Notes to the Consolidated Financial Statements (unaudited)
1.BASIS OF PRESENTATION
The unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, as well as the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the six-month period ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.
For further information refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Going Concern
The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. The Company has incurred losses since its inception and does not have sufficient cash to fund normal operations and meet debt obligations for the next 12 months without deferring payment on certain current liabilities and/or raising additional funds.
The Company currently has no historical recurring source of revenue and in 2016 received its first cash distribution from the joint venture (Note 3). With the dissolution of the joint venture, the process of which began June 3, 2019, these distributions will cease, other than any distribution the Company may be awarded in arbitration (see Note 3 Joint Venture). The Company may profitably execute a production business plan, and thereby, its ability to continue as a going concern may improve and become less dependent on the Company’s ability to raise capital to fund its future exploration and working capital requirements. The Company’s plans for the long-term return to and continuation as a going concern include the profitable exploitation of its mining properties and financing the Company’s future operations through sales of its common stock and/or debt.
Additionally, the current capital markets and general economic conditions in the United States are significant obstacles to raising the required funds. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made to conform prior year’s data to the current presentation. During the six months ended June 30, 2018, management reclassified Arbitration expenses of $699,275 and $728,451 for the three- and six-month periods ended June 30, 2018, respectively, from Professional services, General and administrative and other line items on previously reported Consolidated Statements of Operations captions to a separate line item because of its significance to the Company’s operations during the year. These reclassifications have no impact of the total net loss for the three and six months ended June 30, 2019 and 2018.
7
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
Earnings (Loss) Per Share
We are authorized to issue 250,000,000 shares of common stock, $0.10 par value per share. At June 30, 2019, there were 139,573,798 shares of our common stock issued and outstanding.
For the periods ended June 30, 2019 and 2018, the effect of the Company’s outstanding preferred shares, options and warrants, totaling 97,261,792 and 106,038,703, respectively, would have been anti-dilutive.
Accounting for Investments in Joint Ventures
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 and in which the Company has significant influence, the equity method is utilized whereby the Company’s share of the venture’s 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.
Goldrich has no significant influence over its joint venture described in Note 3 Joint Venture, and therefore accounts for its investment using the cost method. The Company recognizes as income, funds received that are distributed from net accumulated earnings of the joint venture.
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 a 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. Goldrich currently has no joint venture of this nature.
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.
Recent Accounting Pronouncements
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. The Company adopted the standard on January 1, 2019. The Company performed an assessment of the impact of implementation of ASU No. 2016-02, and concluded it does not have an effect on the consolidated financial statements. The Company currently has two operating leases for the corporate office rent and a small storage unit in Fairbanks, Alaska; both are less than a year and do not require recognition under the standard update.
In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expands the scope of Accounting Standards Codification (ASC) 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted the new standard on January 1, 2019, with no effect on the 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.
8
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
Cash and Cash Equivalents
For the purposes of the statement of cash flows, we consider all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates used in preparing these financial statements include those assumed in estimating the recoverability of the cost of mining claims, accrued remediation costs, asset retirement obligations, stock-based compensation, and deferred tax assets and related valuation allowances. Actual results could differ from those estimates.
Property, Equipment, and Accumulated Depreciation
Property and equipment are stated at cost, which is determined by cash paid or fair value of the shares of the Company’s common stock issued. The Company’s property and equipment are located on the Company’s unpatented state mining claims located in the Chandalar mining district of Alaska.
All property and equipment purchased prior to 2009 are fully depreciated. The Company’s equipment is located at the Chandalar property in Alaska, with a small amount of office equipment located at Company offices in Spokane, Washington. Assets are depreciated on a straight-line basis. Improvements, which significantly increase an asset’s value or significantly extend its useful life are capitalized and depreciated over the asset’s remaining useful life.
When a fixed asset is sold at a price either higher or lower than its carrying amount, or undepreciated cost at the date of disposal, the difference between the sale proceeds over the carrying amount is recognized as gain, while a loss is recognized when the carrying amount exceeds the sale proceeds. The gain or loss is recognized in the Consolidated Statements of Operations.
Mining Properties, Claims, and Royalty Option
The Company capitalizes costs for acquiring mineral properties, claims and royalty option and expenses, costs to maintain mineral rights and leases as incurred. Should a property reach the production stage, these capitalized costs would be amortized using the units-of-production method on the basis of periodic estimates of ore reserves. Mineral properties are periodically assessed for impairment of value, and any subsequent losses are charged to operations at the time of impairment. If a property is abandoned or sold, its capitalized costs are charged to operations.
Income Taxes
Income taxes are recognized in accordance with Accounting Standards Codification (“ASC”) 740 Income Taxes, whereby deferred income tax liabilities or assets at the end of each period are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized. ASC 740 prescribes a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return.
9
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
Revenue Recognition
The Company does not have joint control or significant influence over the joint venture; therefore, distributions from our joint venture are recognized using the cost method. In accordance with ASU No. 2014-09, the Company has determined that our revenue does not arise from contracts with customers, does not involve satisfaction of any performance obligations on the part of the Company, or require company assets to be recognized or applied to determine costs to obtain or fulfill any contract generating revenue. Other than any distribution the Company may be awarded in arbitration (see Note 3 Joint Venture), there was no distribution from the joint venture for 2018, and there will be no distribution for 2019, due to arbitration proceedings and dissolution of the joint venture. See note 3, Joint Venture.
Stock-Based Compensation
The Company periodically issues common shares or options to purchase shares of the Company’s common shares to its officers, directors or other parties. These issuances are recorded at fair value. The Company uses a Black Scholes valuation model for determining fair value of options to purchase shares, and compensation expense is recognized ratably over the vesting periods on a straight line basis. Compensation expense for grants that vest immediately are recognized in the period of grant.
Exploration Costs
Exploration costs are expensed in the period in which they occur.
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 operating results. 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.
Remediation and Asset Retirement Obligation
The Company’s operations have been, and are subject to, standards for mine reclamation that have been established by various governmental agencies. The Company records the fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement of tangible long-lived assets. A corresponding asset is also recorded and depreciated over the life of the long-lived asset using a units of production method. After the initial measurement of the asset retirement obligation, the liability will be adjusted at the end of each reporting period to reflect changes in the estimated future cash flows underlying the obligation. Determination of any amounts recognized is based upon numerous estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rates.
For non-operating properties, the Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed.
10
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
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 2019 and 2018, the Company determined fair value on a recurring basis and non-recurring basis as follows:
|
|
Balance
June 30, 2019
|
Balance
December 31, 2018
|
Fair Value
Hierarchy level
|
|
Liabilities
|
|
|
|
|
Recurring: Notes payable in gold (Note 6)
|
$ 375,905
|
$ 342,157
|
2
|
The carrying amounts of financial instruments, including notes payable, approximate fair value at June 30, 2019 and December 31, 2018.
3.JOINT VENTURE
On May 7, 2012, the Company entered into a joint venture with NyacAU, LLC (“NyacAU”), an Alaskan private company, to bring Goldrich’s Chandalar placer gold properties into production as defined in the joint venture agreement. In each case as used herein in reference to the JV, ‘production’ is as defined by the JV agreement. As part of the agreement, Goldrich Placer, LLC (“GP”), a subsidiary of Goldrich and NyacAU (together the “Members”) formed a 50:50 joint venture company, Goldrich NyacAU Placer LLC (“GNP”), to operate the Chandalar placer mines, with NyacAU acting as managing partner. Goldrich has no significant control or influence over the JV, and therefore accounts for its investment using the cost method.
Under the terms of the joint venture agreement (the “Agreement”), NyacAU provided funding to the JV. The loans are to be repaid from future production. According to the Agreement, on at least an annual basis, the JV shall allocate and distribute all revenue (whether in cash or as gold) generated from the JV’s placer operation in the following order:
1.Operating Expenses. GNP will first pay all Operating Expenses as defined in the Operating Agreement for placer mining operations at the Claims for the current mining year. Until Commercial Production is achieved, GNP will drawdown or use a line of credit from NyacAU (“LOC1”) to fund payment of the Operating Expenses and repay LOC1 to the extent of the current year's Operating Expenses.
2.Members' Distribution - Ten Percent (10%) Portion. After payment of Operating Expenses, GNP will distribute in kind twenty percent (20%) of the remaining gold produced, equally, ten percent (10%) to NyacAU as a Member of the GNP and ten percent (10%) to Goldrich as a Member of GNP; provided, however, that, for so long as any secondary line of credit from NyacAU to GNP (“LOC2”) or loan from NyacAU to GNP to purchase the Jumbo Basin royalty (“Loan3”) are not paid in full, GNP shall retain one hundred percent (100%) of this distribution to Goldrich and shall apply such funds as payment to reduce the balance of LOC2 and Loan3 until they are paid in full.
3.LOC1 Payments. After payment of Operating Expenses and the Members' distribution, GNP will apply any remaining revenue to reduce the remaining balance of LOC1, if any, until it is paid in full.
4.Reserves. After payment of Operating Expenses, the Members' distribution, and payment of LOC1, the Company may fund Reserves in an amount that is consistent with the annual budget.
11
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
5.Member Distributions, LOC2 Payments and Loan3 Recovery. After payment of Operating Expenses, the Members', payment of LOC1, and funding of any Reserves, from any remaining gold production or revenue, the Company will distribute fifty percent (50%) to NyacAU as a Member of GNP and fifty percent (50%) to Goldrich as a Member of GNP; provided, however, that, for so long as LOC2 or Loan3 are not paid in full, GNP shall retain one hundred percent (100%) of the distribution to Goldrich and shall apply such funds as payment to reduce the balance of LOC2 and Loan3 until they are paid in full. LOC2 has never been funded or utilized.
Substantially all required allocations and distributions are required to be made no later than October 31st of each year, with any remaining allocations or distributions being completed no later than December 31st of each year, unless otherwise agreed in writing by the Members. As of June 30, 2019, dissolution of the JV is likely, and distributions under item 2 above for the production season have been calculated using the same methodology as prior years’ distributions, although NyacAU has challenged its responsibility to declare or pay any distributions of this type due to the pending dissolution of the JV. The Company has refuted the challenge (see Arbitration).
On June 23, 2015, the Company raised net proceeds of $1.1 million through the sale of 12.5% of the cash flows Goldrich receives in the future from its interest in GNP (“Distribution Interest”), paid in cash under items #2 and #5, to Chandalar Gold, LLC (“CGL”) and GVC Capital, LLC,(“GVC”), both of which are non-related entities. Goldrich retained its ownership of its 50% interest in GNP but, after the transaction, subject to the terms of the GNP operating agreement, Goldrich will effectively receive approximately 44%, CGL will effectively receive 6% (12% of Goldrich’s 50% of GNP = 6%) and GVC will effectively receive 0.25% (0.5% of Goldrich’s 50% of GNP = 0.25%) of any distributions produced by GNP. At December 31, 2018 and 2017, an amount of $35,794 has been accrued for the distribution which is included in accrued liabilities. No amount has been accrued for the 2018 distribution due to uncertainties relating to realization of distributions from NyacAU (see Arbitration).
At the conclusion of 2017, Goldrich was allocated a distribution of $218,770, under #2 above. In accordance with terms of the Operating Agreement, the Company had the distribution applied toward Loan3. In 2012, the joint venture purchased, on Goldrich’s behalf, a 2% royalty interest, payable on all production from certain Goldrich mining claims at the Chandalar, Alaska property for $250,000 from Jumbo Basin Corporation. This transaction gave rise to Loan3, is carried on GNP’s financial records at an interest rate of the greater of prime plus 2% or 10%, and is to be repaid from distributions to Goldrich as defined in the Operating Agreement, prior to any distributions in cash to Goldrich. At each of June 30, 2019 and December 31, 2018, the principal balance due on Loan3 was $91,488, as adjusted by the joint venture during arbitration, with additional interest of approximately $13,660 and $9,150, respectively. These amounts may be further adjusted by Arbitration awards.
In addition, GNP was required to meet the Minimum Production Requirements as defined by the operating agreement. The Minimum Production Requirement for each year was determined by the price of gold on December 1 in the preceding year. The Minimum Production Requirements for 2016, 2017, and 2018 were 1,100, 1,200, and 1,300 ounces of fine gold, respectively, distributable to each of Goldrich and NyacAU. The Minimum Production Requirements for 2016, 2017, and 2018 were to be substantially paid by October 31, 2018. The value of the combined 2016, 2017 and 2018 Minimum Production Requirements has been calculated at $4,428,000 using the price of gold at $1,230 per ounce at September 30, 2018. GNP did not meet the Minimum Production Requirements.
12
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
Arbitration
In December 2017, the Company filed an arbitration statement of claim against NyacAU and other parties. The claim challenged certain accounting treatment of capital leases, allocations of tax losses, charges to the JV for funding costs related to the JV manager’s financing, related-party transactions, and other items of dispute in a previous mediation that was unsuccessful in reaching an agreement. As a result, the Company participated in an arbitration before a panel of three independent arbitrators during 2018 to address these items.
In accordance with ASC 450, Contingencies (“ASC 450”), the Company accounts for loss or gain contingencies when it is probable that a liability or an asset is realizable and can be reasonably estimated. To date, the arbitration proceedings are in progress and no assurance can be given that the arbitration will result in a successful outcome for the Company. A successful arbitration may result in increases to the 2017 and 2016 distributions and revise the computation of these distributions in 2018. Other than any distribution the Company may be awarded in arbitration, there will be no distribution for 2019 due to the dissolution of the joint venture. An unsuccessful arbitration could have an indeterminate negative effect. Due to uncertainties relating to the pending outcome, the financial statements contain no adjustments for the final results of the arbitration. The arbitration is proceeding on the basis that GNP will be dissolved.
During the six months ended June 30, 2019 and 2018, management made certain reclassifications from professional services expense, general and administrative expense and other line items on previously reported Consolidated Statements of Operations captions into Arbitration costs. The Company incurred $(19,303) and $728,451 in arbitration expenses during the six months ended June 30, 2019 and 2018, respectively. The $(19,303) is a result of a $220,147 reimbursement for costs by the Company’s Directors and Officers insurance, netted against expenses of $200,844 for the six months ended June 30, 2019.
Due to the JV’s failure to meet the Minimum Production Requirements defined in the Operating Agreement, the JV is being dissolved. No financial statement adjustment has been recorded for the failure of the JV to meet the Minimum Production Requirements. The certificate of dissolution was received in July with an effective date of June 3, 2019. NyacAU, as the manager of GNP, shall act as liquidator to wind up the Company within one (1) year, or such longer period as may be agreed to in writing by the joint venture members. If NyacAU cannot or does not accomplish the liquidation within one (1) year or any agreed upon extension, Goldrich shall complete the liquidation.
4.RELATED PARTY TRANSACTIONS
Beginning in January 2016 and through June 30, 2019, the salary of the Company’s Chief Executive Officer (“CEO”) has not been paid in full. Fees due to the Company’s Chief Financial Officer (“CFO”) have been accrued and remain unpaid:
|
CEO
|
Six Months ended
6/30/19
|
Year ended
12/31/18
|
|
Beginning Balance
|
$295,000
|
$192,500
|
|
Deferred During Period
|
90,000
|
180,000
|
|
Cash Paid During Period
|
(10,000)
|
(77,500)
|
|
Ending Balance
|
$375,000
|
$295,000
|
13
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
|
CFO
|
Three Months ended
6/30/19
|
Year ended
12/31/18
|
|
Beginning Balance
|
$64,909
|
$35,202
|
|
Deferred During Period
|
28,158
|
64,222
|
|
Cash Paid During Period
|
(12,734)
|
(34,515)
|
|
Ending Balance
|
$80,333
|
$64,909
|
During the year ended December 31, 2018, the Company also awarded 1,850,000 shares of common stock to officers and a director as compensation. The fair value of the shares awarded was $64,565 based upon the quoted value of the stock at the time of the grant.
5.NOTES PAYABLE & NOTES PAYABLE – RELATED PARTY
At December 31, 2018, the Company had outstanding Notes payable of $952,634 and outstanding Notes payable - related party of $2,378,947, with all discounts being amortized. The Notes payable and Notes payable - related party had matured on October 31, 2018 and are now due on demand.
During the three and six months ended June 30, 2019, the Company received the third and fourth tranche of the notes payable for $89,474 and $194,737, for the respective tranches, discounted at 5%, or $4,474 and $9,737, resulting in net proceeds of $85,000 and $270,000 for the three and six months ended June 30, 2019, respectively, of which $71,000 and $206,000 was from a related party, respectively. The notes are due upon demand; therefore, the discounts and related warrants issued with them were immediately expensed to finance costs.
At June 30, 2019, the Company had outstanding Notes payable of $1,020,000 and outstanding Notes payable – related party of $2,595,790, with all discounts being amortized. The Company is in negotiations with holders of the Notes payable and Notes payable – related party to amend payment terms.
The notes have an interest rate of 15% per annum, calculated on a 360-day year and payable monthly, and were issued net of a 5% original issue discount. A total of 18,982,878 five-year Class T warrants have been issued to the lenders, including 13,627,886 to a related party in connection with the current and prior-period note issuances. The warrants have an exercise price of $0.03 and expire on various dates from November 30, 2022 through June 21, 2024. During the six months ended June 30, 2019, the Company issued 1,492,102 warrants in connection with the notes payable. The warrants had a fair value of $17,668 and had an allocated relative fair value of $15,600.
A total of 1,518,630 five-year Class T warrants have been issued for finders fees related to this debt financing including 1,090,231 to a related party. The warrants issued for finders fees were fair valued at $25,864 and $26,354 for the three and six months ended June 30, 2019, using a Black Scholes valuation model (see table below), and are included in interest expense and finance costs.
During the three and six months ended June 30, 2019, the Company accrued cash finders fees related to this debt financing totaling $40,350 and $45,900 compared to $21,000 for each for the three- and six-month periods ended June 30, 2018 to related party entities and are included in interest expense and finance costs. Interest of $132,135 and $259,183 were expensed during the three and six months ended June 30, 2019 compared to $73,759 and $138,753 expensed during the three and six months ended June 30, 2018. Total interest for the notes of $441,613 is accrued at June 30, 2019 and is included in Interest payable and Interest payable – related parties. Interest due at June 30, 2019 was not timely paid. To date, the notes have not been paid, and the note holders have not demanded payment and have indicated willingness to work with the Company to extend the due date.
14
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
Interest payable on the consolidated balance sheet also includes $11,217 interest accrued on a Related parties payable and $11,764 accrued on Notes payable in gold.
The table below summarizes the total notes due, the amount received with discount, warrants issued for finders fees and cash expensed for finders fees for all periods related to the notes payable and notes payable – related party.
|
|
Tranche Date
|
Net amount after 5% Discount
|
Note Prior to Discount
|
Warrants issued to lenders
|
Finders fees in Warrants
|
Finders fees in Cash
|
|
Notes Payable
|
Dec. 22, 2017
|
$ 705,000
|
$ 742,105
|
3,896,047
|
311,684
|
$ -
|
|
Notes Payable
|
Dec. 24, 2018
|
200,000
|
210,526
|
1,105,262
|
88,421
|
6,000
|
|
Notes Payable
|
March 31, 2019
|
14,000
|
14,737
|
77,368
|
6,189
|
420
|
|
Notes Payable
|
June 30, 2019
|
50,000
|
52,632
|
276,315
|
22,105
|
1,500
|
|
Total Notes Payable
|
$ 969,000
|
$ 1,020,000
|
5,354,992
|
428,399
|
$ 7,920
|
|
|
|
|
|
|
|
|
|
Related Party
|
Dec. 22, 2017
|
1,000,000
|
1,052,632
|
5,526,312
|
442,105
|
30,000
|
|
Related Party
|
Dec. 24, 2018
|
1,260,000
|
1,326,316
|
6,963,155
|
557,052
|
37,800
|
|
Related Party
|
March 31, 2019
|
71,000
|
74,737
|
392,368
|
31,390
|
2,130
|
|
Related Party
|
June 30, 2019
|
135,000
|
142,105
|
746,051
|
59,684
|
4,050
|
|
Total Related Party
|
2,466,000
|
2,595,790
|
13,627,886
|
1,090,231
|
73,980
|
|
Total
|
|
$ 3,435,000
|
$ 3,615,790
|
18,982,878
|
1,518,630
|
$ 81,900
|
The total fair value of the Class T warrants was estimated on the issue dates at $25,863 and $68,747 for the six months ended June 30, 2019 and June 30, 2018, respectively, using the following weighted average assumptions:
|
|
June 30, 2019
|
June 30, 2018
|
|
Market price of common stock on date of issuance
|
$0.007 - $0.0275
|
$0.02
|
|
Risk-free interest rate
|
1.8% - 2.51%
|
2.58%
|
|
Expected dividend yield
|
0
|
0
|
|
Expected term (in years)
|
5
|
5
|
|
Expected volatility
|
154.7% - 162.5%
|
155.5%
|
The notes are secured by distributions from the GNP joint venture. The notes are senior to general non-trade creditors and all equity holders in the event of dissolution of the Company with a distribution of assets. The notes rank junior to:
(i) Any GNP Distributions that are only deemed to be made by GNP to Goldrich Placer pursuant to the Operating Agreement but are then withheld pursuant to Section 10.1 of the Operating Agreement; and
(ii) Any GNP Distributions that are made by GNP to Goldrich Placer pursuant to the GNP Operating Agreement but are then withheld to pay Loan 3 and 2012 reclamation expenses; and
(iii) Any GNP Distributions that are made by GNP to Goldrich Placer pursuant to the Operating Agreement but are then used to pay legal fees relating to mediation/arbitration concerning distributions due to Goldrich Placer from GNP; and
(iv) Any GNP Distributions that are part of the Chandalar Sale, described below;
(v) Any GNP Distributions that are part of the GVC Sale, described below; and
(vi) Any GNP Distributions which are secured by the Company’s outstanding Senior Gold Forward Sales Contracts.
15
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
The Chandalar Sale relates to a purchase agreement, dated as of June 19, 2015, whereby the Company, through its subsidiary Goldrich Placer, sold and assigned to CGL 12% of any and all GNP Distributions to Goldrich Placer, subject to the limitations set forth in the purchase agreement and the related assignment. See Note 3 Joint Venture.
The GVC Sale relates to a purchase agreement, dated as of May 22, 2015, whereby the Company, through its subsidiary Goldrich Placer, sold and assigned to GVC 0.50% of any and all GNP Distributions to Goldrich Placer, subject to the limitations set forth in the purchase agreement and the related assignment. See Note 3 Joint Venture.
Repayment of all amounts owed under the notes is guaranteed by Goldrich Placer, which in turn owns a 50% interest in Goldrich NyacAU Placer LLC. See Note 3 Joint Venture. The notes contain standard default provisions, including failure to pay interest and principal when due. Under the terms of the notes, any additional loans will be issued at a 5% discount and, for each loan, the Company will issue 5.25 Class T warrants, not to exceed warrants representing the Company’s maximum authorized shares available, for each dollar loaned under this agreement.
6.NOTES PAYABLE IN GOLD
During 2013, the Company issued notes payable in gold totaling $820,000, less a discount of $205,000, for net proceeds of $615,000. Under the terms of the notes, the Company agreed to deliver gold to the holders at the lesser of $1,350 per ounce of fine gold or a 25% discount to market price as calculated on the contract date and specify delivery of gold in November 2014.
On November 30, 2017, the Company renegotiated terms with the holders. A default condition arising from the non-delivery of the gold in 2017 was alleviated by agreements with the three note holders to extend the delivery date of gold to November 30, 2018, with the following terms:
Fifteen percent (15%), or 76 ounces, of the required quantity of gold under the contract, prior to amendment one in 2014, amendment two in 2015, and amendment three in 2016, which was originally due on the Delivery Date of November 30, 2014, was delivered on November 30, 2017. In lieu of gold, the Company could elect to satisfy the delivery of the deliverable required quantity by paying, an amount equal to the deliverable required quantity times the greater of the original purchase price or the index price for the day preceding the date of payment. The Company paid a total of $97,295 in cash to satisfy this renegotiated term.
The Company agreed to pay interest on the value of the delayed delivery required quantity of $341,543, at an annual non-compounding percentage rate of 10% payable quarterly with any remaining interest due and payable on the delivery date.
If the delivery date index price on November 30, 2018 is less than the original purchase price, an additional adjusted required amount shall be delivered by December 31, 2018.
On November 30, 2018, the Company renegotiated terms with the holders. A default condition arising from the non-delivery of the gold in 2018 was alleviated by agreements with the three note holders to extend the delivery date of gold to February 28, 2019, with the following significant terms:
In relation to the remaining 55% of the original Required Quantity of Gold under the Contract, prior to Amendment One, Amendment Two, Amendment Three, and Amendment Four (the “Fourth Delayed Delivery Required Quantity”), such Fourth Delayed Delivery Required Quantity shall be delivered to the Purchaser at the Delivery Point on February 28, 2019. In relation to the Fourth Delayed Delivery Required Quantity, “Delivery Date” as set forth on the Confirmation Letter, was amended to be no later than February 28, 2019.
16
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
Subsequent to November 30, 2018, the Company agreed to pay interest on the value of the Fourth Delayed Delivery Required Quantity at an annual percentage rate of 10% (the “Interest Rate”) payable quarterly on December 31, 2018 with any remaining interest due and payable on the Delivery Date for the Fourth Delayed Delivery Required Quantity.
Subsequent to November 30, 2018, the value of the Fourth Delayed Delivery Required Quantity was reset on December 1, 2018 and was equal to the number of ounces of Gold in the Fourth Delayed Delivery Required Quantity multiplied by a price as defined in the amendment.
If the Delivery Date Index Price is less than the Original Purchase Price, an Additional Adjusted Required Amount, as defined in the amendment, shall be delivered to the Purchaser at the Delivery Point by March 31, 2019.
Due to the Joint Venture’s failure to meet Minimum Production Requirements or make a sufficient distribution to the Joint Venture partners, the Company was unable to make payment to the holders of the notes payable in gold.
Subsequent to June 30, 2019, the Company renegotiated terms with the holders. A default condition arising from the non-delivery of the gold on March 31, 2019, was alleviated by agreements with the three note holders with the following amended terms:
The Fourth Delayed Delivery Required Quantity shall be delivered to the Purchaser at the Delivery Point on the date that is sixty (60) days after the date that the purchaser gives notice to the Company that the Fourth Delayed Delivery Required Quantity must be delivered.
Subsequent to February 28, 2019, the Company agreed to pay interest on the value of the Fourth Delayed Delivery Required Quantity at an annual percentage rate of 10% from February 28, 2019, payable quarterly with any remaining interest due and payable on the Delivery Date for the Fourth Delayed Delivery Required Quantity.
The Company, at the Company’s sole discretion, has the option to pay or deliver the Fourth Delayed Delivery Required Quantity prior to receiving notice from the Purchaser demanding payment of the Fourth Delayed Delivery Required Quantity or prior to sixty days after the Fourth Delayed Delivery Required Quantity Notice Date. If the Company exercises this option, in relation to the Fourth Delayed Delivery Required Quantity, “Delivery Date” as set forth on the Confirmation Letter, was amended to be the date of actual payment or delivery.
The value of the Fourth Delayed Delivery Required Quantity was reset on March 1, 2019 and was equal to the number of ounces of Gold in the Fourth Delayed Delivery Required Quantity multiplied by the Original Purchase Price used to calculate the amount of gold due in the Confirmation Letter.
To date, the gold notes have not been paid and the note holders have not demanded payment or delivery of gold.
For the six months ended June 30, 2019, using the fair value of gold on June 30, 2019 of $1,409 per ounce, the Company recognized an increase in fair value of $33,748. For the six months ended June 30, 2018, using a forward gold price of $1,213, the Company recognized a decrease in fair value of $32,255 in accounting for these notes as derivatives.
The fair value was calculated using the market approach with Level 2 inputs of gold future delivery contracts. At June 30, 2019 and December 31, 2018, the Company had outstanding total notes payable in gold of $375,905 and $342,157, respectively, representing 266.788 ounces of fine gold deliverable at March 31, 2019. Interest of $16,785 was expensed during the six months ended June 30, 2019, of which $11,764 is accrued at June 30, 2019 and is included in Interest payable.
17
Goldrich Mining Company
Notes to the Consolidated Financial Statements (unaudited)
7.COMMITMENTS AND CONTINGENCIES
The Company has 426.5 acres of patented claims and 22,432 acres of non-patented claims. We are subject to annual claims rental fees in order to maintain our non-patented claims. In addition to the annual claims rental fees due November 30 of each year, we are also required to meet annual labor requirements due November 30 of each year. The Company is able to carry forward costs for annual labor that exceed the required yearly totals for four years. Following are the annual claims and labor requirements for 2019.
|
|
November 30, 2019
|
|
Claims Rental
|
$ 90,670
|
|
Annual Labor
|
61,100
|
|
Yearly Totals
|
$ 151,770
|
The Company has a labor requirement carryover to 2019 of approximately $28.6 million to satisfy its annual labor requirements. This carryover expires in the years 2019 through 2024 if unneeded to satisfy requirements in those years.
8.SUBSEQUENT EVENTS
Subsequent to the six months ended June 30, 2019, the Company entered into additional notes payable totaling $205,000 from a related party, with cash proceeds of $205,000 to the Company. The Company also entered into amendments to the Notes payable in gold as described in Note 6 above.
18