NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
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, development, and mining 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 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 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, 2016. In the preparation of the consolidated
financial statements of the Company, intercompany transactions and balances have been eliminated.
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. At December 31, 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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
$1,139,760 and $899,228 at December 31, 2016 and 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. Included in other current assets are deferred financing costs of $312,415 and $0 at December 31,
2016 and 2015, respectively. The Company defers these costs until such time that the associated financing is completed. Upon completion
and recognition of the proceeds, any deferred financing costs will be reported as a direct deduction from the amount of the proceeds
received. If it is determined that the contemplated financing will not be completed any amounts deferred will be expensed.
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.
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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Mineral Property Acquisition and Exploration
Costs (continued)
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 December
31, 2016 and 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.
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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Income taxes (continued)
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.
Effective for fiscal year-ended
December 31, 2016, the Company early adopted ASU 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU
2016-09”). The Company has elected to recognize the effect of forfeitures in compensation cost as forfeitures occur. Any
previously recognized compensation cost will be reversed in the period of forfeiture.
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 CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Foreign currency transactions
The Company accounts for foreign currency transactions
in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”) and more specifically the guidance in
subsection ASC 830-20, “Foreign Currency Transactions”. The U.S. dollar is the functional and reporting currency for
the Company and its subsidiaries. Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars
at exchange rates in effect at the balance sheet date, with the resulting gains or losses upon settlement reported in foreign exchange
gain (loss) in the computation of net income (loss).
Recent Accounting Pronouncements
In May 2014, FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606)” related to revenue from contracts with customers. This ASU was further amended
in August 2015, March 2016, April 2016, May 2016 and December 2016 by ASU No. 2015-14, No. 2016-08, No. 2016-10, No. 2016-12 and
No. 2016-20, respectively. The new standard provides a five-step approach to be applied to all contracts with customers and also
requires expanded disclosures about revenue recognition. In August 2015, the effective date was deferred to reporting periods,
including interim periods, beginning after December 15, 2017 and will be applied retrospectively. Early adoption is not permitted.
The Company does not expect the impact of these revenue recognition updates to be material on the Company’s consolidated
financial statements.
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 a material 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’s adoption did not have a material 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, 2016
(in United States dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Recent Accounting Pronouncements (continued)
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.
In November
2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash,”or ASU2016-18.
ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance
requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows.
As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of
cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the
new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet.
This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is
effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. Upon the adoption of the
new guidance, the Company will change the presentation of restricted cash in our current statement of cash flows to conform to
the new requirements.
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.
The primary term of the mining lease of private
lands 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 private lands covered by 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 begins, the Company can repurchase
up to 3% of the royalty on gold production at the rate of $600,000 for each 1%.
In September 2013, the Company entered into
a lease agreement and purchase option for 19 unpatented mining claims (approximately 400 acres) in the Pershing Pass 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 3 — MINERAL PROPERTIES (continued)
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.
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 December 15, 2016, the most recent cost reporting date, the Company can credit approximately
$2.6 million in exploration expenditures already incurred against the remaining $2.5 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 December 31, 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. The funds deposited in the collateral account
are classified as restricted cash on the Company’s balance sheet.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 3 — MINERAL PROPERTIES (continued)
In March 2017, the Company increased its statewide
surface management surety bond with the BLM from approximately $5.6 million to $12.3 million, in connection with the approval of
the Company’s Plan of Operations Modification. The Company was required to deposit approximately $1.4 million in additional
collateral reducing the overall collateral percentage to 30% of the total $12.3 million reclamation bond, or approximately $3.7
million of total collateral.
As of December 31, 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:
|
|
December 31,
2016
|
|
|
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
|
|
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
Estimated Life
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Furniture and fixtures
|
|
|
5 years
|
|
|
$
|
56,995
|
|
|
$
|
56,995
|
|
Office and computer equipment
|
|
|
1 - 5 years
|
|
|
|
416,363
|
|
|
|
402,835
|
|
Land
|
|
|
—
|
|
|
|
358,886
|
|
|
|
358,886
|
|
Building and improvements
|
|
|
5 - 25 years
|
|
|
|
820,182
|
|
|
|
812,967
|
|
Site costs
|
|
|
10 years
|
|
|
|
1,412,624
|
|
|
|
1,400,197
|
|
Crushing system
|
|
|
20 years
|
|
|
|
2,505,012
|
|
|
|
2,482,976
|
|
Process plant and equipment
|
|
|
10 years
|
|
|
|
3,517,809
|
|
|
|
3,486,864
|
|
Vehicles and mining equipment
|
|
|
5 - 10 years
|
|
|
|
699,025
|
|
|
|
699,025
|
|
|
|
|
|
|
|
|
9,786,896
|
|
|
|
9,700,745
|
|
Less: accumulated depreciation
|
|
|
|
|
|
|
(5,475,916
|
)
|
|
|
(4,378,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,310,980
|
|
|
$
|
5,321,895
|
|
For the years ended December 31, 2016
and 2015, depreciation expense amounted to $1,097,066 and $1,125,758, 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 December 31, 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:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Total notes payable
|
|
$
|
-
|
|
|
$
|
17,319
|
|
Less: current portion
|
|
|
-
|
|
|
|
(17,319
|
)
|
Long term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company recognized interest expense of $488 and $2,287 for the
year ended December 31, 2016 and 2015, respectively.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
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,
2016
|
|
|
December 31,
2015
|
|
Balance, beginning of year
|
|
$
|
783,539
|
|
|
$
|
798,605
|
|
Accretion expense
|
|
|
38,923
|
|
|
|
46,148
|
|
Reclamation obligations settled
|
|
|
-
|
|
|
|
(18,737
|
)
|
Additions and changes in estimates
|
|
|
72,623
|
|
|
|
(42,477
|
)
|
Balance, end of year
|
|
$
|
895,085
|
|
|
$
|
783,539
|
|
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 December 31, 2016 and 2015, 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, 2016 and 2015, 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, 2016 and 2015, 3,284,396
shares of Series C Preferred Stock, $0.0001 par value, were authorized with none outstanding.
9% Series D Convertible Cumulative
Preferred Stock
As of December 31, 2016 and 2015, 7,500,000
shares of Series D Preferred Stock, $0.0001 par value, were authorized with none outstanding.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Series E Convertible Preferred Stock
As of December 31, 2016 and 2015, 15,151 shares
of Series E Preferred Stock, $0.0001 par value, were authorized and 8,946 and 9,375 shares issued and outstanding, respectively.
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.
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.
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
Sale of Common Stock
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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Sale of Common Stock (continued)
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 a 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.
On December 2, 2016, the Company entered into
an Underwriting Agreement (the “Underwriting Agreement”) with Laidlaw & Company (UK) Ltd. (“Laidlaw”
or the “Underwriter”) pursuant to which, among other things, the Company agreed to issue and sell to the Underwriter,
in an underwritten public offering (the “Offering”), an aggregate of 2,205,883 shares of the Company’s Common
Stock at a public offering price of $3.40 per share of Common Stock.
Net proceeds from the Offering were approximately $6.6 million,
after deducting approximately $859,000 of underwriting discounts and commissions and legal fees and other expenses in connection
with the Offering. The Company intends to use the net proceeds from the Offering for advancing its Relief Canyon project, capital
expenditures, working capital and general corporate purposes.
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 $35,599 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 $35,599 for the year ended December
31, 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 year ended December 31, 2016.
In December 2016, the Company issued 1,000
shares of Common Stock upon the vesting of 1,000 restricted stock units to a former employee. The Company cancelled 2,000 forfeited
restricted stock units and an aggregate of 11,111 shares of Common Stock due to forfeiture. Additionally, the Company cancelled
an aggregate of 12,964 shares of Common Stock due to forfeiture from the termination of a consultant agreement.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
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.
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.
In June 2016, 120,000 Incentive RSUs vested
upon the attainment of certain performance-based milestones. Accordingly, stock-based compensation expense of $702,000 was recognized
during the year ended December 31, 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.
In February 2017, the Company granted an
aggregate of 116,229 restricted stock units to employees and directors of the Company in connection with employee bonus compensation
and annual equity awards to non-employee directors for fiscal 2016. The fair market value on the date of grant was approximately
$382,000. The restricted stock units granted to employees and directors vest 50% on the date of grant and the balance vest over
a one-year period from the date of issuance. For each vested restricted stock unit, the holder will be entitled to receive one
restricted share of the Company's Common Stock upon the holder's separation of employment under certain circumstances or upon a
change in control.
In March 2017, the Company granted 50,000
restricted stock units to the CEO of the Company in connection with bonus compensation for fiscal 2016. The fair market value
on the date of grant was approximately $149,500. The restricted stock units granted to the CEO vested upon grant. The Common Stock
underlying the restricted stock units will be issued upon on the earlier of a change in control or other acceleration or December
31, 2018.
As of December 31, 2016, the Company recognized
a liability equivalent to the fair value of approximately $530,000 which has been included in accounts payable and accrued expenses.
Consequently, the Company recognized stock based compensation of approximately $530,000 during the year ended December 31, 2016
in connection with these transactions.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Restricted Stock Units (continued)
During the year ended December 31, 2016 and
2015, the Company recorded total stock-based compensation expense in connection with restricted stock and restricted stock unit
awards of $2,255,811 and $2,025,258, respectively. At December 31, 2016, there was a total of $2,896,941 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 December 31, 2016 and 2015, and of changes in restricted stock units outstanding during the year ended December 31,
2016 and 2015, is as follows:
|
|
Restricted
Stock Units
|
|
|
Weighted
Average
Grant-Date
Fair Value
Per Share
|
|
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
|
|
Granted
|
|
|
5,995
|
|
|
|
4.21
|
|
Vested and converted
|
|
|
(1,000
|
)
|
|
|
3.50
|
|
Forfeited
|
|
|
(2,000
|
)
|
|
|
3.50
|
|
Balance at December 31, 2016
|
|
|
845,765
|
|
|
$
|
5.68
|
|
Common Stock Options
A summary of the Company’s stock options
as of December 31, 2016 and 2015 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, 2014
|
|
|
1,811,121
|
|
|
$
|
7.20
|
|
|
|
7.15
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2015
|
|
|
1,811,121
|
|
|
|
7.20
|
|
|
|
6.15
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(16,668
|
)
|
|
|
7.20
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance outstanding at December 31, 2016
|
|
|
1,794,453
|
|
|
$
|
7.21
|
|
|
|
5.20
|
|
Options exercisable at end of year
|
|
|
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 CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 7 — STOCKHOLDERS’ EQUITY (continued)
Common Stock Warrants
A summary of the Company’s outstanding
stock warrants as of December 31, 2016 and 2015 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, 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
|
|
Granted
|
|
|
2,247,019
|
|
|
|
7.62
|
|
|
|
2.50
|
|
Cancelled
|
|
|
(746,432
|
)
|
|
|
7.20
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31, 2016
|
|
|
4,311,166
|
|
|
$
|
6.16
|
|
|
|
0.98
|
|
Warrants exercisable at December 31, 2016
|
|
|
4,311,166
|
|
|
$
|
6.16
|
|
|
|
0.98
|
|
Weighted average fair value of warrants granted during the year ended December 31, 2016
|
|
|
|
|
|
$
|
4.77
|
|
|
|
|
|
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 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
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,
2016
|
|
|
For the
year ended
December 31,
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(19,235,140
|
)
|
|
$
|
(19,123,933
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share (weighted-average shares)
|
|
|
25,483,353
|
|
|
|
21,165,083
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.75
|
)
|
|
$
|
(0.90
|
)
|
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,
2016
|
|
|
December 31,
2015
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,794,453
|
|
|
|
1,811,121
|
|
Stock warrants
|
|
|
4,311,166
|
|
|
|
2,810,579
|
|
Restricted stock units
|
|
|
845,765
|
|
|
|
842,770
|
|
Convertible preferred stock
|
|
|
2,725,092
|
|
|
|
1,841,528
|
|
Total
|
|
|
9,676,476
|
|
|
|
7,305,998
|
|
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Operating Leases
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 expires in July 2018. The Company recognized total deferred rent of $11,250 ($6,738 current portion and $4,512 long -term portion)
in connection with this lease agreement as of December 31, 2016. 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 $62,020 and $62,364 for the years ended December 31, 2016 and 2015, respectively.
Future minimum rental payments required under operating leases are
as follows:
2017
|
|
$
|
83,343
|
|
2018
|
|
|
45,455
|
|
|
|
$
|
128,798
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 9 — COMMITMENTS AND CONTINGENCIES
(continued)
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:
2017
|
|
$
|
25,000
|
|
2018
|
|
|
25,000
|
|
2019
|
|
|
25,000
|
|
2020
|
|
|
25,000
|
|
2021
|
|
|
25,000
|
|
Thereafter
|
|
|
42,500
|
|
|
|
$
|
167,500
|
|
The Company incurred mining lease payments
of $16,458 and $10,000 for the years ended December 31, 2016 and 2015, respectively.
Credit Facility
On November 29, 2016, the Company entered into
a non-binding term sheet with Sprott Resource Lending (the “Lender”) pursuant to which the Lender would provide a credit
facility with a principal amount of up to $20 million (the “Facility”). The Company’s ability to draw down on
the Facility is subject to the negotiation and execution of definitive agreements, completion by the Lender of its due diligence
review and the satisfaction of other customary closing conditions. The Facility, when completed, would be available for up to three
draws occurring during a period of five months following the closing date. As a condition to any such draw, the Company would be
required to raise equity financing not less than the amount drawn. Amounts drawn under the Facility would be secured by a lien
on the Relief Canyon Mine and processing facilities and would bear interest at 9.0% per annum. Amounts drawn would mature three
years following the date drawn, with monthly principal payments commencing on the earlier of June 30, 2018 or upon achievement
of commercial production at the Relief Canyon Mine. The proceeds of the Facility would be used to advance the Relief Canyon project
towards production. There is no assurance that definitive agreements with respect to the Facility will be completed or that any
amount will be drawn under the Facility. The Company has paid a structuring fee of $200,000 and a retainer fee of $100,000. Such
retainer is refundable and shall be applied against legal fees and expenses incurred. As of December 31, 2016, the fees paid to
the Lender and legal fees related to the credit facility of $312,415 are included in prepaid expenses and other current assets
and will be recorded as a reduction in proceeds received form the Facility when drawn.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
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 $63.2 million at December 31, 2016, expiring through the year 2036.
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, 2016
and 2015:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Tax benefit computed at “expected” statutory rate
|
|
$
|
(5,316,096
|
)
|
|
$
|
(6,502,139
|
)
|
State income taxes, net of benefit
|
|
|
—
|
|
|
|
—
|
|
Permanent differences:
|
|
|
|
|
|
|
|
|
Stock based compensation and consulting
|
|
|
629,133
|
|
|
|
18,886
|
|
Prior year true-ups
|
|
|
—
|
|
|
|
833,847
|
|
Other
|
|
|
155,300
|
|
|
|
13,512
|
|
Increase in valuation allowance
|
|
|
4,531,663
|
|
|
|
5,635,894
|
|
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, 2016
and 2015:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Computed “expected” tax expense (benefit)
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes
|
|
|
0
|
%
|
|
|
0
|
%
|
Permanent differences
|
|
|
5.02
|
%
|
|
|
4.53
|
%
|
Change in valuation allowance
|
|
|
28.98
|
%
|
|
|
29.47
|
%
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The Company has a deferred tax asset which
is summarized as follows at December 31, 2016 and 2015:
Deferred tax assets:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Net operating loss carryover
|
|
$
|
21,486,659
|
|
|
$
|
18,920,702
|
|
Stock based compensation
|
|
|
4, 422,167
|
|
|
|
4,986,677
|
|
Depreciable and depletable assets
|
|
|
(212,727
|
)
|
|
|
(367,352
|
)
|
Mining explorations
|
|
|
5,390,018
|
|
|
|
3,028,546
|
|
Capital loss carryforward
|
|
|
1,482,865
|
|
|
|
1,482,863
|
|
Other
|
|
|
28,639
|
|
|
|
27,062
|
|
Less: valuation allowance
|
|
|
(32,597,621
|
)
|
|
|
(28,078,498
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
After consideration of all the evidence,
both positive and negative, management has recorded a full valuation allowance at December 31, 2016, due to the uncertainty
of realizing the deferred income tax assets. The valuation allowance was increased by approximately $4.5 million.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(in United States dollars)
NOTE 11 — SUBSEQUENT EVENTS
In February 2017, the Company granted an
aggregate of 116,229 restricted stock units to employees and directors of the Company in connection with employee bonus compensation
and annual equity awards to non-employee directors for fiscal 2016. The fair market value on the date of grant was approximately
$382,000. The restricted stock units granted to employees and directors vest 50% on the date of grant and the balance vest over
a one-year period from the date of issuance. For each vested restricted stock unit, the holder will be entitled to receive one
restricted share of the Company's Common Stock upon the holder's separation of employment under certain circumstances or upon a
change in control (see Note 7).
In February 2017, the Company granted 25,000
restricted stock units to new employees of the Company. The fair market value on the date of grant was approximately $80,000. The
restricted stock units granted to employees vest one-third on December 31, 2017, 2018 and 2019. For each vested restricted stock
unit, the holder will be entitled to receive one restricted share of the Company's Common Stock upon the holder's separation of
employment under certain circumstances or upon a change in control.
In February 2017, the Company issued 3,666
shares of Common Stock upon the vesting of 3,666 restricted stock units to a former employee. The Company cancelled 2,334 forfeited
restricted stock units and an aggregate of 7,222 shares of Common Stock due to forfeiture.
In February 2017, the Company granted 100,000
24-month warrants to purchase shares of Common Stock at an exercise price of $3.45 per share in connection with a contract for
services. The warrants vest ratably over the term of the services agreement.
During January 2017 and February 2017,
1,128,358 warrants to purchase shares of the Company’s Common Stock were forfeited as the warrants were not exercised prior
to their expiration date.
In March 2017, the Company granted 50,000
restricted stock units to the CEO of the Company in connection with bonus compensation for fiscal 2016. The fair market value on
the date of grant was approximately $149,500. The restricted stock units granted to the CEO vested upon grant. The Common Stock
underlying the restricted stock units will be issued upon on the earlier of a change in control or other acceleration or December
31, 2018 (see Note 7).
In March 2017, the Company increased its
statewide surface management surety bond with the BLM from approximately $5.6 million to $12.3 million, in connection with the
approval of the Company’s Plan of Operations Modification. The Company was required to deposit approximately $1.4 million
in additional collateral reducing the overall collateral percentage to 30% of the total $12.3 million reclamation bond, or approximately
$3.7 million of total collateral (see Note 3).