|
$
|
56,995
|
|
|
$
|
56,995
|
|
Office and computer equipment
|
|
1 - 5 years
|
|
|
406,000
|
|
|
|
402,835
|
|
Land
|
|
—
|
|
|
358,886
|
|
|
|
358,886
|
|
Building and improvements
|
|
5 - 25 years
|
|
|
812,967
|
|
|
|
812,967
|
|
Site costs
|
|
10 years
|
|
|
1,400,197
|
|
|
|
1,400,197
|
|
Crushing system
|
|
20 years
|
|
|
2,482,976
|
|
|
|
2,482,976
|
|
Process plant and equipment
|
|
10 years
|
|
|
3,486,864
|
|
|
|
3,486,864
|
|
Vehicles and mining equipment
|
|
5 - 10 years
|
|
|
699,025
|
|
|
|
699,025
|
|
|
|
|
|
|
9,703,910
|
|
|
|
9,700,745
|
|
Less: accumulated depreciation
|
|
|
|
|
(5,208,110
|
)
|
|
|
(4,378,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,495,800
|
|
|
$
|
5,321,895
|
|
For the nine months ended September 30, 2016 and 2015, depreciation
expense amounted to $829,260 and $847,327, 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. As of September 2016, the note payable
was paid in full. The note payable bore interest at approximately 7% per annum and was secured by a lien on the mining equipment.
The note was paid in 48 equal monthly payments of $2,226 through August 2016.
Notes payable — short and long term portion consisted of the
following:
|
|
September 30,
2016
(Unaudited)
|
|
|
December 31, 2015
|
|
Total notes payable
|
|
$
|
-
|
|
|
$
|
17,319
|
|
Less: current portion
|
|
|
-
|
|
|
|
(17,319
|
)
|
Long term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company recognized interest expense of $488 and $1,886 for the
nine months ended September 30, 2016 and 2015, respectively.
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:
|
|
For the Nine
Months Ended
September 30,
2016
|
|
|
For the Nine
Months Ended
September 30,
2015
|
|
Balance, beginning of period
|
|
$
|
783,539
|
|
|
$
|
798,605
|
|
Accretion expense
|
|
|
29,192
|
|
|
|
34,611
|
|
Reclamation expenditures
|
|
|
-
|
|
|
|
(18,737
|
)
|
Additions and changes in estimates
|
|
|
-
|
|
|
|
(21,643
|
)
|
Balance, end of period
|
|
$
|
812,731
|
|
|
$
|
792,836
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
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 establishes.
Series A Convertible Preferred Stock
As of September 30, 2016, 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 September 30, 2016, 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 September 30, 2016, 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 September 30, 2016, 7,500,000 shares
of Series D Preferred Stock, $0.0001 par value, were authorized with none outstanding.
Series E Convertible Preferred Stock
As of September 30, 2016, 15,151 shares of
Series E Preferred Stock, $0.0001 par value, were authorized with 8,946 Series E Preferred shares outstanding.
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 shares into 30,461 shares of the Company’s Common Stock.
During June 2016 holders of Series E Preferred
Stock converted 328 Series E shares into 99,916 shares of the Company’s Common Stock.
Preferred Deemed Dividend
In connection with a February 4, 2016 private
placement of shares of the Company’s Common Stock (as discussed below), 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 was 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 at
the time of adjustment, 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 recorded a preferred deemed
dividend of approximately $3.02 million for the additional value of the beneficial conversion feature in February 2016, the period
of the adjustment.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Additionally, in connection with a February
25, 2016 private placement of shares of the Company’s Common Stock and warrants to purchase shares of the Company’s
Common Stock (as discussed below), the conversion price for the Series E Preferred Stock was further 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 remained outstanding at the time of adjustment, 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 recorded 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.
Common Stock
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.
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.
On March 28, 2016, the Company issued 1,850,000
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 $4.35, for a total of 1,850,000 shares of Common Stock and warrants to acquire an additional 925,000 shares
of Common Stock. The Company received net proceeds of approximately $6.0 million after legal fees and expenses.
In connection with these private placements,
certain FINRA broker-dealers acted on behalf of the Company and were paid aggregate cash commissions of approximately $695,000
and reimbursed for expenses of approximately $25,000 and were granted 30 month warrant to acquire an aggregate of 261,590 shares
of Common Stock at an exercise price of $5.06.
Additionally, the Company paid a total of approximately
$229,000 of legal fees and expenses in connection with the February 2016 and March 2016 private placements.
Common stock for services
In March 2016, the Company issued an aggregate
of 9,480 shares of its Common Stock to two consultants in connection with services rendered. The Company valued these common shares
at the fair value ranging from $3.70 to $3.90 per common share or $35,600 based on the quoted trading price on the grant date.
In connection with issuance of these common shares, the Company recorded stock-based consulting of $35,600 for the nine months
ended September 30, 2016.
In May 2016, the Company issued an aggregate
of 4,843 shares of its Common Stock to a consultant in connection with services rendered. The Company valued these common shares
at the fair value of $4.12 per common share or $20,000 based on the quoted trading price on the grant date. In connection with
issuance of these common shares, the Company recorded stock-based consulting of $20,000 for the nine months ended September 30,
2016.
Restricted Stock Units
In June 2016, 120,000 incentive restricted
stock units (“Incentive RSUs”) vested upon the attainment of certain performance-based milestones. Accordingly, stock-based
compensation expense of $702,000 was recognized during the nine months ended September 30, 2016.
On June 24, 2016, the Company granted 5,995
restricted stock units to one of the Company’s non-employee members of the Company’s Board of Directors. The fair market
value on the date of grant was $25,239. 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
During the nine months ended September 30,
2016 and 2015, the Company recorded total stock-based compensation expense in connection with restricted stock and restricted stock
unit awards of $1,578,589 and $1,437,402, respectively. At September 30, 2016, there was a total of $3,136,335 of unrecognized
compensation expense in connection with restricted stock and restricted stock unit awards.
A summary of the status of the restricted stock
units as of September 30, 2016, and of changes in restricted stock units outstanding during the nine months ended September 30,
2016, is as follows:
|
|
Nine Months Ended September 30, 2016
|
|
|
|
Restricted Stock
Unit
|
|
|
Weighted
Average
Grant-Date
Fair Value
Per Share
|
|
Outstanding at December 31, 2015
|
|
|
842,770
|
|
|
$
|
5.68
|
|
Granted
|
|
|
5,995
|
|
|
|
4.21
|
|
Vested and converted
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2016
|
|
|
848,765
|
|
|
$
|
5.67
|
|
Common Stock Options
A summary of the Company’s outstanding stock options as of
September 30, 2016 and changes during the nine months period then ended are presented below:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Balance at December 31, 2015
|
|
|
1,811,121
|
|
|
$
|
7.20
|
|
|
|
6.15
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(16,668
|
)
|
|
|
7.20
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2016
|
|
|
1,794,453
|
|
|
|
7.21
|
|
|
|
5.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
1,794,453
|
|
|
$
|
7.21
|
|
|
|
|
|
Options expected to vest
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the period
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Common Stock Warrants
A summary of the Company’s outstanding stock warrants as of
September 30, 2016 and changes during the nine months period then ended are presented below:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Balance at December 31, 2015
|
|
|
2,810,579
|
|
|
$
|
7.55
|
|
|
|
1.07
|
|
Granted
|
|
|
2,247,019
|
|
|
|
4.77
|
|
|
|
2.50
|
|
Cancelled
|
|
|
(746,432
|
)
|
|
|
7.20
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2016
|
|
|
4,311,166
|
|
|
$
|
6.16
|
|
|
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at September 30, 2016
|
|
|
4,311,166
|
|
|
$
|
6.16
|
|
|
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during the period
|
|
|
|
|
|
$
|
4.77
|
|
|
|
|
|
On February 25, 2016, the Company granted 1,060,429
30-month warrants to purchase shares of Common Stock at an exercise price of $5.06 per share in connection with a private placement
sale. The warrants are exercisable six months and a day after issuance and will expire on August 25, 2018. The Company also granted
30-month warrants to acquire an aggregate of 261,590 shares of Common Stock at an exercise price of $5.06 to a certain FINRA broker-dealer
who acted on behalf of the Company.
On March 28, 2016, the Company granted 925,000
30-month warrants to purchase shares of Common Stock at an exercise price of $4.35 per share in connection with a private placement
sale.
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 Nine
Months ended
September 30,
2016
|
|
|
For the Nine
Months ended
September 30,
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(13,608,126
|
)
|
|
$
|
(14,068,373
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share (weighted-average shares)
|
|
|
25,049,831
|
|
|
|
20,977,050
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.54
|
)
|
|
$
|
(0.67
|
)
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
NOTE 8 — NET LOSS PER COMMON SHARE (continued)
The following were excluded from the computation
of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss. In periods where
the Company has a net loss, all dilutive securities are excluded.
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,794,453
|
|
|
|
1,811,121
|
|
Stock warrants
|
|
|
4,311,166
|
|
|
|
3,027,754
|
|
Restricted stock units
|
|
|
848,765
|
|
|
|
780,270
|
|
Convertible preferred stock
|
|
|
2,725,092
|
|
|
|
1,841,528
|
|
Total
|
|
|
9,679,476
|
|
|
|
7,460,673
|
|
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases its corporate facility and
certain office equipment 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 lease is for a period of 39 months commencing in May 2015
and expiring in July 2018. The Company recognized total deferred rent of $12,684 ($6,237 current portion and $6,447 long term portion)
in connection with this lease agreement as of September 30, 2016. Rent expense was $49,573 and $44,817 for the nine months ended
September 30, 2016 and 2015, respectively.
Future minimum rental payments required under operating leases are
as follows:
2016
|
|
$
|
20,586
|
|
2017
|
|
|
83,343
|
|
2018
|
|
|
45,455
|
|
|
|
$
|
149,384
|
|
Mining Leases
As more fully discussed in Note 3 — Mineral
Properties, the Company leases certain mineral properties included in its Pershing Pass Property. The future minimum lease payments
under these mining leases are as follows:
2016
|
|
$
|
10,000
|
|
2017
|
|
|
25,000
|
|
2018
|
|
|
25,000
|
|
2019
|
|
|
25,000
|
|
2020
|
|
|
25,000
|
|
Thereafter
|
|
|
67,500
|
|
|
|
$
|
177,500
|
|