NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(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”).
Going concern
These consolidated financial statements of
the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things,
the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time.
The Company has incurred a net loss of approximately $6.6 million for the six months ended June 30, 2017, has used $6.1
million of net cash in operations for the six months ended June 30, 2017, has incurred a total cumulative deficit of
approximately $163.1 million since its inception and requires capital for its contemplated business and exploration activities
to take place. The Company plans to raise additional capital to carry out its business plan. The Company’s ability to raise
additional capital through future equity and debt securities issuances is unknown. Obtaining additional financing, the successful
development of the Company’s contemplated plan of operations, and its transition, ultimately, to profitable operations are
necessary for the Company to continue business. The ability to successfully resolve these factors raises substantial doubt about
the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include
any adjustments that may result from the outcome of the uncertainties.
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 June 30, 2017. 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 June 30, 2017, and the results of operations and cash flows for the six months ended June 30, 2017 have been included.
The results of operations for the six months ended June 30, 2017 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, 2016, which are contained
in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2017.
The consolidated balance sheet as of December 31, 2016, contained herein, was derived from those financial statements.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Reclassifications
Certain prior period amounts have been reclassified
to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported
financial position or results of operations.
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 June 30, 2017, 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 surface management surety bonds issued on the Company’s behalf. The following table provides
a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets that
sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
|
|
June 30, 2017
|
|
|
December 31,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,080,437
|
|
|
$
|
11,722,102
|
|
Restricted cash equivalents
|
|
|
3,690,000
|
|
|
|
2,250,000
|
|
Total cash, cash equivalents and restricted cash equivalents
|
|
$
|
7,770,437
|
|
|
$
|
13,972,102
|
|
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.
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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
$1,021,527 and $1,139,760 at June 30, 2017 and December 31, 2016, 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 $369,240 and $312,415
at June 30, 2017 and December 31, 2016, 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.
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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 June
30, 2017 and December 31, 2016, respectively.
Asset Retirement Obligations
Asset retirement obligations (“ARO”),
consisting primarily of estimated mine reclamation and closure costs at the Company’s Relief Canyon property, are recognized
in the period incurred and when a reasonable estimate can be made, and recorded as liabilities at fair value. Such obligations,
which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to
accretion expense. Corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived
asset and depreciated over the asset’s remaining useful life. Asset retirement obligations are periodically adjusted to reflect
changes in the estimated present value resulting from revisions to the estimated timing or amount of reclamation and closure costs.
The Company reviews and evaluates its asset retirement obligations annually or more frequently at interim periods if deemed necessary.
Income taxes
The Company accounts for income taxes pursuant
to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other
things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which
management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10
related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits
of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10,
the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be sustained upon examination, including the resolution of
appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that
meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions
taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying
balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 the fiscal year-ended December
31, 2016, the Company early adopted ASU 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016-09”),
which makes several modifications to Topic 718. Upon adoption of ASU 2016-09, the Company recognizes the effect of forfeitures
in compensation cost as they occur, rather than estimating forfeitures as of the award date. 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.
Foreign currency transactions
The Company accounts for foreign currency transactions
in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”), 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. Pursuant to ASC 830, 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 February 2016, the 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 does not believe the
guidance will have a material impact on its consolidated financial statements.
In March 2016, the 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In August 2016, the 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 ASU 2016-18. 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. Early adoption is permitted, including adoption in
an interim period. The Company early adopted ASU 2016-18 for the three-month period-ended June 30, 2017 and its adoption did not
have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-4, Intangibles
– Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill
impairment test. When an indication of impairment was identified after performing the first step of the goodwill impairment test,
Step 2 required that an entity determine the fair value at the impairment testing date of its assets and liabilities (including
unrecognized assets and liabilities) using the same procedure that would be required in determining the fair value of assets acquired
and liabilities assumed in a business combination. Under the amendments in ASU No. 2017-4, an entity would perform its annual,
or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. An entity
would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value.
In addition, an entity must consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting
unit when measuring the goodwill impairment loss, if applicable. A public business entity that is a SEC filer should adopt
the amendments in ASU No. 2017-4 for its annual, or any interim, good will impairment tests in fiscal years beginning after
December 15, 2019. The Company does not believe the guidance will have a material impact on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11 “Earnings
Per Share (Topic 260). The amendments in the update change the classification of certain equity-linked financial instruments (or
embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified
instruments. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per
share (“EPS”) in accordance with Topic 260, Earnings Per Share, to recognize the effect of the down round feature when
it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.
Convertible instruments with embedded conversion options that have down round features would be subject to the specialized guidance
for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including
related EPS guidance (in Topic 260). For public business entities, the amendments in Part I of this update are effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 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
JUNE 30, 2017
(in United States Dollars)
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.
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
JUNE 30, 2017
(in United States Dollars)
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, 2017, the most recent cost reporting date, the Company can credit approximately $2.8
million in exploration expenditures already incurred against the remaining $2.3 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.
On March 29, 2017, the Company entered into
a Mining Sublease with Newmont granting the Company the exclusive right to prospect, explore for, develop, and mine minerals on
certain lands within the Pershing Pass area south of the Relief Canyon Mine. The Mining Sublease has an initial term of ten years
and may be extended by the Company until December 3, 2034 and so long thereafter as any mining, development, or processing operations
are being conducted continuously. The Mining Sublease calls for the Company to make minimum work expenditures for the first four
years of the Mining Sublease, followed by annual advanced minimum royalty payments to Newmont to maintain the Mining Sublease in
good standing. The Sublease may be terminated any time after providing 90 days written notice of termination. If the required minimum
work commitment of $500,000 has not been satisfied prior to termination the Company must pay Newmont the difference between the
$500,000 required minimum work commitment and costs already incurred by the Company towards the required minimum work commitment.
As of June 30, 2017, the most recent cost reporting date, the Company can credit approximately $200,000 in exploration expenditures
already incurred against the $1.5 million work commitment.
General
The Company has posted statewide surface management
surety bonds with the United States Department of the Interior Bureau of Land Management (“BLM”) as required by the
State of Nevada in the amount of approximately $12.3 million, which is approximately $76,000 in excess of the coverage requirement
as of June 30, 2017, to reclaim land disturbed in its exploration and mining operations. The surface management surety bonds are
provided through third-party insurance underwriters. The Company was required to deposit a total of $3,690,000, or 30% of the total
surety bonds, in collateral accounts. The funds deposited in the collateral accounts are classified as restricted cash on the Company’s
balance sheet.
As of June 30, 2017, 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:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
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
|
|
|
593,400
|
|
|
|
576,400
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,803,912
|
|
|
$
|
22,786,912
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
Estimated Life
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Furniture and fixtures
|
|
|
5 years
|
|
|
$
|
56,995
|
|
|
$
|
56,995
|
|
Office and computer equipment
|
|
|
1 - 5 years
|
|
|
|
425,394
|
|
|
|
416,363
|
|
Land
|
|
|
—
|
|
|
|
358,886
|
|
|
|
358,886
|
|
Building and improvements
|
|
|
5 - 25 years
|
|
|
|
820,182
|
|
|
|
820,182
|
|
Site costs
|
|
|
10 years
|
|
|
|
1,412,624
|
|
|
|
1,412,624
|
|
Crushing system
|
|
|
20 years
|
|
|
|
2,505,012
|
|
|
|
2,505,012
|
|
Process plant and equipment
|
|
|
10 years
|
|
|
|
3,517,809
|
|
|
|
3,517,809
|
|
Vehicles and mining equipment
|
|
|
5 - 10 years
|
|
|
|
605,824
|
|
|
|
699,025
|
|
|
|
|
|
|
|
|
9,702,726
|
|
|
|
9,786,896
|
|
Less: accumulated depreciation
|
|
|
|
|
|
|
(5,934,159
|
)
|
|
|
(5,475,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,768,567
|
|
|
$
|
4,310,980
|
|
For the six months ended June 30, 2017 and 2016, depreciation expense
amounted to $567,883 and $555,025, respectively. During the six months ended June 30, 2017, the Company wrote off fully depreciated
property and equipment for a total of $109,640.
NOTE 5 — 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:
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Balance, beginning of period
|
|
$
|
895,085
|
|
|
$
|
783,539
|
|
Accretion expense
|
|
|
19,264
|
|
|
|
9,731
|
|
Reclamation obligations settled
|
|
|
-
|
|
|
|
-
|
|
Additions and changes in estimates
|
|
|
-
|
|
|
|
-
|
|
Balance, end of period
|
|
$
|
914,349
|
|
|
$
|
793,270
|
|
NOTE 6 — 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 6 — STOCKHOLDERS’ EQUITY (continued)
Series A Convertible Preferred Stock
As of June 30, 2017, 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 June 30, 2017, 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 June 30, 2017, 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 June 30, 2017, 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 June 30, 2017, 15,151 shares of Series E
Preferred Stock, $0.0001 par value, were authorized with 8,946 Series E Preferred shares outstanding.
Common Stock
Restricted Stock Units
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 year 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 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 March 2017, the Company granted 50,000 restricted
stock units to the CEO of the Company in connection with bonus compensation for fiscal year 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.
Between February 2017 and March 2017, the Company
issued 5,591 shares of Common Stock upon the vesting of 5,591 restricted stock units to former employees. The Company cancelled
3,759 forfeited restricted stock units and retired an aggregate of 10,926 shares of restricted Common Stock due to forfeitures
prior to their vesting.
In April 2017, the Company converted 15,995
vested restricted stock units into 15,995 shares of the Company’s Common Stock due to the passing of one of the members of
the Company’s Board of Directors.
Between April 2017 and June 2017, the Company
issued 2,351 shares of Common Stock and granted a total of 30,320 restricted stock units to two members of the Company’s
Board of Directors as payment in lieu of cash for retainer and meeting fees earned totaling $73,250 for fiscal years 2015 and
2016 and $39,000 for the six months ended June 30, 2017. 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.
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 6 — STOCKHOLDERS’ EQUITY (continued)
As of December 31, 2016, the Company recognized
a liability for employee bonus compensation with a fair value of approximately $530,000 which was 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. As of June 30, 2017, the Company recorded approximately $427,000 into
additional paid in capital and a contemporaneous reduction of accounts payable and accrued expenses in connection with the issuance
of vested restricted stock units related to fiscal year 2016 bonus compensations. As of June 30, 2017, the remaining balance of
unvested restricted stock units related to fiscal year 2016 bonus compensations amounted to approximately $98,000.
During the six months ended June 30, 2017 and
2016, the Company recorded total stock-based compensation expense in connection with restricted stock and restricted stock unit
awards of $734,692 and $1,316,646, respectively. At June 30, 2017, there was a total of $2,192,415 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 June 30, 2017, and of changes in restricted stock units outstanding during the six months ended June 30, 2017, is as
follows:
|
|
Six months ended June 30, 2017
|
|
|
|
(Unaudited)
|
|
|
|
Restricted Stock
Unit
|
|
|
Weighted
Average
Grant-Date
Fair
Value
Per Share
|
|
Outstanding at December 31, 2016
|
|
|
845,765
|
|
|
$
|
5.68
|
|
Granted
|
|
|
221,549
|
|
|
|
3.23
|
|
Vested and converted
|
|
|
(21,586
|
)
|
|
|
3.55
|
|
Forfeited
|
|
|
(3,759
|
)
|
|
|
3.41
|
|
Outstanding at June 30, 2017
|
|
|
1,041,969
|
|
|
$
|
5.21
|
|
Common Stock Options
A summary of the Company’s outstanding
stock options as of June 30, 2017 (unaudited) and changes during the six months ended are presented below:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Balance at December 31, 2016
|
|
|
1,794,453
|
|
|
$
|
7.21
|
|
|
|
5.20
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at June 30, 2017
|
|
|
1,794,453
|
|
|
|
7.21
|
|
|
|
4.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
JUNE 30, 2017
(in United States Dollars)
NOTE 6 — STOCKHOLDERS’ EQUITY (continued)
Common Stock Warrants
A summary of the Company’s outstanding
stock warrants as of June 30, 2017 (unaudited) and changes during the six months ended are presented below:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Balance at December 31, 2016
|
|
|
4,311,166
|
|
|
$
|
6.16
|
|
|
|
0.98
|
|
Granted
|
|
|
100,000
|
|
|
|
3.45
|
|
|
|
2.00
|
|
Cancelled
|
|
|
(1,913,403
|
)
|
|
|
7.79
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at June 30, 2017
|
|
|
2,497,763
|
|
|
$
|
4.80
|
|
|
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at June 30, 2017
|
|
|
2,477,763
|
|
|
$
|
4.81
|
|
|
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during the period
|
|
|
|
|
|
$
|
0.87
|
|
|
|
|
|
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 6-month term of the services agreement. During the six months ended June 30, 2017,
the Company recorded total stock-based compensation expense of $69,519 in connection with this stock warrant grant.
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.
During April 2017, 785,045 warrants to purchase
shares of the Company’s Common Stock were forfeited as the warrants were not exercised prior to their expiration date.
NOTE 7 — 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 Six
Months ended
June 30,
2017
|
|
|
For the Six
Months ended
June 30,
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(6,607,373
|
)
|
|
$
|
(9,976,932
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share (weighted-average shares)
|
|
|
28,394,151
|
|
|
|
24,465,109
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.41
|
)
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 7 — 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.
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,794,453
|
|
|
|
1,794,453
|
|
Stock warrants
|
|
|
2,497,763
|
|
|
|
5,057,598
|
|
Restricted stock units
|
|
|
1,041,969
|
|
|
|
848,765
|
|
Convertible preferred stock
|
|
|
2,725,092
|
|
|
|
2,725,092
|
|
Total
|
|
|
8,059,277
|
|
|
|
10,425,908
|
|
NOTE 8 — 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 $8,381 in connection with this lease agreement as of June
30, 2017. Rent expense was $25,937 and $35,477 for the six months ended June 30, 2017 and 2016, respectively.
Future minimum rental payments required under operating leases are
as follows:
2017
|
|
$
|
42,171
|
|
2018
|
|
|
45,455
|
|
|
|
$
|
87,626
|
|
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
|
|
PERSHING GOLD CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(in United States Dollars)
NOTE 8 — COMMITMENTS AND CONTINGENCIES (continued)
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 the Lender 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 June 30, 2017, the fees paid to the Lender and legal fees related to the Facility totaled
$369,240 which are included in prepaid expenses and other current assets and will be recorded as a reduction in proceeds
received from the Facility when, and if, drawn.