Notes to Financial Statements
1. Description of Business
New Jersey Mining Company (“the Company”) was incorporated as an Idaho corporation on July 18, 1996. The Company's primary business is exploring for, developing, and extraction of gold, silver, and base metal mineral resources in the Greater Coeur d’Alene Mining District of North Idaho and extending into Western Montana. The Company is currently focused on mining and milling ore from the Golden Chest property. It is also evaluating new mineral investment and development opportunities in the western United States.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary, the New Jersey Mill Joint Venture (“NJMJV”). Intercompany accounts and transactions are eliminated. The portion of NJMJV partially owned by other investors is presented as non-controlling interests on the consolidated balance sheets and statements of operations.
Accounting for Investments in Joint Ventures
For joint ventures where the Company holds more than 50% of the voting interest and has significant influence, the joint venture is consolidated with the presentation of non-controlling interest. In determining whether significant influence exists, the Company considers its participation in policy-making decisions and its representation on the venture’s management committee.
For joint ventures in which the Company does not have joint control or significant influence, the cost method is used. Under the cost method, these investments are carried at the lower of cost or fair value. For those joint ventures in which there is joint control between the parties, the equity method is utilized whereby the Company’s share of the ventures’ earnings and losses is included in the statement of operations as earnings in joint ventures and its investments therein are adjusted by a similar amount. The Company periodically assesses its investments in joint ventures for impairment. If management determines that a decline in fair value is other than temporary it will write-down the investment and charge the impairment against operations.
At December 31, 2018 and December 31, 2017, the Company’s percentage ownership and method of accounting for each joint venture is as follows:
|
December 31, 2018
|
December 31, 2017
|
Joint Venture
|
% Ownership
|
Significant Influence?
|
Accounting Method
|
% Ownership
|
Significant Influence?
|
Accounting Method
|
NJMJV
|
65%
|
Yes
|
Consolidated
|
65%
|
Yes
|
Consolidated
|
Butte Highlands Joint Venture (“BHJV”)
|
50%
|
No
|
Cost
|
50%
|
No
|
Cost
|
Non-controlling Interests
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s stockholders’ equity and its net income (loss). Non-controlling interests represent non-controlling investor’s initial contribution at the date of the original acquisition, ongoing contributions, and percentage share of earnings since inception.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for items such as depreciation lives and methods, potential impairment of long-lived assets, deferred income taxes, fair value of forward gold contracts, fair value of stock based compensation, estimation of asset retirement obligations and reclamation liabilities. Actual results could differ from those estimates.
Revenue Recognition
Gold Revenue Recognition and Receivables-
Sales of gold sold directly to customers are recorded as revenues and receivables upon completion of the performance obligations and transfer of control of the product to the customer. For concentrate sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment at estimated forward prices for the anticipated month of settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, prices at which sales of our concentrates will be settled are estimated. Previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer. For sales of dore’ and metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner.
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Notes to Financial Statements
2. Summary of Significant Accounting Policies, continued
Revenue Recognition, continued
Gold Revenue Recognition and Receivables, continued-
Sales and accounts receivable for concentrate shipments are recorded net of charges by the customer for treatment, refining, smelting losses, and other charges negotiated with the customers. Charges are estimated upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from estimates. Costs charged by customers include fixed costs per ton of concentrate and price escalators. Refining, selling and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred. See Note 12 for more information on our sales of products.
Other Revenue Recognition-
Revenue from harvest of raw timber is recognized when the performance obligation under a contract and transfer of control have both been completed. Sales of timber found on the Company’s mineral properties are not a part of normal operations.
Inventories
Inventories include concentrate inventory and supplies inventory. Concentrate inventory is valued at the lower of full cost of production or estimated net realizable value based on current metal prices. Costs consist of mining, transportation, royalties, and milling costs including applicable overhead, depreciation, depletion and amortization relating to the operations. Costs are allocated based on the stage at which the ore is in the production process. Supplies inventory is stated at the lower of cost or estimated net realizable value. At December 31, 2018, inventories consisted of $137,530 in concentrate inventory and $45,539 in supplies inventory. At December 31, 2017, inventories consisted of $219,660 in concentrate inventory and $25,494 in supplies inventory. At December 31, 2018, the Company recognized an expense of $19,874 due to writing down concentrate inventory to net realizable value.
Income Taxes
Income taxes are accounted for under the liability method. Under this method deferred income tax liabilities or assets are determined at the end of each period using the tax rate expected to be in effect when the taxes are expected to be paid or recovered. A valuation allowance is recorded to reduce the deferred tax assets if there is uncertainty regarding their realization.
Uncertain tax positions are evaluated in a two-step process, whereby (i) it is determined whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the related tax authority would be recognized.
Fair Value Measurements
When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.
During 2018 and 2017, the Company determined fair value on a recurring basis as follows:
|
December 31,
2018
|
December 31,
2017
|
Fair Value Hierarchy
|
Liabilities:
|
|
|
|
|
|
Forward gold contracts (Note 14)
|
|
-
|
$
|
(920,579)
|
2
|
Financial Instruments
The carrying amounts of financial instruments including cash and cash equivalents, reclamation bond, note receivable, notes payable to related parties, and notes payable approximate their fair values.
Concentration
In 2017 and 2018, the Company has sold its gold flotation concentrate product to a concentrate broker, H&H Metals Corp, a related party (see Note 12). In 2018 and 2017 floatation concentrates accounted 91% and 98%, respectively, of all gold sales. The remaining 9% and 2% in 2018 and 2017, respectively, were dore and gold impregnated in carbon sold to DH Fell and SIPI Metals Corp.
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Notes to Financial Statements
2. Summary of Significant Accounting Policies, continued
Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing the net amount excluding net income (loss) attributable to a non-controlling interest by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. For the year ended December 31, 2018, stock options of 6,792,000 and warrants of 1,200,000 are included in the calculation of diluted income per share. Excluded from the diluted earnings per share calculation were 262,500 options and 12,900,123 warrants. For the year ended December 31, 2017, stock options of 2,750,000 and warrants of 1,200,000 are included in the calculation of diluted income per share. Excluded from the diluted earnings per share calculation were 4,912,500 options and 8,095,834 warrants. These options and warrants are excluded when the exercise prices were greater than the average trading prices of the Company’s common stock for the respective period.
Reclassifications
Certain prior period amounts have been reclassified to conform to the 2018 financial statement presentation. Reclassifications had no effect on net income (loss), stockholders' equity, or cash flows as previously reported.
Cash and Cash Equivalents
The Company considers cash in banks and other deposits with an original maturity of three months or less when purchased to be cash and cash equivalents.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and amortization are based on the estimated useful lives of the assets and are computed using straight-line or units-of-production methods. The expected useful lives of most of the Company’s buildings are up to 50 years and equipment life expectancy ranges between 2 and 10 years. When assets are retired or sold, the costs and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in operations.
Mineral Properties
Significant payments related to the acquisition of mineral properties, mineral rights, and mineral leases are capitalized.
If a commercially mineable ore body is discovered, such costs are amortized when production begins using the units-of-production method based on estimated reserves. If no commercially mineable ore body is discovered, or such rights are otherwise determined to have no value, such costs are expensed in the period in which it is determined the property has no future economic value.
Mine Exploration and Development Costs
The Company expenses exploration costs as such in the period they occur. Mine development costs are capitalized as deferred development costs after proven and probable reserves have been identified. Amortization of deferred development costs is calculated using the units-of-production method over the expected life of the operation based on the estimated recoverable mineral ounces.
Pre-Development Activities
Pre-development activities involve cost incurred that may ultimately benefit production, such as underground ramp development, pumping, and open-pit development, which are expensed due to the lack of evidence of economic development, which is necessary to demonstrate future recoverability of these expenses. These costs are charged to operations as incurred.
Claim Fees
Unpatented claim fees paid at time of staking are expensed when incurred. Recurring renewal fees which are paid annually are recorded as other current assets and expensed over the course of the year.
Impairment of Long-Lived Assets
The Company evaluates the carrying amounts of its long-lived assets for impairment whenever events and circumstances indicate the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Estimated undiscounted future net cash flows from each mineral property are calculated using estimated future production, three-year average metals prices, operating capital and costs, and reclamations costs. An impairment loss is recognized when the estimated discounted future cash flows expected to result from the use of an asset are less than the carrying amount of the asset. The Company’s estimates of future cash flows are subject to risks and uncertainties. It is reasonably possible that changes in estimates could occur which may affect the expected recoverability of the Company’s investments in mineral properties.
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Notes to Financial Statements
2. Summary of Significant Accounting Policies, continued
Asset Retirement Obligations and Remediation Costs
Mineral properties are subject to standards for mine reclamation that have been established by various governmental agencies. Asset retirement obligations are related to the retirement of the mine when a contractual obligation has been established and a reasonable estimate of fair value can be determined. These obligations are initially measured at fair value with the resulting cost capitalized at the present value of estimated reclamation costs. An asset and a related liability are recorded for the fair value of these costs. The liability is accreted and the asset amortized over the life of the related asset. Adjustments are made for changes resulting from either the timing or amount of the original estimate underlying the obligation. If there is an impairment to an asset’s carrying value and a decision is made to permanently close the property, changes to the liability are recognized and charged to the provision for closed operations and environmental matters. Separate from asset retirement obligations, the Company records liability for remediation costs when a reasonable estimate of fair value can be determined. Accrued remediation costs are not discounted.
Reclamation Bond
Various laws and permits require that financial assurances be in place for certain environmental and reclamation obligations and other potential liabilities. At December 31, 2018 and 2017, the Company had a $103,320 reclamation bond for the Golden Chest Mine.
Stock Based Compensation
All transactions in which goods or services are received for the issuance of shares of the Company’s common stock or options to purchase shares of common stock are accounted for based on the fair value of the goods or services received or the fair value of the equity interest issued, whichever is more reliably measurable. The value of common stock awards is determined based upon the closing price of the Company’s stock on the date of the award. The Company estimates the fair value of stock-based compensation using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of the fair value of stock-based compensation.
Derivatives
The Company measures derivative contracts as assets or liabilities based on their fair value. Gains or losses resulting from changes in the fair value of derivatives in each period are recorded in current earnings (losses). None of the Company’s derivative contracts qualify for hedge accounting. The Company does not hold or issue derivative financial instruments for speculative trading purposes.
Recent Accounting Pronouncements
Accounting Standards Updates Adopted
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance previously codified in Subtopic 605-10 Revenue Recognition-Overall. The new ASU establishes a five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 deferred the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. The Company adopted ASU No. 2014-09 as of January 1, 2018 using the modified-retrospective transition approach.
The Company performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it does not change the timing of revenue recognition or amounts of revenue recognized compared to how it recognized revenue under previous policies. Revenues involve a very small number of types of contracts and customers. In addition, revenue contracts do not involve multiple types of performance obligations. Concentrate revenues are generally recognized at the time of shipment. Revenues from doré and metals from dore’ are recognized, and the transaction price is known, at the time the metals sold are delivered to the customer.
Concentrate sales involve variable consideration as they are subject to changes in metals prices between the time of shipment and their final settlement. However, the Company is able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the month of settlement, and values are adjusted each period until final settlement. Also, it is unlikely a significant reversal of revenue for any one concentrate lot will occur.
Adoption of ASU No. 2014-09 involves additional disclosures, where applicable, concerning (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. See Note 13 for information on our sales of products.
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Notes to Financial Statements
2. Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements, continued
Accounting Standards Updates Adopted, continued
In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification of cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We adopted this update as of January 1, 2018, and there were no material impacts on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We adopted this update as of January 1, 2018, and there were no material impacts on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We adopted this update as of January 1, 2018. We will apply the applicable provisions of the update to any future acquisitions.
Accounting Standards Updates to Become Effective in Future Periods
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Upon implementation of the new guidance, we will be required to recognize a liability and right-of-use asset for our operating leases. We have elected the transition option to apply the new guidance at the effective date without adjusting comparative periods presented. We have no capital leases at December 31, 2018. Our operating leases, which will be impacted upon adoption, are not significant and we anticipate no material impact upon adoption on January 1, 2019.
3. Going Concern
The Company is currently producing from the open-pit and underground at the Golden Chest. In addition, during 2017, production generated cash flow from operations of $337,619, cash flow generated from operations in 2018 was negative $1,415,136 as a result of lower grade ores from the open pit and irregular underground production however open pit grade is expected to improve in 2019 along with increased production from underground operations. The Company’s working capital position has improved approximately $533,000 from December 31, 2017 to December 31, 2018. Planned production for the next 18 months indicates the trend to improve. The Company has also been successful in raising required capital to commence production and fund ongoing operations, common stock and warrants sales of $1,391,000 in 2017 and $1,206,856 in 2018 as well as selling a mineral property in 2018 for $3,000,000. The Company has utilized the proceeds for equipment purchases, to reduce debt, and ramp up the underground production.
As a result of its planned production, equity sales, and the Company’s ability to meet debt obligations, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.
4. Note Receivable
On June 6, 2018, the Company loaned $250,000 to West Materials, Inc. and William J. West (collectively “West”) which bears interest at 8% if the loan goes into default and has a term of fifteen months. Five equal payments are due quarterly with the first two payments received in cash during 2018. For each payment, the Company has the option of receiving payment in cash or 48.45 troy ounces of gold. The Company plans to opt for cash payment unless the price of gold increases to a level where it would be more beneficial. The note receivable is collateralized by a mortgage on the Butte Gulch real property and a related net smelter royalty rights. Also, in 2018, the Company purchased the Butte Potosi mineral property from West (see Note 6).
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Notes to Financial Statements
5. Property, Plant and Equipment
Property, plant and equipment at December 31, 2018 and 2017, consisted of the following:
|
|
2018
|
|
2017
|
Mill
|
|
|
|
|
Land
|
$
|
225,289
|
$
|
225,289
|
Building
|
|
536,193
|
|
536,193
|
Equipment
|
|
4,192,940
|
|
4,192,940
|
|
|
4,954,422
|
|
4,954,422
|
Less accumulated depreciation
|
|
(557,502)
|
|
(428,760)
|
Total mill
|
|
4,396,920
|
|
4,525,662
|
|
|
|
|
|
Buildings and equipment
|
|
|
|
|
Buildings
|
|
124,677
|
|
80,000
|
Equipment
|
|
1,631,908
|
|
593,338
|
|
|
1,756,585
|
|
673,338
|
Less accumulated depreciation
|
|
(453,625)
|
|
(222,648)
|
Total building and equipment
|
|
1,302,960
|
|
450,690
|
Land
|
|
|
|
|
Bear Creek
|
|
266,934
|
|
266,934
|
Little Baldy
|
|
-
|
|
47,139
|
BOW
|
|
230,449
|
|
230,449
|
Eastern Star
|
|
250,817
|
|
250,817
|
Gillig
|
|
79,137
|
|
79,137
|
Highwater
|
|
40,133
|
|
40,133
|
Total land
|
|
867,470
|
|
914,609
|
Total
|
$
|
6,567,350
|
$
|
5,890,961
|
During the year ended December 31, 2012, a lease agreement was entered into with Hecla Mining Company (“Hecla”) on the Company’s Little Baldy land holding. Under the agreement, Hecla paid $15,000 in 2017 for advanced royalty/lease payments to the Company. The Company recorded this payment as a reduction in the carrying value of the land for the year ended December 31, 2017.
In the second quarter of 2018 the Company sold property including the Little Baldy and Toboggan mineral properties to Hecla Mining Company for $3,000,000. This sale resulted in a net gain of $2,947,862 which was recognized in the second quarter of 2018.
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New Jersey Mining Company
Notes to Financial Statements
6. Mineral Properties
Mineral properties are as follows:
|
|
December 31,
2018
|
|
December 31, 2017
|
New Jersey
|
$
|
248,289
|
$
|
248,289
|
McKinley
|
|
250,000
|
|
250,000
|
Golden Chest
|
|
1,677,972
|
|
1,649,142
|
Crown Point
|
|
333,333
|
|
-
|
Butte Potosi
|
|
274,440
|
|
-
|
Toboggan
|
|
-
|
|
5,000
|
Less accumulated amortization
|
|
(24,695)
|
|
(16,475)
|
Total
|
$
|
2,759,339
|
$
|
2,135,956
|
New Jersey
The Coleman property is located at the New Jersey Mine area of interest and consists of 62 acres of patented mining claims, mineral rights to 108 acres of fee land, 80 acres of land for which the Company owns the surface but not the mineral rights, and approximately 130 acres of unpatented mining claims. The Coleman property was acquired in October 2002.
McKinley
The McKinley project is located near the town of Lucille, Idaho and encompasses three historic hard rock mines on private land in central Idaho. The Company started exploring the property in 2013. A prior lessee is due a 1% to 2% NSR sliding scale royalty on future production based on the price of gold capped at a total of $500,000.
Golden Chest
The Golden Chest is an exploration and underground mine project located near Murray, Idaho consisting of 25 patented and 70 unpatented mining claims. A 2% Net Smelter Royalty is payable on production at the Golden Chest to a former joint venture partner. Royalty expense of $77,758 and $80,865 was recognized as costs of sales and other direct production costs in the years ended December 31, 2018 and 2017, respectively.
Crown Point
On March 2, 2018, the Company entered into an agreement with J-J Farms LLC and Achievement Holdings LLC (“Crown Point”) to lease a group of patented and unpatented mining claims. The initial payment was 1,333,333 shares of the Company’s restricted common stock valued at $0.175/share for a fair value of $233,333. An additional payment was made in September of 2018 for $100,000 in cash. Per the agreement, future payments for the mineral property are as follows:
1,333,333 shares of the Company’s common stock on September 30, 2019.
Cash payments of $100,000 and $200,000 on September 30, 2019 and 2020, respectively.
The Company initially accounted for the agreement as a purchase of the mining claims with a related payment obligation. Upon subsequent review, management determined that the agreement was a mineral lease with an option to purchase which resulted in different accounting for the transaction. The impact of this change in accounting on the Company’s consolidated balance sheets was decreases in both Mineral Properties and Liabilities of approximately $590,000, $590,000 and $500,000 at March 31, 2018, June 30, 2018, and September 30, 2018, respectively. The revision had minimal impact on results from operations as reported in those periods.
Butte Potosi
In the second quarter of 2018, the Company purchased the Butte Potosi property near its Golden Chest mine for $250,440 and a 2% net smelter return on all ores mined and shipped from the property. The Company incurred an additional $24,000 to improve access to the property. This property consists of patented mining claims some of which include both the surface and mineral rights and some of which include only the mineral rights.
Toboggan
Toboggan is a gold and silver exploration project consisting of 106 claims covering 2,100 acres of federal land administered by the U.S. Forest Service. In 2001, the Company issued 50,000 shares of stock to an individual to acquire the rights. The shares were valued at $0.10 per share for a total acquisition cost of $5,000. This cost was for a portion of the claims in the Toboggan property that were purchased; the remaining claims were staked by the Company.
The Little Baldy prospect which was a part of the Toboggan project was under lease to Hecla Mining Company (“Hecla”). The lease had a 20-year term and called for annual payments to the Company of $10,000 through the fifth year, then escalating to $15,000 for three years, $20,000 for one year, and $48,000 thereafter. In the second quarter of 2018 which was the seventh year of the lease the Company sold property including the Little Baldy and Toboggan to Hecla Mining Company for $3,000,000. This sale resulted in a net gain of $2,947,862 which was recognized in the second quarter of 2018.
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Notes to Financial Statements
7. Notes Payable
At December 31, 2018 and 2017 notes payable are as follows:
|
2018
|
2017
|
Property with shop, 36 month note payable, 4.91% interest rate payable monthly, remaining principal of note due in one payment at end of term in June 2019, monthly payments of $459
|
$
|
31,319
|
$
|
35,416
|
Property, 120 month note payable, 11.0% interest rate payable monthly, remaining principal of note due in one payment at end of term in March 2021, monthly payments of $1,124, paid in full in May 2018
|
|
-
|
|
91,155
|
Tailings pump, 35 month note payable, 17.5% interest rate payable monthly through May of 2018, monthly payments of $3,268
|
|
-
|
|
14,641
|
Haul truck, 20 month note payable, 10.0% interest rate payable monthly through May of 2019, monthly payments of $6,020
|
|
31,657
|
|
97,126
|
Compressor, 48 month note payable, 5.25% interest rate payable monthly through November 2021, monthly payments of $813
|
|
27,616
|
|
34,452
|
Jumbo drill and 1 yrd. LHD, 12 month note payable, 8% interest rate payable monthly through January 2019, monthly payments of $10,874
|
|
10,802
|
|
-
|
Atlas Copco loader, 60 month note payable, 10.5% interest rate payable monthly through June 2023, monthly payments of $3,550
|
|
152,125
|
|
-
|
Caterpillar excavator and skid steer, 48 month note payable, 6.8% interest rate payable monthly through June 2022, monthly payments of $2,392
|
|
89,199
|
|
-
|
2018 pick-up truck, 72 month note payable, 9% interest rate payable monthly through June 2024, monthly payments of $701
|
|
36,230
|
|
-
|
2008 pick-up truck, 60 month note payable, 9% interest rate payable monthly through June 2023, monthly payments of $562
|
|
24,798
|
|
-
|
Haul truck, 13 month note payable, 8.0% interest rate payable monthly through July 2019, monthly payments of $5,000
|
|
34,085
|
|
-
|
Caterpillar 938 loader, 60 month note payable, 6.8% interest rate payable monthly through August 2023, monthly payments of $3,751
|
|
179,552
|
|
-
|
MultiQuip DCA70 Generator, 48 month note payable, 7.25% interest rate payable through August 2022, monthly payments of $635
|
|
24,480
|
|
-
|
Total notes payable
|
|
641,863
|
|
272,790
|
Due within one year
|
|
217,679
|
|
95,988
|
Due after one year
|
$
|
424,184
|
$
|
176,802
|
All notes are collateralized by the property or equipment purchased in connection with each note. Future principal payments of debt at December 31, 2018 are as follows:
|
|
Note
|
2019
|
$
|
217,679
|
2020
|
|
118,776
|
2021
|
|
128,506
|
2022
|
|
112,302
|
2023
|
|
60,738
|
Thereafter
|
|
3,862
|
Total
|
$
|
641,863
|
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Table of contents
New Jersey Mining Company
Notes to Financial Statements
8. Asset Retirement Obligation
The Company has established asset retirement obligations associated with the ultimate closing of its mineral properties where there has been or currently is operations. Obligations were established for the New Jersey mill in 2014 and the Golden Chest mine in 2016. Activity for the years ended December 31, 2018 and 2017 is as follows:
|
|
2018
|
|
2017
|
Balance at January 1
|
$
|
121,560
|
$
|
72,218
|
Accretion expense
|
|
3,901
|
|
8,456
|
Revision of estimated reclamation costs
|
|
28,831
|
|
40,886
|
Balance at December 31
|
$
|
154,292
|
$
|
121,560
|
During the years ended December 31, 2018 and 2017, the obligations for the Golden Chest and New Jersey mill properties were revised in consideration of additional disturbance activity and timing of future reclamation. The estimated reclamation costs were discounted using credit adjusted, risk-free interest rate of 5.0% from the time the obligation was incurred to the time management expects to pay the retirement obligation.
9. Joint Venture Arrangements
New Jersey Mill Venture Agreement (“NJMJV”)
In January 2011, the Company and United Mine Services, Inc. (“UMS”) entered into a joint venture agreement relating to the New Jersey mineral processing plant. To earn a 35 percent interest in the venture, UMS provided $3.2 million funding to expand the processing plant to 15 tonnes/hr. The Company is the operator of the venture and charges operating costs to UMS for milling its ore up to 7,000 tonnes/month, retain a milling capacity of 3,000 tonnes/month, and as the operator of the venture receive a fee of $2.50/tonne milled. UMS subsequently dissolved and its interest in the mill was transferred to Crescent Silver, LLC (Crescent). As of December 31, 2018 and 2017, an account receivable existed with the Mill Joint Venture from Crescent for $2,051 and $4,682, respectively. To date, no ore has been processed under this joint venture arrangement.
Butte Highlands Joint Venture
On January 29, 2016, the Company purchased a 50% interest in Butte Highlands JV, LLC (“BHJV”) for a total consideration of $435,000. Highland Mining, LLC (“Highland”) is the other 50% owner and manager of the joint venture. Under the agreement, Highland will fund all future project exploration and mine development costs. The Agreement stipulates that Highland is manager of BHJV and will manage BHJV until such time as all mine development costs, less $2 million are distributed to Highland out of the proceeds from future mine production. The Company has determined that because it does not currently have significant influence over the joint venture’s activities, it will account for its investment on a cost basis. The Company purchased the interest in the BHJV to provide additional opportunities for exploration and development and expand the Company’s mineral property portfolio.
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Table of contents
New Jersey Mining Company
Notes to Financial Statements
10. Income Taxes
The Company did not recognize a provision (benefit) for income taxes for the years ended December 31, 2018 and 2017 due availability of net operating losses in both 2018 and 2017. In addition, net deferred tax assets are offset by a full valuation allowance.
At December 31, 2018 and 2017, the Company had net deferred tax assets principally arising from the net operating loss carryforward for income tax purposes multiplied by an expected blended federal and state tax rate of 27%. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax assets, a valuation allowance equal to 100% of the net deferred tax asset has been established at December 31, 2018 and 2017.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. The Company completed the accounting for the effects of the Act during the quarter ended December 31, 2017. The Company did not incur any income tax benefit or provision for the year ended December 31, 2017 as a result of the changes to tax laws and tax rates under the Act. The Company’s net deferred tax asset was reduced by approximately $1.6 million during the year ended December 31, 2017, which consisted primarily of the remeasurement of federal deferred tax assets and liabilities from 35% to 21%.
The significant components of net deferred tax assets at December 31, 2018 and 2017 were as follows:
|
|
December 31,
|
|
December 31
,
|
|
|
2018
|
|
2017
|
Deferred tax assets
|
|
|
|
|
Net operating loss carry forward
|
$
|
3,388,000
|
$
|
2,909,200
|
Mineral properties
|
|
455,200
|
|
620,500
|
Asset retirement obligation
|
|
4,400
|
|
6,500
|
Stock based compensation
|
|
167,900
|
|
156,600
|
Derivative contracts
|
|
-
|
|
136,500
|
Discount on note payable
|
|
-
|
|
42,000
|
Other
|
|
7,150
|
|
-
|
Total deferred tax assets
|
|
4,022,650
|
|
3,871,300
|
Valuation allowance
|
|
(2,990,350)
|
|
(3,198,800)
|
|
|
1,032,300
|
|
672,500
|
Deferred tax liabilities
|
|
|
|
|
Acquisition of mineral interest
|
|
(60,500)
|
|
(60,500)
|
Property, plant, and equipment
|
|
(971,800)
|
|
(612,000)
|
Total deferred tax liabilities
|
|
(1,032,300)
|
|
(672,500)
|
Net deferred tax assets
|
$
|
0
|
$
|
0
|
At December 31, 2018 the Company had net operating loss carry forwards of approximately $12,600,000 for both federal and state purposes, $11,100,000 of which expire between 2020 through 2037. The remaining balance of $1,500,000 will never expire but its utilization is limited to 80% of taxable income in any future year.
The income tax provision (benefit) for the years ended December 31, 2018 and 2017 differ from the statutory rate of 21% in 2018 and 35% in 2017 as follows:
|
|
December 31,
20182018
|
|
December 31,
2017
|
Provision (benefit) at statutory rate for the period
|
$
|
158,000
|
$
|
(7,700)
|
State taxes, net of federal taxes
|
|
44,000
|
|
(1,100)
|
Adjustment of prior year tax benefit to actual
|
|
6,450
|
|
(36,400)
|
Change in federal tax rate
|
|
-
|
|
(1,558,400)
|
Increase (decrease) in valuation allowance
|
|
(208,450)
|
|
1,513,200
|
Total provision (benefit)
|
$
|
0
|
$
|
0
|
We are open to examination of our income tax filings in the United States and state jurisdictions for the 2016 through 2018 tax years. In the event that the Company is assessed penalties and or interest, penalties will be charged to other operating expense and interest will be charged to interest expense.
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Table of contents
New Jersey Mining Company
Notes to Financial Statements
11. Equity
The Company has authorized 200,000,000 shares of no par common stock at December 31, 2018 and 2017. In addition, the Company has authorized 1,000,000 shares of no par preferred stock, none of which had been issued at December 31, 2018 or 2017.
The Company began a private placement in the fourth quarter 2016 which ran through the first quarter of 2017. Each unit consisted of two shares of the Company’s common stock and one stock purchase warrant with each warrant exercisable for one share of the Company’s stock at $0.20 through February 2020. As of December 31, 2016, 537,500 units were sold consisting of 1,075,000 shares and 537,500 warrants for net proceeds of $92,500 after deducting the 10% commission and other related placement fees. In March 2017, the Company completed the private placement. In 2017, an additional 3,200,000 shares and 1,600,000 warrants were sold for net proceeds in 2017 of $291,000 after deducting the 10% commission. At closing of the private placement in March 2017, the total units for the private placement were 2,137,500 units, consisting of 4,275,000 shares and 2,137,500 warrants. Net proceeds of the private placement in total were $383,500.
The Company offered an additional private placement in March 2017. The private placement was for 4,250,000 units, each unit consisting of two shares of the Company’s stock and one stock purchase warrant with each warrant exercisable for one share of the Company’s stock at $0.20 through April 2020. No commission was paid with this private placement. Proceeds were $750,000 in cash and $100,000 exchanged for a note and interest payable to the Company’s president, John Swallow. The Company’s concentrate broker, H&H Metals Corp., who purchases the Company’s gold flotation concentrate product, participated in this private placement purchasing 1,250,000 units for $250,000.
The Company offered an additional private placement in November 2017. The private placement was for 1,708,334 units, each unit consisting of two shares of the Company’s stock and one stock purchase warrant with each warrant exercisable for one share of the Company’s stock at $0.20 for 36 months. No commission was paid with this private placement. Proceeds were $350,000 in cash and $60,000 exchanged for a note and interest payable to the Company’s president, John Swallow. H&H Metals Corp participated in this private placement purchasing 1,041,667 units for $250,000.
In October 2017, the Company utilized proceeds of the private placement to pay the remaining debt due on the Golden Chest property of $250,000.
On March 2, 2018, the Company entered into an agreement with J-J Farms LLC and Achievement Holdings LLC (“Crown Point”) to lease a group of patented and unpatented mining claims. The initial payment was 1,333,333 shares of the Company’s restricted common stock valued at $0.175/share. Fair value was based on the trading price of the Company’s stock on the date of the transaction.
In the first and second quarters of 2018, the Company offered private placements. Under the private placements, the Company sold 8,858,578 units for net proceeds of $1,107,571. Each unit consisted of one share of the Company’s stock and one half of one stock purchase warrant with each whole warrant exercisable for one share of the Company’s stock at $0.22 for 24 months.
In 2018, the Company issued 108,000 shares of common stock pursuant to the exercise of stock purchase options at $0.15 per share for $16,200 cash.
In the fourth quarter of 2018, the Company offered a private placement. Under the private placement, the Company sold 750,000 units for net proceeds of $99,285. Each unit consisted of one share of the Company’s stock and one half of one stock purchase warrant with each whole warrant exercisable for one share of the Company’s stock at CDN$0.25 (USD $0.18) for 48 months. These warrants were initially sold with an exercise price that was not in the Company’s functional currency of the U.S. dollar. The Company did not account for the warrants as derivatives at December 31, 2018 as it was not considered material to the consolidated financial statements. In 2019, the Company plans to amend the exercise price of the warrants to be stated in U.S. dollars to avoid accounting for the warrants as a derivative.
During the year ended December 31, 2018, the Company issued 53,286 shares of its common stock valued at $9,059 for professional services. Fair value was based on the trading price of the Company’s stock on the date of the transaction.
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Table of contents
New Jersey Mining Company
Notes to Financial Statements
11. Equity
,
continued
Stock Purchase Warrants Outstanding
Transactions in common stock purchase warrants for the year ended December 31, 2018 and 2017 are as follows:
|
|
Number of Warrants
|
|
Exercise Prices
|
Balance December 31, 2016
|
|
10,737,500
|
|
$0.10-0.20
|
Issued in connection with private placements
|
|
7,558,334
|
|
0.20
|
Expired
|
|
(9,000,000)
|
|
0.15-0.20
|
Balance December 31, 2017
|
|
9,295,834
|
|
$0.10-0.20
|
Issued in connection with private placements
|
|
4,804,289
|
|
0.18-0.22
|
Balance December 31, 2018
|
|
14,100,123
|
|
$0.10-0.22
|
These warrants expire as follows:
Shares
|
Exercise Price
|
Expiration Date
|
1,200,000
|
$0.10
|
August 11, 2019
|
2,137,500
|
$0.20
|
February 28, 2020
|
4,250,000
|
$0.20
|
March 28, 2020
|
1,708,334
|
$0.20
|
November 3, 2020
|
2,506,212
|
$0.22
|
March 30, 2020
|
1,923,077
|
$0.22
|
April 20, 2020
|
375,000
|
$0.18
|
December14, 2023
|
14,100,123
|
|
|
Stock Options
In April 2014, the Board of Directors of the Company established a stock option plan to authorize the granting of stock options to officers and employees. Upon exercise of the options shares are issued from the available authorized shares of the Company.
In 2016, 2,750,000 options were granted to management, directors, consultants, and employees of the Company. Of these options 1,225,000 vested in the fourth quarter of 2016 and the remaining 1,525,000 vested in 2017. The options expire three years after their grant date. Each option allows the holder to purchase one share of the Company’s stock at $0.15 prior to expiration. Compensation cost of $268,032 is associated with the options. Of this, $151,143 was recognized in 2016, and $116,889 was recognized in 2017.
In 2017, the Company granted a total of 662,500 options to consultants and employees of the Company. These options vested in 2018. The options had a fair value of $66,539 which is being recognized ratably over the vesting period. Compensation cost of $24,519 was recognized in 2017. The remaining compensation cost of $42,020 was recognized in 2018. No additional options were granted in 2018 and there is no unrecognized compensation at December 31, 2018.
Total compensation cost for granted options of $42,020 and $141,407 was recognized in the years ended December 31, 2018 and 2017, respectively.
The weighted average fair value of stock option awards granted and the key assumptions used in the Black-Scholes valuation model to calculate the fair value of the options are as follows:
|
|
|
For the Year Ended December 31, 2017
|
Weighted average fair value
|
|
|
$0.10
|
Options issued
|
|
|
662,500
|
Exercise price
|
|
|
$0.15 to $0.18
|
Expected term (in years)
|
|
|
3.0
|
Risk-free rate
|
|
|
1.48% to 1.98%
|
Volatility
|
|
|
135.7 to 142.3%
|
39
Table of contents
New Jersey Mining Company
Notes to Financial Statements
11. Equity
,
continued
|
|
Number of Options
|
|
Exercise Prices
|
Balance January 1, 2017
|
|
7,500,000
|
|
0.10-0.15
|
Issued
|
|
662,500
|
|
0.15-0.18
|
Expired
|
|
(500,000)
|
|
0.10
|
Balance December 31, 2017
|
|
7,662,500
|
|
0.10-0.18
|
Exercised
|
|
(108,000)
|
|
0.15
|
Expired
|
|
(500,000)
|
|
0.10
|
Balance December 31, 2018
|
|
7,054,500
|
|
0.10-0.18
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
7,054,500
|
$
|
0.10-0.18
|
At December 31, 2018, the stock options have an intrinsic value of approximately $180,420 and have a weighted average remaining term of 1.37 years.
12. Related Party Transactions
At December 31, 2018 and 2017, the Company had the following notes and interest payable to related parties:
|
|
December 31,
2018
|
|
December 31, 2017
|
Mine Systems Design (“MSD”), a company in which our Company’s Vice President owns 10.4%, 12% interest, monthly payments of $4,910 through March 2019
|
$
|
14,696
|
$
|
68,299
|
John Swallow, Company president, 5% interest, monthly payments of $5,834 with balloon payment of $387,904 in February 2019
|
|
-
|
|
441,163
|
John Swallow, Company president, 5% interest, principal and interest due February 2019
|
|
-
|
|
192,677
|
Ophir Holdings LLC, a company owned by three of the Company’s Officers, 6% interest, monthly payments of $3,777 with a balloon payment of $183,559 in February 2020
|
|
222,131
|
|
-
|
Margaret Bathgate, shareholder, 5% interest, principal and interest due January 2018
|
|
-
|
|
100,000
|
|
|
236,827
|
|
802,139
|
Accrued interest payable
|
|
|
|
10,772
|
Total
|
|
236,827
|
|
812,911
|
Current portion
|
|
47,591
|
|
211,829
|
Long term portion
|
$
|
189,236
|
$
|
601,082
|
Related party interest expense for the years ending December 31, 2018 and 2017 was $40,624 and $53,864, respectively. At December 31, 2018, $47,591 of related party debt is payable in 2019 and the remaining $189,236 is payable in 2020. On January 1, 2018, Ophir Holdings, LLC converted its gold forward contract (see Note 14) to a conventional debt structure at 6% interest.
During the years ended December 31, 2018 and 2017, the Company paid $40,500 and $10,500, respectively, to the Company’s chairman of the board, Del Steiner for consulting purposes.
As of December 31, 2018 and 2017, gold sales receivable from H&H Metals, who owns 4% of the Company’s outstanding common stock, were $74,673 and $307,796, respectively. Concentrate sales to H&H Metals were $3,305,731 and $4,200,211, during the years ended December 31, 2018 and 2017, respectively.
13. Sales of Products
Our products consist of both gold floatation concentrates which we sell to a broker (H&H Metal), and an unrefined gold-silver product known as doré which we sell to a precious metal refinery. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and the transaction price can be determined or reasonably estimated.
40
Table of contents
New Jersey Mining Company
Notes to Financial Statements
13. Sales of Products, continued
For gold flotation concentrate sales, the performance obligation is met when the transaction price can be reasonably estimated and revenue is recognized generally at the time when risk is transferred to H&H Metal based on contractual terms. Based on contractual terms, we have determined the performance obligation is met and title is transferred to H&H Metal when the Company receives its first provisional payment on the concentrate because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the concentrate lot and obtained the ability to realize all of the benefits from the product, 3) the concentrate content specifications are known, have been communicated to H&H Metal, and H&H Metal has the significant risks and rewards of ownership to it, 4) it is very unlikely a concentrate will be rejected by H&H Metal upon physical receipt, and 5) we have the right to payment for the concentrate. Concentrates lots that have been sold are held at our mill from 30 to 60 days, until H&H Metal provides shipping instructions.
Judgment is required in identifying the performance obligations for our concentrate sales. We have determined that the individual performance obligation is satisfied at a point in time when control of the concentrate is transferred to H&H Metal which is when H&H Metal pays us the first provisional payment on the concentrate based on contractual terms.
Our concentrate sales sometimes involve variable consideration, as they can be subject to changes in metals prices between the time of shipment and their final settlement. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the estimated month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement for financial reporting purposes. Also, it is unlikely a significant reversal of revenue for any one concentrate lot will occur. As such, we use the expected value method to price the concentrate until the final settlement date occurs, at which time the final transaction price is known. At December 31, 2018, metals contained in concentrates and exposed to future price changes totaled 288 ounces of gold.
Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment and other charges negotiated by us with H&H Metal, which represent components of the transaction price. Charges are estimated by us upon transfer of risk of the concentrates based on contractual terms, and actual charges typically do not vary materially from our estimates. Costs charged by the customer include fixed treatment, refining and costs per ton of concentrate and may include penalty charges for lead and zinc content above a negotiated baseline as well as excessive moisture.
For sales of doré and of metals from doré the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer.
Sales of products by metal for the years ended December 31, 2018 and 2017 were as follows:
|
December 31, 2018
|
December 31, 2017
|
|
|
|
|
|
Gold
|
$
|
3,971,567
|
$
|
4,518,152
|
Silver
|
|
11,584
|
|
16,315
|
Less: Smelter and refining charges
|
|
(353,314)
|
|
(252,896)
|
Total
|
$
|
3,629,837
|
$
|
4,281,571
|
Sales by significant product type for the years ended December 31, 2018 and 2017 were as follows:
|
December 31, 2018
|
December 31, 2017
|
|
|
|
|
|
Concentrate sales to H&H Metal
|
$
|
3,305,731
|
$
|
4,200,211
|
Dore’ sales to refineries
|
|
324,106
|
|
81,360
|
Total
|
$
|
3,629,837
|
$
|
4,281,571
|
At December31, 2018 and 2017, our gold sales receivable balance related to contracts with customers of $74,673 and $307,796, respectively, consist only of amounts due from H&H Metal. There is no allowance for doubtful accounts.
We have determined our contracts do not include a significant financing component. For doré sales, payment is received at the time the performance obligation is satisfied. Consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels at the time the performance obligation is satisfied.
We do not incur significant costs to obtain contracts, nor costs to fulfill contracts which are not addressed by other standards. Therefore, we have not recognized an asset for such costs as of December 31, 2018 or 2017.
41
Table of contents
New Jersey Mining Company
Notes to Financial Statements
14. Forward Gold Contracts
On July 13, 2016, the Company entered into a forward gold contract with Ophir Holdings LLC, (“Ophir”) a company owned by three of the Company’s officers, for net proceeds of $467,500 to fund startup costs at the Golden Chest. The contract called for the Company to deliver a total of 500 ounces of gold to the purchasers with quarterly payments equivalent to $25,000 in ounces starting February 1, 2017. The equivalent of 80.5 ounces were delivered to Ophir in 2017. On January 1, 2018, Ophir agreed to convert their Forward Gold Contract which at that time had an outstanding balance of 419.5 ounces with a fair value of $492,784 to a conventional debt structure at 6% interest (see Note 12).
On July 29, 2016, the Company entered into a forward gold contract through GVC Capital LLC for net proceeds of $772,806 to fund startup costs at the Golden Chest. The agreement calls for the Company to deliver a total of 904 ounces of gold to the purchasers in quarterly payments starting December 1, 2016 for a period of two years as gold is produced from the Golden Chest Mine and New Jersey Mill. The December 1, 2016 payment, 4 payments in 2017, and three payments in 2018 were paid with an ounce equivalent of 904 ounces. The final payment was made in September 2018.
The gold to be delivered does not need to be produced from the Golden Chest property. In addition, the counterparties can request cash payment instead of gold ounces for each quarterly payment. The cash payments are based on average gold prices for the applicable quarter. The contracts are accounted for as derivatives requiring their value to be adjusted to fair value each period end. The change in balance for the forward gold contracts for the year ended December 31, 2018 and 2017 is as follows:
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
920,579
|
$
|
1,386,228
|
Conversion to note payable
|
|
(492,784)
|
|
-
|
Payments in cash
|
|
(185,798)
|
|
(357,766)
|
Payments in gold purchased by the Company
|
|
(257,981)
|
|
(319,344)
|
Change in fair value
|
|
15,984
|
|
211,461
|
Ending balance
|
$
|
-
|
|
920,579
|
Current
|
|
-
|
|
568,609
|
Long term
|
|
-
|
$
|
351,970
|
The fair value was calculated using the market approach with Level 2 inputs for forward gold contract rates and a discount rate of 10%.
42
Table of contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.