Company Quick10K Filing
Santa Fe Gold
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 305 $61
10-K 2018-07-05 Annual: 2017-06-30
10-Q 2018-03-26 Quarter: 2017-03-31
10-Q 2018-01-25 Quarter: 2016-12-31
10-Q 2017-12-18 Quarter: 2016-09-30
10-K 2017-11-14 Annual: 2016-06-30
10-Q 2017-10-27 Quarter: 2016-03-31
10-Q 2017-10-27 Quarter: 2015-12-31
10-Q 2017-10-18 Quarter: 2015-09-30
10-K 2017-06-30 Annual: 2015-06-30
10-Q 2015-05-20 Quarter: 2015-03-31
10-Q 2015-02-24 Quarter: 2014-12-31
10-Q 2014-11-28 Quarter: 2014-09-30
10-K 2014-10-22 Annual: 2014-06-30
10-Q 2014-05-20 Quarter: 2014-03-31
10-Q 2014-02-14 Quarter: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-K 2013-09-30 Annual: 2013-06-30
10-Q 2013-05-10 Quarter: 2013-03-31
10-Q 2013-02-11 Quarter: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-K 2012-09-28 Annual: 2012-06-30
10-Q 2012-05-09 Quarter: 2012-03-31
10-Q 2012-02-08 Quarter: 2011-12-31
10-Q 2011-11-09 Quarter: 2011-09-30
10-K 2011-09-13 Annual: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-Q 2011-02-09 Quarter: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-K 2010-09-28 Annual: 2010-06-30
10-Q 2010-05-17 Quarter: 2010-03-31
10-Q 2010-02-16 Quarter: 2009-12-31
8-K 2019-03-04 Leave Agreement
8-K 2019-01-09 Sale of Shares, Officers, Amend Bylaw, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-12-28 Enter Agreement, Off-BS Arrangement, Officers, Exhibits
8-K 2018-11-19 Enter Agreement, Sale of Shares, Amendment, Other Events, Exhibits
8-K 2018-10-12 Enter Agreement, Other Events, Exhibits
8-K 2018-10-05 Regulation FD, Other Events
8-K 2018-09-19 Enter Agreement, Amendment, Officers
8-K 2018-07-16 Accountant, Exhibits
8-K 2018-04-02 M&A, Exhibits
SFEG 2017-06-30
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Common Equity, Related Stockholder Matters and Purchase of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Conditionand Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1 - Nature of Operations
Note 2 - Summary of Significant Accounting Policies
Note 3 - Equipment
Note 4 - Accrued Liabilities
Note 5 - Derivative Instrument Liabilities
Note 6 - Completion Guarantee Payable
Note 7 -Convertible Notes Payable
Note 8 - Senior Secured Gold Stream Credit Agreement
Note 9 - Notes Payable
Note 10 - Fair Value Measurements
Note 11 - Contingencies and Commitments
Note 12 - Stockholders' Deficit
Note 13 - Income Taxes
Note 14 - Related Party Transactions
Note 15 - Summary of Gain on Debt Extinguishment
Note 16 - Legal Proceedings
Note 17 - Subsequent Events
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive and Director Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions None Item 14. Principal Accounting Fees and Service
Part IV
Item 15. Exhibits, Financial Statement and Schedules
EX-31.1 sfeg_ex31z1.htm
EX-31.2 sfeg_ex31z2.htm
EX-32.1 sfeg_ex32z1.htm

Santa Fe Gold Earnings 2017-06-30

SFEG 10K Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
PMHG 63 451 398 0 0 4 6 -9 0% -1.6 1%
SUME 63 53 41 154 14 -9 -6 70 9% -11.0 -16%
CCEL 63 41 49 32 22 1 5 68 68% 14.7 4%
ALES 62 9 2 6 3 1 1 60 47% 63.5 8%
KANP 62 108 25 5 0 -2 -3 34 0% -10.6 -2%
SFEG 61 1 15 0 0 9 10 65 6.6 729%
IWBB 60 1 0 0 0 -1 -1 60 86% -81.5 -64%
GLXZ 59 23 53 20 20 3 6 100 99% 16.9 12%
CHHE 59 46 9 9 7 3 5 23 76% 4.3 7%
RSSS 59 10 7 29 8 -1 -1 53 29% -59.4 -9%

SANTA FE GOLD CORPORATION - Form 10-K SEC filing
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iso4217:USD xbrli:shares

UNITED

STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2017

 

or 

 

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transaction period from ___________ to _________

 

Commission File No. 001-12974

 

SANTA FE GOLD CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

841094315

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3544 Rio Grande Blvd., NW, Albuquerque, NM 87107

(Address of principal executive offices, Zip Code)

 

 (505)255-4852

 (Registrant’s telephone number, including area code)

 

 Securities registered pursuant to Section 12(b) of the Exchange Act:

 None

(Title of each class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes    x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes    x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o Yes    x No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes    o No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x


1



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller Reporting Company

x

(Do not check if a smaller reporting company)

Emerging growth company

¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes    x No

 

The aggregate market value of voting common shares held by non-affiliates of the registrant on second fiscal quarter ended December 31, 2016, was approximately $12,001,399 based on the last reported sale price of the registrant’s common stock as reported on the OTC Marketplace operated by OTB Market Group, Inc. on December 30, 2016.

 

As of July 3, 2018, there were 333,576,618 shares of registrant’s common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

None


2



TABLE OF CONTENTS      

 

 

Page

 

 

 

 

PART I

 

 

 

 

ITEM 1:

BUSINESS

5

ITEM 1A:

RISK FACTORS

9

ITEM 1B:

UNRESOLVED STAFF COMMENTS

12

ITEM 2:

PROPERTIES

12

ITEM 3:

LEGAL PROCEEDINGS

12

ITEM 4:

MINE SAFETY DISCLOSURES

13

 

 

 

 

PART II

 

 

 

 

ITEM 5:

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

13

ITEM 6:

SELECTED FINANCIAL DATA

14

ITEM 7:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

14

ITEM 7A:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

17

ITEM 8:

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

18

ITEM 9:

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

46

ITEM 9A(T):

CONTROLS AND PROCEDURES

46

ITEM 9B:

OTHER INFORMATION

47

 

PART III

 

 

 

 

ITEM 10:

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

47

ITEM 11:

EXECUTIVE AND DIRECTOR COMPENSATION

50

ITEM 12:

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

52

ITEM 13:

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

54

ITEM 14:

PRINCIPAL ACCOUNTING FEES AND SERVICES

54

 

 

 

 

PART IV

 

ITEM 15:

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

55

 

 

 

SIGNATURES

 

56


3



ADDITIONAL INFORMATION

Descriptions of agreements or other documents contained in this report are intended as summaries and are not necessarily complete. Please refer to the agreements or other documents filed or incorporated herein by reference as exhibits. Please see the exhibit index at the end of this report for a complete list of those exhibits.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K or documents incorporated by reference may contain certain “forward-looking” statements as such term is defined by the Securities and Exchange Commission in its rules, regulations and releases, which represent the registrant’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.

This annual report contains forward-looking statements, many assuming that the Company secures adequate financing and is able to continue as a going concern, including statements regarding, among other things:

·our ability to continue as a going concern;  

·we will require additional financing in the future restart production at the Summit Mine property and to bring it into sustained commercial production;  

·our dependence on our Summit project for our future operating revenue, which property currently has limited proven or probable reserves;  

·our mineralized material calculations at the Summit property and other projects are only estimates and are based principally on historic data;  

·actual capital costs, operating costs, production and economic returns may differ significantly from those that we have anticipated;  

·exposure to all of the risks associated with restarting and establishing new mining operations, if the development of one or more of our mineral projects is found to be economically feasible;  

·title to some of our mineral properties may be uncertain or defective;  

·land reclamation and mine closure may be burdensome and costly;  

·significant risk and hazards associated with mining operations;  

·we will require additional financing in the future to develop a mine at any other projects, including the Ortiz and Mogollon projects;  

·the requirements that we obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may be opposed by local environmental group;  

·our anticipated needs for working capital;  

·our ability to secure financing;  

·claims and legal proceedings against us;  


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·our lack of necessary financial resources to complete development of our projects and the uncertainty of our future financing plans,  

·our exposure to material costs, liabilities and obligations as a result of environmental laws and regulations (including changes thereto) and permits;  

·changes in the price of silver and gold;  

·extensive regulation by the U.S. government as well as state and local governments;  

·our projected sales and profitability;  

·our growth strategies,  

·anticipated trends in our industry;  

·unfavorable weather conditions;  

·the lack of commercial acceptance of our product or by-products;  

·problems regarding availability of materials and equipment;  

·failure of equipment to process or operate in accordance with specifications, including expected throughput, which could prevent the production of commercially viable output; and  

·our ability to seek out and acquire high quality gold, silver and/or copper properties.  

These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Business,” as well as in this annual report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this annual report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this annual report will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this annual report, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

These risks and uncertainties and other factors include, but are not limited to, those set forth under Item1A.Risk Factors”. All subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.

PART I

ITEM 1. BUSINESS

 

History and Organization

Santa Fe Gold Corporation (“Santa Fe”, "the Company”, “our” or “we”) is a U.S. mining company, incorporated in 1991 in the state of Delaware. Our general business strategy is to acquire explore, develop and to create shareholder value. Santa Fe Gold Corporation (SFG) selected on August 26, 2015 to file for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and the case was dismissed on June 15, 2016.  The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the process. As we emerged from the bankruptcy, we were a management team of two with no assets. The Company is in the process of raising equity funds to acquire new mining claims, a potential processing plant or arrangements with a processing plant in an acceptable geographic location to potential new mining claims.  


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Bankruptcy 363 Asset Sale

Waterton

On June 30, 2013, the Company signed a Waiver of Default Letter (the “Letter”) with Waterton Global Value, L.P. (“Waterton”) wherein the Company agreed to sell, convey, assign and transfer certain accounts receivable as consideration for a waiver for non-payment to Waterton under the Credit Agreement. During the fiscal year ended June 30, 2016, additional adjustments were made to the outstanding obligation by Waterton which included various Agreement penalties. The outstanding aggregate amounts owed to Waterton after these adjustments at the time of the bankruptcy sale was $16,416,537 and at June 30, 2016 was $-0- with the 363 Asset Sale to Waterton in February 2016.  The Company recorded a gain on the bankruptcy 363 Asset Sale of $15,309. See ITEM 7: Liquidity and Capital Resources; Plan of Operation.

 

The table below summarizes the carrying value of the assets sold and the liabilities disposed in the 363 Asset Sale as of asset transfer on February 26, 2016:

 

February 26, 2016

Assets Sold

Restricted cash

$236,628 

Prepaid expenses and other current  assets

39,584 

Property, plant and equipment, net

4,992,154 

Mine development properties, net

10,532,965 

Mineral properties, net

599,897 

 

$16,401,228 

 

Liabilities Disposed

Notes payable

$9,993,280 

Accrued interest

5,815,622 

Asset retirement obligation

245,494 

DIP fees

32,203 

Accrued CSA fees

329,938 

Total

$16,416,537 

Net gain on the Asset 363 Sale

$15,309 

Recent Developments

Canarc Bridge Loan

On July 15, 2014, Santa Fe entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Canarc Resource Corp., a British Columbia, Canada Corporation whose common shares are listed on the TSX Exchange under the symbol CCM (“Canarc”). In connection with the Share Exchange Agreement the Debtors and Carnac entered into that certain interim financing facility pursuant to which Canarc advanced the Company $200,000 and an additional advance of $20,000. The loan bears interest at an initial compounded rate of 1% a month and was due and payable upon the closing of a gold bond financing by the Debtors or January 15, 2015, if the gold bond financing did not close. The financing failed to close and the interest rate increased to 14% per annum on the compounded outstanding loan balance the entire amount of the loan is outstanding and in default at June 30, 2017. On February 12, 2018 the Company agreed to settle an outstanding Notes Payable with Canarc Resources. The Company will make four scheduled installment payments that aggregate $220,000.

On October 22, 2014 the Company signed a $500,000 Convertible Note with an accredited investor with a 10% original issue discount (“OID) component. The Company drew down net cash Consideration of $175,000 on the facility. The Company may repay the Consideration at any time on or before 120 days from the Effect Date of the draw down and there would be no interest due on the consideration. If the Company does not repay a Consideration on or before 120 days from its Effective Date, a one- time interest charge of 12% shall be applied to the principal sum. At June 30, 2016, the investor had converted note principle, interest and penalties aggregating $155,556 into 30,238,933 shares of common stock. The remaining outstanding balance of $93,333 was retired in January 2017 for $90,000.


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On January 20, 2015 the Company signed a $250,000 Convertible Note with an accredited Investor with a 10% original issue discount (“OID) component. The Company drew down consideration of $100,000 on the facility. The Consideration on the Note has a Maturity date of two years from payment of each Consideration. A one- time interest charge of 12% is applied to the principal sum on the on the date of the Consideration. The Note principal and interest shall be paid at Maturity date or sooner as provided within the Note and conversion provisions. At June 30, 2016, the investor had converted note principle, interest and penalties aggregating $60,192 into 18,007,333 shares of common stock. The remaining outstanding balance of $107,599 at June 30, 2016, was retired in January 2017 for $93,000.

On August 26, 2015, the Company filed for Chapter 11 Bankruptcy protection in Delaware in order to secure the existing assets from creditor actions. Case No. 15-11761 (MFW).  Jakes Jordaan, Santa Fe’s former CEO, filed in the Affidavit in Support of the first day motion (full affidavit can be researched in the Delaware court filings. Case# 15-11761 MFW on August 26, 2015) that we have only one remaining option (plan) to have an orderly sale of all assets to satisfying qualified debt without any plan for the thereafter and he began working with Canaccord Genuity Inc. (“Canaccord”) as our investment banker to assist with these efforts. The “asset sale” took place in February 2016 and left Santa Fe Gold and Subsidiaries without any assets and with the remaining debt.

After the dismissal of the bankruptcy case, the Company has limited assets, but is liable for all commitments and debts that remained outstanding.  After the dismissal, the Company will divest itself from all subsidiaries and will keep only Santa Fe Gold, the parent company active.  Santa Fe Gold Barbados, The Lordsburg Mining Company and AZCO will be dormant and all the commitments and debts will stay with the respective companies. The court set up a Trust fund that will be funded by the activities of the Summit mine for five years and the trust funds will be distributed by an independent trustee to all credit holders of record.

Santa Fe Gold failed to provide a plan of Reorganization with the filing of protection under the Bankruptcy Codes; the significant transactions that occurred upon emergence from bankruptcy were as follows:

·The approximately $ 20 million of indebtedness outstanding on account of the Company’s senior notes and unsecured claims were reinstated.  

 

·The courts established a GUC Trust Agreement in April 2016 with Gavin/Solmones as Trustee for the benefit of all creditors less Waterton Global. A profit interest is attached to the Summit mine (formerly owned by Santa Fe Gold and its subsidiaries) with the sole benefit for the Creditors holding unsecured claims filed by each creditor with the courts.  

 

Emergence from Voluntary Reorganization under Chapter 11 Proceedings

The Company and our Chapter 11 Subsidiaries received bankruptcy court confirmation of the dismissal on June 15, 2016, and subsequently emerged from bankruptcy. The only funds available for the future administrative costs were prepaid insurance funds from which we received a refund on June 08, 2016 of $44,926 and on August 22, 2016 received $4,135.  The Company upon emergence resorted to selling equity for cash so as to proceed on reviving the Company. Currently we have no continuing commitment from any party to provide necessary additional working capital, or if one becomes available, there is no certainty that its terms will be favorable or acceptable to the Company to continue its current business plan.

Fiscal 2017 Financing Activity

On July 19, 2016, a new company was formed: Santa Fe Acquisition LLC (“SFA”) with Tom Laws, our CEO, as the signer, for the sole purpose of acquiring assets for Santa Fe Gold (“SFG”). On September 25, 2017, with an effective date of July 23, 2016, the CEO assigned ownership of SFA to Santa Fe Gold whereby SFG became to sole member of SFA resulting in SFA becoming a wholly owned subsidiary of SFG.  All major purchases were made through the SFA Company for the benefit of SFG, with the funding provided by SFG.     

During the fiscal ending June 30, 2017, the Company proceeded to implement our initial plan to emerge from the bankruptcy proceedings. The Company raised $2,708,168 from the sale of unregistered common stock and the exercise of attached warrants. The funds were used as working capital to implement the Company business plan. As part of the plan, the Company negotiated the payoff of seven convertible notes and accrued interest with an aggregate balance of $4,358,282 for $274,782 in cash payments and recorded a gain on extinguishment of debt of $4,083,500. The Company also negotiated settlements with various vendor creditors with an aggregated balance of $343,902 for cash settlement payments of $10,734 and recorded a gain on extinguishment of debt of $333,168.


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Between September 14, 2016 and December 31, 2016, we secured claims 44 claims and paid $8,328 for BLM filing fees, these claims have a 5% royalty attached. We will continue to seek additional claims with other existing mines for which we may have to pay royalties or establish a partnership if an agreement is reached.

On December 9, 2016, the Company retained International Monetary ("IM") as its Investment Banking & Strategic Advisory firm to provide capital resources, structure financing, proprietary investor relations services, advice on maximizing growth and valuation, M&A advisory and counsel to the Company's management on other strategic decisions. IM is to receive 6 installment payments of $6,000 and 2% of the Company’s common stock on a fully diluted basis amounting to 5,665,360 shares issued at the time of signing the contract at a market value of $286,667. In addition, IM is entitled to additional common shares amounting to 2% of the Company’s common stock on a fully diluted basis six month from the date of the agreement.

On April 10, 2017, the Company delivered $500,000 to an attorneys to be held in escrow pending the Stock Purchase Agreement (the “Agreement”) dated August 18, 2017, and subsequently applied as part of the purchase price due under an Agreement with Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company to acquire 100% of the issued and outstanding capital stock for a cash purchase price in the aggregate amount of $3,000,000, to be paid with installments stated in the Bullard’s Peak Agreement. The escrow payment under the Agreement was transferred to the seller on June 12, 2018.

Competitive Business Conditions

Many companies are engaged in the acquisition, exploration, development and mining of mineral properties. We are at a disadvantage with respect to those competitors whose technical staff and financial resources exceed our own. Although the Company survived the bankruptcy with no assets or cash, we decided to start increasing stock value by using equity funding to acquire claims and restart our business.   

Reclamation

We generally will be required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping and revegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts would be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies. As soon as we have a mining operation, we will be required to arrange and pledge certificates of deposits for reclamation with the state regulatory agencies. At this time no reclamation cost are calculated or carried forward.

Government Regulation

Our mining operations and exploration activities are subject to various national, state, provincial and local laws and regulations in the United States, and the State of New Mexico, which govern mining, milling, prospecting, development, production, exports, taxes, labor standards, occupational health, and waste disposal, protection of the environment, mine safety, hazardous substances and other matters. There are no current orders or directions relating to us with respect to the foregoing laws and regulations.

Environmental Regulation

All future projects are subject to various federal, state and local laws and regulations governing protection of the environment. These laws are continually changing and, in general, are becoming more restrictive. Our policy is to conduct business in a way that safeguards public health and the environment. We believe that our operations will be conducted in material compliance with applicable laws and regulations.

Changes to current local, state or federal laws and regulations in the jurisdictions where we will operate could require additional capital expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.

Employees

As of June 30, 2017, we had two employees. In addition, we use consultants with specific skills to assist with various aspects of our project evaluation, business plan, due diligence, corporate governance and regulatory filings.

Office Facilities

Our principal executive offices are located at 3544 Rio Grande Blvd. NW, Albuquerque, NM 87107. Our telephone number is (505) 255-4852.

Gold Price History


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Not applicable at this time

Seasonality

 We have no properties at this time that is subject to material restrictions on our operations due to seasonality.

Available Information

We make available, free of charge, on or through our Internet website, at www.santafegold.com, our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934. Our Internet website and the information contained therein or connected thereto are not intended to be, and are not incorporated into this annual report on Form 10-K.

ITEM 1A. RISK FACTORS

 

The Company operates in a rapidly changing environment that involves numerous risks and uncertainties. Stockholders should carefully consider the risks described below before purchasing the Company’s common shares. The occurrence of any of the following events could harm the Company. If these events occur, the trading price of the Company’s common shares could decline, and shareholders may lose part or even all of their investment. This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operation, contains forward looking statements that may be materially affected by numerous risk factors, including those summarized below:

Risk Factors Related to Our Business and Operations

We are dependent upon production of precious metals and industrial minerals from to being acquired properties and have incurred substantial losses since our inception in 1991 and may never be profitable.

Since our inception in 1991, we have not been profitable. As of June 30, 2017, our total accumulated deficit was approximately $98.0 million. In November 2013, we suspended mine and mill operations at our Summit mine and Banner mill due to operating losses, and a lack of operating capital. On August 26, 2015 Santa Fe Gold filed for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and that case was dismissed on June 15, 2016.  The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the process of the 363 Asset Sale.

Our current management team is acquiring new claims funded by equity sales and is evaluating a number of favorable options to facilitate the processing of current and future mineralized ore production.

To become profitable, we must identify acceptable mineralization at potential sites and either develops properties ourselves or locates and enters into agreements with third party operators. We may suffer significant additional losses in the future and may never be profitable. There can be no assurance we will receive significant revenue from operations in the foreseeable future, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. 

If the Company is unsuccessful raising additional funding, its business may not continue as a going concern. Even if the Company does find additional funding sources, it may be required to issue securities with greater rights than those currently possessed by holders of its common shares or on terms less favorable than the Convertible Gold Note financing. The Company may also be required to take other actions that may lessen the value of its common shares or dilute its common shareholders, including borrowing money on terms that are not favorable to the Company or issuing additional equity securities. If the Company experiences difficulties raising money in the future, its business and liquidity will be materially adversely affected.

Our independent registered public accounting firm has included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended June 30, 2017.

As a result of these factors, as well as adverse industry conditions, our independent registered public accounting firm has included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended June 30, 2017. The presence of the going concern explanatory paragraph may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors and employees and could make it challenging and difficult for us to raise additional debt or equity financing, all of which could have a material adverse impact on our business, results of operations, financial condition and future prospects.

A substantial or extended decline in gold and silver prices would have a material adverse effect on the value of our assets, on our ability to raise capital and could result in lower than estimated economic returns.


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The value of our assets, our ability to raise capital and our future economic returns are substantially dependent on the prices of gold and silver. The gold and silver price fluctuates on a daily basis and is affected by numerous factors beyond our control. Factors tending to influence gold prices include:

·gold sales or leasing by governments and central banks or changes in their monetary policy, including gold inventory management and reallocation of reserves;  

·speculative short positions taken by significant investors or traders in gold;  

·the relative strength of the U.S. dollar;  

·expectations of the future rate of inflation;  

·interest rates;  

·changes to economic activity in the United States, China, India and other industrialized or developing countries;  

·geopolitical conflicts;  

·changes in industrial, jewelry or investment demand;  

·changes in supply from production, disinvestment and scrap; and  

·Forward sales by producers in hedging or similar transactions.  

A substantial or extended decline in the gold or silver price could:

·negatively impact our ability to raise capital on favorable terms, or at all;  

·jeopardize the restart and development of our Summit silver-gold project;  

·reduce the potential for future revenues from gold projects in which we have an interest;  

·reduce funds available to us for exploration with the result that we may not be able to further advance any of our projects; and  

·reduce the market value of our assets.  

In addition to environmental regulations, we are subject to a wide variety of laws and regulations directly and indirectly relating to mining that often change and could adversely affect our business.

We are subject to extensive United States federal, state and local laws and regulations related to mine prospecting, development, transportation, production, exports, taxes, labor standards, occupational health and safety, waste disposal, protection and remediation of the environment, mine safety, hazardous materials, toxic substances and other matters. These laws and regulation frequently change. New laws and regulations or more stringent enforcement of existing ones could have a material adverse impact on us, causing a delay or reduction in production, increasing costs and preventing an expansion of mining activities.

Delaware law and our Articles of Incorporation may protect our directors from certain types of lawsuits. Delaware law provides that our directors will not be liable to our stockholders or to us for monetary damages for all but certain types of conduct as directors of the Company.

Our Articles of Incorporation permit us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

Risks Related to our Common Stock

Our common stock is thinly traded, and there is no guarantee of the prices at which the shares will trade. 


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Trading of our common stock is conducted on the OTC Marketplace operated by the OTC Markets Group, Inc., or “OTC Pink Sheets,” under the ticker symbol “SFEG.”  Not being listed for trading on an established securities exchange has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of the Company.  This may result in lower prices for your common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.  Historically, our common stock has been thinly traded, and there is no guarantee of the prices at which the shares will trade, or of the ability of stockholders to sell their shares without having an adverse effect on market prices.  

 

Because our common stock is currently a “penny stock,” it may be difficult to sell shares of our common stock at times and prices that are acceptable. 

Our common stock is a “penny stock.” Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser’s written agreement to the purchase. The penny stock rules may make it difficult for you to sell your shares of our common stock. Because of these rules, many brokers choose not to participate in penny stock transactions and there is less trading in penny stocks. Accordingly, you may not always be able to resell shares of our common stock publicly at times and prices that you feel are appropriate.

 

The sale of our common stock by selling stockholders may depress the price of our common stock due to the limited trading market that exists.

Due to a number of factors, including the lack of listing of our common stock on a national securities exchange, the trading volume in our common stock has historically been limited. Trading volume over the last 3 months, ending June 30, 2017, has averaged approximately 174,500 shares per day. As a result, the sale of a significant amount of common stock by selling shareholders may depress the price of our common stock and the price of our common stock may decline.

 

Completion of one or more new acquisitions could result in the issuance of a significant amount of additional common stock, which may depress the trading price of our common stock.

Acquisition of one or more additional mineral properties, conceptually, could result in the issuance of a significant amount of common stock. Such issuance could depress the trading price of our common stock.

Our stock price may be volatile and as a result you could lose all or part of your investment. In addition to volatility associated with OTC securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: 

·changes in the worldwide prices for gold or silver;  

·disappointing results from our exploration or development efforts;  

·failure to meet our revenue or profit goals or operating budget;  

·decline in demand for our common stock;  

·downward revisions in securities analysts’ estimates or changes in general market conditions;  

·technological innovations by competitors or in competing technologies;  

·investor perception of our industry or our prospects; and  

·general economic trends.  

In addition, stock markets have experienced extreme price and volume fluctuations, and the market prices of securities generally have been highly volatile. These fluctuations commonly are unrelated to operating performance of a company and may adversely affect the market price of our common stock. As a result, investors may be unable to resell their shares at a fair price.

A small number of existing shareholders own a significant portion of our common stock, which could limit your ability to influence the outcome of any shareholder vote.


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Our executive officers and directors, together with our four largest shareholders, beneficially own approximately 32.0% of our common stock as of the date of this report. Under our Articles of Incorporation and Delaware law, the vote of a majority of the shares outstanding is generally required to approve most shareholder action. As a result, these individuals and entities will be able to influence the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Articles of Incorporation or proposed mergers or other significant corporate transactions.    

We have never paid dividends on our common stock and we do not anticipate paying any in the foreseeable future.

We have not paid dividends on our common stock to date, and we may not be in a position to pay dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Further, our initial earnings, if any, will likely be retained to finance our growth. Any future dividends will depend upon our earnings, our then-existing financial requirements and other factors and will be at the discretion of our Board of Directors.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

ITEM 2. PROPERTIES

 

The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the Chapter 11 bankruptcy proceedings and were transferred to Waterton in the 363 Asset Sale. Between June 30, 2016 and 2017, Santa Fe paid into escrow a down payment to acquire the Bullard’s Peak Corporation and the Black Hawk Consolidated Mines Company and all its assets. The formal Stock Purchase Agreement was signed and dated as of August 18, 2017.

 

ITEM 3. LEGAL PROCEEDINGS

 

 

Current Legal Proceedings

Santa Fe is involved in various legal actions in the ordinary course of our business. We do not believe it is feasible to predict or determine the outcome or resolution of the above litigation proceedings, or to estimate the amounts of, or potential range of, loss with respect to those proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these proceedings could include judgments against us or settlements that could require substantial payments by us, which could have a material impact on the Company’s financial position, results of operations and cash flows.

With the completion of the bankruptcy in June 2016, all cases  below  are reinstated, but none of the parties has so far initiated legal actions.

All legal proceedings stayed with the filing of Chapter 11 bankruptcy. At the time of the bankruptcy filing several litigations were filed in several courts. Santa Fe believes that the following suits will be stayed pursuant to the Bankruptcy Code. After dismissal of the Chapter 11 filings, we have not been notified of any of the below cases if they will continue or not.

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-2-2-CV-2015- 06048, County of Bernalillo, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-721-CV-2015- 00058, County of Sierra, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-608-CV- 201500165

County of Quintero, NM. Series of collection cases by Boart Longyear Company, who obtained Utah judgment for equipment delivered to Lordsburg Mining Company

Santa Fe Gold Corporation v. Tyhee Gold Corp., Brian K. Briggs, SRK Consulting (US), Inc., and Bret Swanson, Case No: 14CV032866, District Court, Denver County, Colorado

Santa Fe is seeking damages for breach of the Confidentiality Agreement as well as for conversion of Santa Fe’s confidential information. Tyhee Gold Corp. has filed a counter-claim for tortuous interference with prospective contractual relationships with Koza Gold. At this time, there can be no determination of the outcome.

Wagner Equipment Co. v. Lordsburg Mining Company, Case No. D-2014-02372, County of Bernalillo, NM 28

Collection case by Wagner equipment, who obtained judgment for equipment delivered to Lordsburg Mining Company.

In October 2013, Lone Mountain Ranch, LLC, owner of the surface estate overlying our Ortiz gold property, filed a lawsuit against the Company and our lessor, Ortiz Mines, Inc. The lawsuit seeks to clarify Lone Mountain Ranch's rights and obligations under the


12



split estate regime. Specifically, Lone Mountain Ranch seeks a declaratory judgment that it may participate in permit hearings, agency proceedings, and private activities related to the permitting of the Ortiz project without being in violation of common law duties to not interfere with development of the mineral estate. The Company conducted a strategic evaluation as whether or not to continue with the Ortiz Gold Project. Given the public opposition to the Ortiz Gold Project, Santa Fe has decided not to further pursue the Ortiz Gold Project. Lone Mountain Ranch LLC sued Ortiz Mines Inc against any mining activities on the property, and Santa Fe Gold was only a co-defender.  With the bankruptcy, we, SFG, were dismissed.

We are in litigation with two vendors for claims for approximately $140,400 and $125,876, respectively against us. If the Company is unsuccessful in raising additional funding, we may not be able to pay resolve these lawsuits and our business may not continue as a going concern. In the event we cannot raise the necessary capital or we cannot restructure through negotiated modifications, we may be required to effect under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 or Chapter 7 of the U.S. Bankruptcy Code (“Chapter 11 or “Chapter 7”). See “Risk factors.” The claims were against Lordsburg Mining company, were stayed during the proceedings and all claims remained.  At this time, there can be no determination of the outcome.

We are not aware of any material legal proceedings to which any of our officers or any associate of any of our officers is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

We are not aware of any of our officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401 of Regulation S-K.

On August 26, 2015 Santa Fe filed for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) in Delaware. At the time of the bankruptcy filing several litigations were filed in several courts. Santa Fe believes that these suits will be stayed pursuant to the Bankruptcy Code. After the dismissal of the filings we were left without assets and none of the filings has been reinstated as of this reporting date.

ITEM 4. MINE SAFETY DISCLOSURES

 

None

 

ITEM 5.   MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASE OF EQUITY SECURITIES

 

Market Information

Our common stock trades over-the-counter and is quoted on the OTC Pink Sheets under the symbol “SFEG.” The table below sets forth the high and low bid prices for our common stock as reflected on the OTC Bulletin Board for the last two fiscal years. Quotations represent prices between dealers, do not include retail markups, markdowns or commissions, and do not necessarily represents at which actual transactions were affected.

OTCBB

 

 

              (U.S. $)

Fiscal 2017

 

HIGH

 

 

LOW

09/30/16

$

0.0700

 

$

0.0115

12/31/16

 

0.0800

 

 

0.0250

3/31/17

 

0.2323

 

 

0.0441

6/30/17

 

0.1820

 

 

0.0710

 

 

 

 

 

 

Fiscal 2016

 

 

 

 

 

9/30/15

 

0.0011

 

 

0.0009

12/31/15

 

0.0009

 

 

0.0006

3/31/16

 

0.0012

 

 

0.0001

6/30/16

 

0.0146

 

 

0.0110

We were delinquent in the filing of our financial statements for the year ended June 30, 2003, and consequently the Securities Commissions of Ontario and British Columbia issued cease trade orders for trading of our common stock by Canadian residents, which cease trade orders are still in effect. We believe that less than 2% of our common stock is recorded as held by Canadian residents as of June 30, 2017.

Holders of Common Equity


13



As of June 30, 2017, we had 289,936,274 common shares outstanding, the high and low sales prices for fiscal 2017 of our common stock on the OTC Bulletin Board were $.2323 and $0.0115 respectively, and we had approximately 823 holders of record of our common stock.     

Penny Stock Rules

Due to the price of our common stock, as well as the fact that we are not listed on NASDAQ or a national securities exchange, our stock is characterized as “penny stock” under applicable securities regulations. Our stock therefore is subject to rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks. The broker or dealer proposing to effect a transaction in a penny stock must furnish his customer a document containing information prescribed by the SEC and obtain from the customer an executed acknowledgment of receipt of that document. The broker or dealer must also provide the customer with pricing information regarding the security prior to the transaction and with the written confirmation of the transaction. The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction and with the written confirmation of the trade. The broker or dealer must also send an account statement to each customer for which he has executed a transaction in a penny stock each month in which such security is held for the customer’s account. The existence of these rules may have an effect on the price of our stock, and the willingness of certain brokers to effect transactions in our stock.

Transfer Agent

Colonial Stock Transfer Co. is the transfer agent for our common stock. The principal office of Colonial Stock Transfer Co. is located at 66 Exchange Place, Salt Lake City, Utah 84111 and its telephone number is (801) 355-5740.

Dividend Policy

We have never declared or paid dividends on our common stock. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for expansion.

Recent Sales of Unregistered Securities

During the year ended June 30, 2017, the Company issued the following common stock:

 

 (i)

Issued an aggregate of 9,365,360 shares of restricted common stock for consulting services at a value of $475,007 on the date of issuance;

 

(ii)

Sold an aggregate of 40,840,519 shares of restricted common stock to accredited investors for cash proceeds of $1,354,084 and issued 3,712 shares of restricted common stock for reimbursement of bank transfer fees at value of $288; and

            

(iii)

Issued an aggregate of 40,840,519 shares of restricted common stock for the exercise of warrants to accredited investors for cash proceeds of $1,354,084.

The issuance of the restricted common shares during the year ended June 30, 2017, were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a) (2) thereof because such issuances did not involve a public offering.

Performance Graph

Not required.

 

ITEM 6.  SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Readers are cautioned that the following discussion contains certain forward-looking statements and should be read in conjunction with the “Cautionary Statement on Forward-Looking Statements” appearing at the beginning of this Annual Report. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual


14



results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See “Financial Statements”. Our actual future results may be materially different from what we currently expect.

Overview

During our fiscal year ended June 30, 2016, Santa Fe Gold Corporation (SFG) elected on August 26, 2015 to file for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and the case was dismissed on June 15, 2016.  

The results of operations in the past reflected a continued under-capitalization of our projects which required additional funding to be able to achieve full project performance and sustained potential profitability. We currently are dependent on additional financing to resume any mining operations and to continue our exploration efforts in the future if warranted. After the dismissal of the Chapter 11 filings, we had no funds or assets to continue our operation.  We solicited some of our shareholders and presented our vision for Santa Fe Gold to them and subsequently purchased stock for cash so we could proceed with our vision.  

After the dismissal of the bankruptcy case, the Company had no assets, but is still liable for all commitments and debts outstanding.  After the dismissal, the Company will divest itself from all subsidiaries and will keep only Santa Fe Gold, the parent company active.  SFG Barbados, Lordsburg Mining Company and AZCO will be dormant and all the commitments and debts will stay with the respective companies. The court set up a Trust fund that will be funded by the activities of the Summit mine for five years and the trust funds will be distributed by an independent trustee to all credit holders on record.

Santa Fe Gold failed to provide a Plan of Reorganization with the filing of protection under the Bankruptcy Codes; the significant transactions that occurred upon emergence from bankruptcy were as follows:

·The approximately $20 million of indebtedness outstanding on account of the Company’s senior notes and unsecured claims were reinstated.  

 

·The courts established a GUC Trust Agreement in April 2016 with Gavin/Solmones as Trustee for the benefit of all creditors less Waterton Global. A profit interest is attached to the Summit mine (formerly owned by Santa Fe Gold and its subsidiaries) with the sole benefit for the Creditors holding unsecured claims filed by each creditor with the courts.  

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.

We have a total accumulated deficit of $98,013,306 at June 30, 2017. To continue as a going concern, we are dependent on continued fund raising. However, currently we have no commitment in place from any party to provide additional capital and there is no assurance that such funding will be available, or if available, that its terms will be favorable or acceptable to us.

Liquidity and Capital Resources; Plan of Operation

As of June 30, 2017, we had cash of $441,806 as compared to $2,815 at June 30, 2016, and we had a working capital deficit of $14,264,771.

At June 30, 2017, we were in arrears on payments totaling approximately $6.4 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm in the Santa Fe Gold Barbados subsidiary and other debt approximating $8.8 million.

Results of Operations

Fiscal Year Ended June 30, 2017 Compared to Fiscal Year Ended June 30, 2016

Sales, net

During the fiscal year, there was miscellaneous sale of $0 as compared to the fiscal year ended June 30, 2016 of $6,250. There were no operations during the current fiscal year.

Operating Costs and Expenses

Our operating cost incurred in our fiscal year ended June 30, 2017, decreased $1,951,212 from $3,679,725 in the fiscal year ended June 30, 2016 to $1,728,513 for the end of the current year. Details of the significant changes are as follows.


15



Exploration and mine related costs: The decrease in the current year of measurement aggregated $217,580. The decrease mainly consisted of write off old inventory of $173,426 and decreased property taxes of $205,404 incurred in our year ended June 30, 2016 and were offset by increased exploration costs on new properties of $152,473 on our Santa Fe Acquisitions subsidiary.

Depreciation and amortization: In the fiscal year ended June 30, 2017, depreciation and amortization decreased $1,112,313 as a result of the 363 Asset Sale on February 26, 2016, at which time all assets were sold and depreciation ceased.

General and administration decreased $621,319 in the current year of measurement from $2,072,116 for the year ended June 30, 2016, to $1,450,797 for the year ended June 30, 2017. This decrease was mainly a result of reductions of bankruptcy costs of $1,360,316, compensation and related of $214,868, travel related costs of $44,953, director fees of $28,000, investor relations costs of $66,400, financing costs of 74,459 and miscellaneous and administrative costs of $155,206. These decreases are offset by increases in consulting fees of $1,020,032, increased audit fees of $65,000, and legal fees of $255,822.   

Other Income (Expense)

Other income and (expense) for the fiscal year ended June 30, 2017, was $4,113,056 as compared to $(1,160,761) for the fiscal year ended June 30, 2016, a decrease in other expenses of $5,273,817. The net decrease in other expenses for the current year of measurement is mainly comprised of the following components: increased gain on debt extinguishment of $3,595,618, a decrease in interest expense of $1,443,644, an increase in trust debt forgiveness of $464,763 and a decrease in financing costs - commodity supply agreement of $969,162. These increases to other income were offset by an increased loss recognized on foreign currency translation of $162,771 and an increase in loss on derivatives instruments liabilities of $1,095,638. Further information regarding the changes in the various components of Other Income (Expense) is discussed below.

On June 30, 2016, the total outstanding principle and accrued interest on the IGS Secured Convertible Notes totaled $3,545,940 in US dollars on our balance sheet. The loan and accrued interest are denominated in Australian dollars (A$). This reduced gain in foreign currency translation is the result of a decrease in the US$ relative to the A$ during the current fiscal year ended on the outstanding balances in the current fiscal year.

For the fiscal year ended June 30, 2017, financing costs – commodity supply agreements totaled an increase of $969,162 from the prior year period of measurement loss of $677,996 and resulted in a gain of $291,166 in the fiscal year. The financing costs for commodity supply agreements relate directly to production for the period and the subsequent delivery of refined precious metals to Sandstorm. These financing costs are adjusted period-to-period based upon the total number of undelivered gold and silver ounces outstanding at the end of each period. The increase other income in the current fiscal year is driven by a decrease in precious metals prices.

For the year ended June 30, 2017, the loss on derivative instruments liabilities totaled $26,974 as compared a gain of $1,068,664 for the comparable fiscal year ended. The changes in derivative financial instruments are non-cash items and arise from adjustments to record the derivative financial instruments at fair values. These changes are attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments, warrants previously issued under our registered direct offerings, fluctuation in the market price of our common stock, which is a component of the calculation model, and the issuance of additional warrants resulting in derivative treatment. We use the Black-Scholes option pricing model to estimate the fair value of the derivative financial instruments. Because Black-Scholes uses our stock price, fluctuation in the stock prices will result in volatility to the earnings (losses) in future periods as we continue to reflect the derivative financial instruments at fair values. When required to arrive at the fair value of derivatives associated with the convertible note and warrants, a Monte Carlo model is utilized that values the Convertible Note and Warrant based on average discounted cash flow factoring in the various potential outcomes by a Chartered Financial Analyst (‘CFA”). In determining the fair value of the derivatives the CFA assumed that the Company’s business would be conducted as a going concern.

For the fiscal year ended June 30, 2017, interest expense totaled $961,386 as compared to $2,405,030 for the comparable prior fiscal year. The decrease is mainly attributable to no additional penalty charges by Waterton relative to the Credit Agreement in the current year of measurement and the elimination of the Waterton interest debt of $7,755,685 on February 26, 2016, in the 363 Asset Sale to Waterton.

Factors Affecting Future Operating Results

Currently we have no other continuing commitment from any party to provide additional working capital, or if one becomes available, there is no certainty that its terms will be favorable or acceptable to the Company.

Off-Balance Sheet Arrangements


16



During the fiscal year ended June 30, 2017, we did not engage in any off-balance sheet arrangements as set forth in Item 303(a) (4) of the Regulation S-K.

Critical Accounting Policies

Our discussion and analysis of our consolidated financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses for each period. Critical accounting policies are defined, as policies that management believes are the most important to the portrayal of our consolidated financial condition and results of operations. These policies may require us to make difficult, subjective or complex judgments, commonly about the effects of matters that are inherently uncertain.

Our significant accounting policies are described in the audited consolidated financial statements and notes thereto. See Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements for the fiscal year June 30, 2017, describes our significant accounting policies which are reviewed by management on a regular basis. We believe our most critical accounting policies relate to asset retirement obligations, derivative instruments and variables used in the Black-Scholes option pricing model and in the Monte Carlo model utilized by the Chartered Financial Advisor, estimates utilized, impairment of assets, revenue recognition, accounts receivable, depreciation of equipment and mine development costs, and stock-based compensation.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risks includes, but is not limited to, the following risks: changes in interest rates and equity and commodity price risks. We do not use derivative financial instruments as part of an overall strategy to manage or hedge market risk.

Interest Rate Risk

We have approximately US $5.74 million indebtedness under our credit facilities at June 30, 2017, The annual interest rates is 24% on $1,745,092 bridge loan. We also have a $212,521 bridge loan with an annual interest rate at 14%. Interest rates on other interest bearing debt is 5.75% and 5.25 %.

Equity Price Risk

We have in the past sought and will likely in the future seek to acquire additional funding by sale of common stock and other equity instruments. Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to issue shares of common stock or other equity at an acceptable price to meet future funding requirements.

The fair value our stock options, warrants and any related derivatives utilizing the Black-Scholes option pricing model or Monte Carlo model is subject to the volatility of the market price of our common stock. Such fluctuations would affect stock-based compensation and its effect on earnings (losses).


17



 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

 

 

 

SANTA FE GOLD CORPORATION

 CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Years ended June 30, 2017 and 2016


18



                                              

SANTA FE GOLD CORPORATION

 

TABLE OF CONTENTS

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

20 

 

 

 

 

 

FINANCIAL STATEMENTS:

 

 

 

 

 

 

 

         Consolidated Balance Sheets

 

21

 

 

 

 

 

         Consolidated Statements of Operations 

 

22

 

 

 

 

 

         Consolidated Statement of Stockholders' Deficit

 

23

 

 

 

 

 

         Consolidated Statements of Cash Flows

 

24

 

 

 

 

 

         Notes to the Consolidated Financial Statements

 

25

 


19



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the shareholders and board of directors of

Santa Fe Gold Corp.

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Santa Fe Gold Corp. and its subsidiaries (collectively, the “Company”) as of June 30, 2017 and 2016, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2016.

Houston, Texas

July 3, 2018


20



SANTA FE GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS

 

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

      Cash and cash equivalents

$

441,806

 

$

2,815

 

      Escrow deposit

 

500,000

 

 

-

 

      Prepaid Expenses and other current assets

 

39,838

 

 

4,475

 

                           Total Current Assets

 

981,644

 

 

7,290

 

 

 

 

 

 

 

 

EQUIPMENT, NET

 

245,933

 

 

-

 

       Total Assets

$

1,227,577

 

$

7,290

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

       Accounts payable

$

3,244,368

 

$

3,710,931

 

       Accrued liabilities

 

6,216,348

 

 

6,793,984

 

Payable to related party

 

49,420

 

 

-

 

       Derivative instrument liabilities

 

-

 

 

306,488

 

      Senior subordinated convertible notes payable, net of unamortized discounts of

         $0 and $161,814, respectively

 

-

 

 

3,392,435

 

       Notes payable, current portion

 

2,376,406

 

 

2,363,885

 

       Completion guarantee payable

 

3,359,873

 

 

3,359,873

 

                           Total Current Liabilities

 

15,246,415

 

 

19,927,596

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

 

 

       Common stock, $0.002 par value, 300,000,000 shares authorized; 289,936,274 and 
           221,799,662 shares issued and outstanding, respectively

 

579,873

 

 

443,599

 

       Additional paid in capital

 

83,414,595

 

 

80,033,944

 

       Accumulated (deficit)

 

(98,013,306

)

 

(100,397,849

)

                           Total Stockholders' Deficit

 

(14,018,838

)

 

(19,920,306

 

 

 

 

 

 

 

      Total Liabilities and Stockholders' Deficit

$

1,227,577

 

$

7,290

 

 

The accompanying notes are an integral part of the consolidated financial statements.


21



SANTA FE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

Years Ended June 30,

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

SALES, Net

$

-

 

$

6,250

 

 

 

 

 

 

 

 

OPERATING COSTS AND EXPENSES:

 

 

 

 

 

 

     Exploration and mine related costs

 

255,917

 

 

473,497

 

     General and administrative

 

1,450,797

 

 

2,072,116

 

     Depreciation and amortization

 

21,799

 

 

1,134,112

 

             Total Operating Costs and Expenses

 

1,728,513

 

 

3,679,725

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(1,728,513

)

 

(3,673,475

)

 

 

 

 

 

 

 

OTHER INCOME  (EXPENSE):

 

 

 

 

 

 

     Gain on debt extinguishment

 

4,416,668

 

 

821,050

 

    Gain on trust debt forgiveness

 

464,763

 

 

-

 

    Gain on bankruptcy 363 asset sale

 

-

 

 

15,309

 

     Foreign currency translation

 

(71,181

)

 

91,590

 

     Miscellaneous income

 

-

 

 

110

 

     Gain (loss) on derivative instrument liabilities

 

(26,974

)

 

1,068,664

 

 

 

 

 

 

 

 

    Financing charges

 

-

 

 

(74,458

)

     Financing costs - commodity supply agreements

 

291,166

 

 

(677,996

)

     Interest expense

 

(961,386

)

 

(2,405,030

)

             Total Other Income and (Expense)

 

4,113,056

 

 

(1,160,761

)

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

 

2,384,543

 

 

(4,834,236

)

PROVISION FOR INCOME TAXES

 

-

 

 

-

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

2,384,543

 

$

(4,834,236

)

 

 

 

 

 

 

 

Basic and Diluted Per Share data

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net income (loss) - basic

$

0.01

 

$

(0.03)

 

     Net (Loss) - diluted

$

(0.01)

 

$

(0.03)

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

    Basic

 

263,274,757

 

 

179,328,825

 

     Diluted

 

317,788,673

 

 

179,328,825

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.


22



SANTA FE GOLD CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 2017 and 2016

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

Paid-in 

 

Accumulated 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

(Deficit)

 

 

Total

 

Balance, June 30, 2015

 

142,396,648

 

$

 284,793

 

$

 79,857,465

$

(95,563,613

$

(15,421,355

Sale of common stock for cash

 

7,500,000

 

 

15,000

 

 

(7,500

)

-

 

 

7,500

 

Exercise of warrants for cash

 

7,500,000

 

 

15,000

 

 

(7,500

)

-

 

 

7,500

 

Common stock issued for consulting

 

3,739,187

 

 

7,478

 

 

61,661

 

-

 

 

69,139

 

Common stock issued for

compensation

 

14,217,561

 

 

28,436

 

 

(14,218

)

-

 

 

14,218

 

Common stock issued for conversion of note payable

interest

 

46,446,266

 

 

92,892

 

 

53,955

 

-

 

 

146,847

 

Derivative settlement due to conversions

 

-

 

 

-

 

 

90,081

 

-

 

 

90,081

 

Net income (loss)

 

-

 

 

-

 

 

-

 

(4,834,236

)

 

(4,834,236

)

Balance, June 30, 2016

 

221,799,662

 

$

 443,599

 

$

 80,033,944

$

(100,397,849

$

(19,920,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock for cash

 

40,840,519

 

 

81,681

 

 

1,272,403

 

-

 

 

1,354,084

 

Exercise of warrants for cash

 

40,840,519

 

 

81,681

 

 

1,272,403

 

-

 

 

1,354,084

 

Shares issued for fees

 

3,712

 

 

9

 

 

279

 

-

 

 

288

 

Common stock issued for consulting

 

9,365,360

 

 

18,731

 

 

456,276

 

-

 

 

475,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock returned for

compensation

 

(15,956,748

)

 

(31,914

)

 

31,914

 

-

 

 

-

 

Common stock returned from shareholder

 

(6,956,750

)

 

(13,914

)

 

13,914

 

-

 

 

-

 

Derivative settlement due to conversions

 

-

 

 

-

 

 

333,462

 

-

 

 

333,462

 

Net income (loss)

 

  -

 

 

  -

 

 

  -

 

2,384,543 

 

 

2,384,543

 

Balance, June 30, 2017

 

289,936,274

 

$

 579,873

 

$

83,414,595 

 

  $(98,013,306

$

 (14,018,838

)

The accompanying notes are an integral part of the consolidated financial statements.


23




 

SANTA FE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

Years Ended June 30,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

     Net income (loss)

$

2,384,543

 

$

(4,834,236

)

     Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

         Depreciation and amortization

 

21,799

 

 

1,134,112

 

         Stock-based compensation

 

-

 

 

14,217

 

         Stock issued for services

 

475,007

 

 

69,139

 

        Amortization of discounts on notes payable

 

161,814

 

 

260,874

 

         Loss (gain) on derivative instrument liabilities

 

26,974

 

 

(1,068,664

)

        Gain on 363 asset sale

 

-

 

 

(15,309

)

         Gain on debt extinguishment

 

(4,416,668

)

 

(821,050

        Gain on trust debt extinguishment

 

  (464,763

)

 

-

 

         Financing costs – commodity supply agreements

 

(291,166

)

 

677,996

 

        Shares issued for fees

 

288

 

 

74,458

 

         Foreign currency translation

 

71,181

 

 

(91,590

)

     Net change in operating assets and liabilities:

 

 

 

 

 

 

         Other receivable

 

-

 

 

34,833

 

         Prepaid expenses and other current assets

 

(35,363

)

 

177,173

 

         Accounts payable and accrued liabilities

 

1,002,960

 

 

2,068,962

 

                                 Net Cash Used in Operating Activities

 

(1,063,394

)

 

(2,319,085

)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

     Repayment to related party for equipment purchased on behalf of Company

 

(267,732

)

 

-

 

    Escrow deposit on mineral property

 

(500,000

)

 

-

 

                                Net Cash Used in Investing Activities

 

(767,732

)

 

-

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

    Repayment to related party for expenses paid on behalf of Company

 

(153,268

)

 

 

 

     Proceeds from common stock purchases

 

1,354,084

 

 

7,500

 

     Proceeds from exercise of warrants

 

1,354,084

 

 

7,500

 

    Proceeds from DIP funding and bridge loan

 

-

 

 

2,520,958

 

    Repayments of DIP funding

 

-

 

 

(283,363

)

     Payments on convertible notes payable

 

(284,783

)

 

-

 

                                 Net Cash Provided by Financing Activities

 

2,270,117

 

 

2,252,595

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

438,991

 

 

(66,490

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

2,815

 

 

69,305

 

CASH AND CASH EQUIVALENTS, END OF YEAR

$

441,806

 

 

$                   2,815

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

     Cash paid for interest

$

-

 

$

 -

 

    Taxes paid

$

-

 

$

-

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

    Purchase of equipment by related party

$

  267,732

 

  -

 

    Expenses paid by related party

$

202,688

 

$

-

 

    Accrued interest reclassified to note principal

$

12,521

 

$

-

 

    Liabilities released in the 363 asset sale

$

-

 

$

16,416,537

 

     Common stock issued for convertible notes and accrued interest conversion

$

-

 

$

146,848

 

    Settlement of derivative liabilities through conversion

$

333,462

 

$

90,081

 

 

 

 

 

 

 

 

    Common stock returned and cancelled

$

45,828

 

$

-

 

    Discounts on notes payable due to derivatives

$

-

 

$

98,091

 

 

The accompanying notes are an integral part of the consolidated financial statements.


24



SANTA FE GOLD CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017 AND 2016

 

NOTE 1 – NATURE OF OPERATIONS

Santa Fe Gold Corporation (the “Company”, “our” or “we”) is a U.S. mining company incorporated in Delaware in August 1991. Our general business strategy is to acquire, explore, develop and mine mineral properties. The Company elected on August 26, 2015, to file for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and that case was dismissed on June 15, 2016. The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the process. After the Company emerged from the bankruptcy with a management team of two with no assets, we developed a business plan to raise equity funds to acquire new mining claims, a potential processing plant or arrangements with a processing plant in an acceptable geographic location to potential new mining claims.    

In April 2017, the Company delivered $500,000 to be held in escrow pending, and to be applied as part of the purchase price due under an agreement with Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company to acquire 100% of the issued and outstanding capital stock for a cash purchase price in the aggregate amount of $3,000,000, to be paid over time as stated in the Bullard’s Peak agreement on August 18, 2017, the Company signed the Bullard’s Peak Agreement and delivered an additional $100,000 towards the purchase price. The Agreement provided payment terms and on January 2, 2018, we made a payment of $500,000 to purchase the Bullard’s Peak Corporation. On June 8, 2018, the escrow payment was transferred to the seller. The purchase also includes formerly optioned AG1 Silver Mine and all lands surrounding the project to include potential Porphyry Silver Discovery and all rights to same. Upon securing required permitting and working capital funding, the Company intends to open the mine for production with a contract miner.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

 

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

The Company has incurred net income of $2,384,543 for the fiscal year ended June 30, 2017, and has a total accumulated deficit of $98,013,306 and a working capital deficit at June 30, 2017 of $14,264,771. The Company currently has no source of generating revenue.

On August 26, 2015 Santa Fe filed for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) in Delaware. With the dismissal of our bankruptcy case in June 15, 2016, all assets of the Company were sold. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. 

To continue as a going concern, the Company is dependent on continued capital financing for project development, repayment of various debt facilities and payment of current operating expenses until the Company has acquired new mining claims and an acceptable source to process the mineralized ore to generate revenue. We have no commitment from any party to provide additional working capital and there is no assurance that any funding will be available as required, or if available, that its terms will be favorable or acceptable to the Company.

On June 30, 2017, the Company was in default on payments of approximately $6.4 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm Gold Ltd. (“Sandstorm”).

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries AZCO Mica, Inc., a Delaware corporation, The Lordsburg Mining Company, a New Mexico corporation, and Santa Fe Gold Barbados Corporation, a Barbados corporation and Santa Fe Acquisitions Company, a New Mexico Limited Liability Company. All significant inter-company accounts and transactions have been eliminated in consolidation.


25



On July 19, 2016 a new company was formed, Santa Fe Acquisition LLC (“SFA”) with Tom Laws, our CEO, as the signer, for the sole purpose of acquiring assets for Santa Fe Gold (“SFG”). On September 25, 2017, with an effective date of July 23, 2016, the CEO assigned ownership of SFA to Santa Fe Gold whereby SFG became to sole member of SFA resulting in SFA becoming a wholly owned subsidiary of SFG.  All major purchases were made through the SFA Company for the benefit of SFG, with the funding provided by SFG.

Reclassifications

Certain items in these consolidated financial statements have been reclassified to conform to the current year’s presentation. This had no effect on net loss or net loss per share.

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates under different assumptions or conditions.

Significant estimates are used when accounting for the Company’s carrying value of mineral properties, fixed assets, depreciation and amortization, accruals, derivative instrument liabilities, taxes and contingencies, asset retirement obligations, revenue recognition, and stock-based compensation which are discussed in the respective notes to the consolidated financial statements.

Fair Value of Financial Instruments

The carrying values of cash, miscellaneous receivables, accounts payable and accrued liabilities approximated their related fair values as of June 30, 2017, and 2016, due to the relatively short-term nature of these instruments.

Cash and Cash Equivalents

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash balances.

Escrow Deposit

The Company in April 2017, deposited into escrow $500,000 for good faith towards the purchase and to be applied as part of the purchase price due under an agreement with Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company to acquire 100% of the issued and outstanding capital stock for a cash purchase price in the aggregate amount of $3,000,000 and the Stock Purchase Agreement was dated August 18, 2017.

 

The attorney who received the escrow payment passed away and the funds were sitting in his escrow account.  The court appointed a “Special Master” to account and resolve the funds back to the initial depositors.  Our funds, $500,000, were deposited from the escrow account of our CEO, Mr. Laws, to the attorneys account and the “Special Master” did not know the depositor, so he kept the funds until someone called about the funds. He returned a check to Mr. Laws for the $500,000 and Mr. Laws deposited the check back into his escrow account at Wells FargoBank on June 14, 2018. The bank, since it is a large check, informed Mr. Laws that the funds may be available in 12 business days, hence, or approximately June 29, 2018.  Upon clearance of funds by the bank, we will immediately wire the funds to the seller who is aware and informed about the situation.and the transaction will be completed in early July 2018.


26



Property, Equipment and Mine Development

Property and Equipment

Property and equipment are carried at cost. Maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. Expenditures for new property or equipment and expenditures that extend the useful lives of existing property and equipment are capitalized and recorded at cost. Upon retirement, sale or other disposition, the cost and accumulated amortization are eliminated and the gain or loss is included in operations. Depreciation is taken over the estimated useful lives of the assets using the straight-line method. The estimated useful lives of the property and equipment are shown below. Land is not depreciated.

 

 

Estimated Useful Life

 

Leasehold improvements

 

3 Years

 

Office furniture and equipment

 

5-7 Years

 

Mine processing equipment and buildings

 

7 – 20 Years

 

Plant

 

3 – 9 Years

 

Tailings

 

3 Years

 

Environmental and permits

 

7 Years

 

Asset retirement obligation

 

5 Years

 

Automotive

 

3 – 7 Years

 

Software

 

5 Years

 

All property and equipment on the Company’s books at the time of the 363 Asset Sale in February 2016 was sold.

Mine Development

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure in an underground mine. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as exploration expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at obtaining additional information on the ore body or converting non-reserve mineralization to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of costs applicable to sales.

Mine development is amortized using the units-of-production method based upon estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore body. Currently, with no claims or mines in our possession, no development costs are incurred.

All mine development on the Company’s books at the time of the 363 Asset Sale in February 2016 was sold.

Idle Equipment

No equipment remained in the Company’s possession after the 363 Asset Sale on February 2016.

Mineral Properties

Mineral properties are capitalized at their fair value at the acquisition date, either as an individual asset purchase or as part of a business combination. When it is determined that a mineral property can be economically developed as a result of establishing reserves, subsequent mine development are capitalized and are amortized using the units of production method over the estimated life of the ore body based on estimated recoverable tonnage in proven and probable reserves.

The Company’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. The Company has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material

Mineral properties held at the time of the 363 Asset Sale in February 2016, was sold.

Impairment of Long-Lived Assets


27



We re-evaluated the carrying value of the mine equipment, mine improvements and mineral properties in connection with filing of Chapter 11 in August 2015 subsequent to our current fiscal year ended.  It was determined in our audit that impairment was not required for our fiscal year ended June 30, 2016, for mine equipment, mine development costs and mineral properties.  

No equipment, mine improvements and mineral properties remained in the Company’s possession after the 363 Asset Sale in February 2016.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.

Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized as a one day derivative loss, in order to initially record the derivative instrument liabilities at their fair value.

The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

 

When required to arrive at the fair value of derivatives associated with the convertible note and warrants, a Monte Carlo model is utilized that values the Convertible Note and Warrant based on average discounted cash flow factoring in the various potential outcomes by a Chartered Financial Analyst (‘CFA”). In determining the fair value of the derivatives the CFA assumed that the Company’s business would be conducted as a going concern.

 The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

Reclamation Costs

Reclamation obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to accretion expense. The asset retirement cost is capitalized as part of the asset’s carrying value and depreciated over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The reclamation obligation is based on when spending for an existing disturbance will occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site in accordance with ASC guidance for reclamation obligations. No reclamation costs are recorded at the end of fiscal 2017 or 2016 due to the obligation being released as part of the 363 Asset Sale in February 2016.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred physically, the price is fixed or determinable, no related obligations remain and collectability is reasonably assured.

Sales of all metals products sold directly to the Company’s metals buyers, including by-product metals, are reconized as revenues upon a buyer either taking physical delivery of the metals product in the case of siliceous flux material or upon the buyer receiving all required documentation necessary to take physical delivery of the metals product in the case of concentrate (generally at the time the product is loaded onto a shipping vessel at the originating port and the bill of lading is generated).


28



Revenues for metals products are recorded at current market prices at the time of delivery and are subsequently adjusted to the current market prices existing at the end of each reporting period. Due to the period of time existing between delivery and final settlement with the buyer, the Company estimates the prices at which sales will be settled. Changes in metals prices between delivery and final settlement will result in adjustments to revenues previously recorded.

Sales of metals products are recorded net of charges from the buyer for treatment, refining, smelting losses, and other negotiated charges. Charges are estimated upon shipment of product based on contractual terms, and actual charges do not vary materially from estimates. Costs charged by smelters include a metals payable fee, fixed treatment and refining costs per ton of product.

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. A valuation allowance is recorded when it is more likely than not that deferred tax assets will be unrealizable in future periods. As of June 30, 2017, and 2016, the Company has recorded a valuation allowance against the full amount of its net deferred tax assets. The inability to foresee taxable income in future years makes it more likely than not that the Company will not realize its recorded deferred tax assets in future periods.

Net Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation. For the year ended June 30, 2016 the impact of outstanding stock equivalents has not been included as they would be anti-dilutive.

A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share (“EPS”) for the year ended June 30, 2017 computation is as follows:  

 

 

 

 

Net Income

(Numerator)

 

 

Weighted

Average

Common Shares

(Denominator)

 

 

 

 

Per Share

Amount

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

 

$2,384,543

 

 

 

263,274,757

 

 

 

$ 0.01

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Gain on derivatives

 

 

(153,538)

 

 

 

 --

 

 

 

 

Interest expense on convertible notes

 

 

184,408

 

 

 

 --

 

 

 

 

Gain on foreign currency translation

 

 

(59,631)

 

 

 

 --

 

 

 

 

Gain on debt extinguishment

 

 

(4,068,881)

 

 

 

 --

 

 

 

 

Dilutive effect of options

 

 

--

 

 

 

200,000

 

 

 

 

Dilutive effect of convertible notes

 

 

                  --

 

 

 

    41,919,678

 

 

 

 

Income available to common stockholders plus assumed exercise of

options and warrants

 

 

$(1,713,099)

 

 

 

305,394,435

 

 

 

(0.00)

 

The number of stock options excluded from the calculation of diluted earnings per share for the year ended June 30, 2016 was 8,375,000 and excluded warrants was 10,443,434, because their inclusion would have been anti-dilutive.

Stock-Based Compensation

In connection with terms of employment with the Company’s executives and employees, the Company occasionally issues options to acquire its common stock. Awards are made at the discretion of the Board of Directors. Such options may be exercisable at varying exercise prices and generally vest over a period of six months to a year.

The Company accounts for share based compensation on the grant date fair value of the award. The Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and


29



interest rates, and to allow for actual exercise behavior of option holders. The compensation cost is recognized over the expected vesting period. Share based payments to nonemployees are valued at the earlier or a commitment date or completion of services.

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASC updated No. 2014-09, Revenue from Contracts with Customers (Topic 606 (ASU 2014-09). Under the amendments in this update, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update are effective for fiscal years and interim periods within those years beginning after December 15, 2017. The new standard is required to be applied either retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of applying the update recognized at the date of initial application. The Company is still evaluating the impact of the standard and has not determined the impact, if any, that the new standard will have on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2016. This update contains amendments that clarify the principles for management’s assessment of an entity’s ability to continue as a going concern. The Company has adopted ASU 2014-15 and has determined that the adoption of this standard will have no material impact on the Company’s reported financial position or results of operations.  

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.  This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019.  ASU No 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The adoption of this standard will not have a material impact on the Company’s financial position or results of operations.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. As a result of the adoption, stock-based compensation excess tax benefits or tax deficiencies will be reflected in the consolidated statement of operations within the provision for income taxes rather than in the consolidated balance sheet within additional paid-in capital. The amount of the impact to the provision for income taxes will depend on the difference between the market value of share-based awards at vesting or settlement and the grant date fair value. The amendment is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. The Company has adopted ASU No. 2016-09 as of December 31, 2016, and has assessed the impact, if any, of this pronouncement should have no material impact to its consolidated financial statements.

 

In November 2016, the FASB has issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), which provides guidance on how restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its Consolidated Statements of Cash Flows.

 

In May 2017, FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the various types of changes which would trigger modification accounting for share-based payment awards. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, which would be the Company's fiscal year ending March 31, 2019. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. While the Company does not expect the adoption of ASU 2017-09 to have a material effect on its business, the Company is still evaluating any potential impact that adoption of ASU 2017-09 may have on its financial position, results of operations or cash flows.

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.


30



NOTE 3 - EQUIPMENT

Equipment consists of the following at June 30, 2017 and 2016:

 

 

2017

 

 

2016

 

Mining equipment

$

63,500

 

$

-

 

Mobile equipment

 

37,862

 

 

-

 

General equipment

 

85,370

 

 

-

 

Vehicles

 

81,000

 

 

-

 

Total

 

267,732

 

 

 

 

Accumulated depreciation and amortization

 

(21,799

 

-

 

      Net Equipment

$

245,933

 

$

-

 

For the year ended June 30, 2016, all property, plant and equipment on the books in were part of the 363 Asset Sale on February 26, 2016. See Note 17 – 363 Asset Sale.

During the fiscal years ended June 30, 2017 and 2016 depreciation and amortization expense was $21,779 and $1,134,112, respectively.

NOTE 4 - ACCRUED LIABILITIES

 

Accrued liabilities consist of the following at June 30, 2017 and 2016:

 

 

2017

 

 

2016

 

Interest

$

2,318,524

 

$

2,589,993

 

Vacation

 

15,771

 

 

15,771

 

Payroll

 

187,705

 

 

239,262

 

Franchise taxes

 

8,695

 

 

8,695

 

Merger costs, net

 

269,986

 

 

269,986

 

Other

 

19,578

 

 

19,578

 

Audit

 

18,557

 

 

20,000

 

Property taxes

 

253,523

 

 

215,524

 

Commodity supply agreement –See NOTE 11, COMMODITY SUPPLY AGREEEMENT

 

3,124,009

 

 

3,415,175

 

 

$

6,216,348

 

$

6,793,984

 

NOTE 5 - DERIVATIVE INSTRUMENT LIABILITIES

The fair market value of the derivative instruments liabilities were determined utilizing the Black-Scholes option pricing model for warrants and certain convertible notes and to arrive at the fair value of derivatives associated with certain other convertible notes, a Monte Carlo model was utilized that values the convertible notes based on average discounted cash flow factoring in the various potential outcomes. In determining the fair value of the derivatives it was assumed that the Company’s business would be conducted as a going concern at June 30, 2017.

 

Utilizing the two methods, the aggregate fair value of the derivative instruments liability was determined to be $0 as of June 30, 2017. The following assumptions were utilized in the Black-Scholes option pricing model during the year ended June 30, 2017: (1) risk free interest rate of 0.81% to 1.25%, (2) remaining contractual life of 0.33 to 2.02 years, (3) expected stock price volatility of 124.9% to 414.4%, and (4) expected dividend yield of zero. The following assumptions were utilized in the Monte Carlo model: (1) features in the note that were analyzed and incorporated into the model included the conversion feature with the reset provisions, (2) redemption provisions and the default provisions, (3) there are four primary events that can occur; payments are made in cash; payments are made with stock; the Holder converts the note; or the Company defaults on the note,(4) stock price of $0.0009 to $0.176 was utilized, (5)  notes convert with variable conversion prices based on the lesser range from of $0.0425  or $0.125 or a fixed rate of 60% or 65% of  either the low 20 or 25 trading days, depending on the lender and (6) annual volatility for each valuation period was based on the historic volatility of the Company of 99%-537%, annualized over the term remaining for each valuation.

On March 8, 2017, the convertible notes were all settled and on the final date of settlement, the warrants no longer qualified as derivatives and were reclassified to equity at their fair value on that date and aggregated $333,462.

 


31



 

Based upon the change in fair value, the Company has recorded a non-cash loss on derivative instruments for the year ended June 30, 2017, of $26,974.

 

The table below show the loss on the derivative instruments liability for the years ended June 30, 2017 and 2016.

 

 

Year Ended June 30, 2017

 

 

Derivative

 

 

Derivative

 

 

Valuation Change

 

 

 

Liability as of

 

 

Liability as of

 

 

for the year ended

 

 

 

June 30, 2016

 

 

June 30, 2017

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

Purchase Agreement Warrants and Convertible Debt

$

306,488 

 

$

 -

 

$

 306,488

 

 

 

 

 

 

 

 

 

 

 

Derivative liability written off to equity upon conversions

 

 

 

 

 

 

 

(333,462

)

Loss on derivative instruments liabilities

 

 

 

 

 

 

$

(26,974

 

Year Ended June 30, 2016

 

 

Derivative

 

 

Derivative

 

 

Valuation Change

 

 

 

Liability as of

 

 

Liability as of

 

 

for the year ended

 

 

 

June 30, 2015

 

 

June 30, 2016

 

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

Purchase Agreement Warrants and Convertible Debt

$

1,367,142 

 

$

 306,488 

 

$

1,060,654

 

 

 

 

 

 

 

 

 

 

 

Derivatives recognized as debt discounts

 

 

 

 

 

 

 

98,091

 

Derivative liability written off to equity upon conversions

 

 

 

 

 

 

 

(90,081

)

Gain on derivative instruments liabilities

 

 

 

 

 

 

$

1,068,664

 

 

At June 30, 2016, the entire amount of derivative instrument liabilities are classified as current due to the fact that settlement of the derivative instruments could be required within twelve months of the balance sheet date.

 

NOTE 6 – COMPLETION GUARANTEE PAYABLE

 

At June 30, 2012, the Company calculated the completion guarantee payable provided by Amendment 1 under the Gold Stream Agreement with Sandstorm. See NOTE 11 - CONTINGENCIES AND COMMITMENTS, Commodity Supply Agreement.   Based upon the provisions of the Agreement and the related completion guarantee test, incremental financing charges totaling $504,049 were recognized in Other Expenses and accrued at June 30, 2012. These accrued charges, combined with the remaining uncredited liability totaled $3,359,873 at June 30, 2017 and 2016, respectively, and are reported as completion guarantee payable. Amortized discounts of $0 and $59,586 were expensed as interest expense during the years ended June 30, 2017 and 2016, respectively.

 

NOTE 7 –CONVERTIBLE NOTES PAYABLE

 

On October 30, 2007, the Company completed the placement of 10% Senior Subordinated Convertible Notes of $450,000. The notes were placed with three accredited investors for $150,000 each and bear interest at 10% per annum. The notes had term of 60 months at which time all remaining principal and interest was due. Interest accrued for 18 months from the date of closing. Interest on the outstanding principal balance was payable in quarterly installments, commencing on the first day of the 19th month following the transaction closing. In connection with the transaction, the Company issued a five year warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share. All issued warrants have expired. At the option of the holders of the convertible notes, the outstanding principal and interest was convertible at any time into shares of the Company’s common stock at conversion price of $1.25 per share. The notes were to be automatically converted into common stock if the weighted average closing sales price of the stock exceeded $2.50 per share for ten consecutive trading days. The shares underlying the notes are to be registered on request of the note holders, provided the weighted average closing price of the stock exceeds $1.50 per share for ten consecutive trading days.


32



 

On October 31, 2012, the notes with the three accredited investors became due and payable. On January 15, 2013, the maturity dates for the convertible senior subordinated notes aggregating $450,000 were extended for a period of two years from the original maturity date. Additionally, the convertible price of the notes was reduced to $0.40 and the automatic conversion price of $2.50 was reduced to $0.80. In connection with the extension of the notes, 562,500 warrants were issued with a strike price of $0.40 and term of two years from the original maturity dates and have expired.

As of June 30, 2016, the outstanding principal balance was $450,000 and accrued interest on the senior subordinated convertible notes was $144,500 and was in default. In December 2016 the court administered trust paid and aggregate $23,000 to the note holders and was applied against the accrued interest on the notes.

In March 2017 the three accredited investors reached an agreement with the Company for an aggregate cash settlement of $13,500 on all the outstanding principles and accrued interest as payment in full. The settlement amount was paid by according to the terms of the settlement in April 2017. At the time of the agreement to settle the three accredited investors had an aggregate balance of principle and accrued interest owed them of $603,688 and the Company recorded a gain on extinguishment of debt of $590,188 on the settlement.

Convertible Secured Notes

In October and November 2012, the Company received advances totaling A$3,900,000 (A$ - Australia dollars), representing cash proceeds of $3,985,000, from International Goldfields Limited (ASX: IGS) in fulfillment of an important condition of the Binding Heads of Agreement dated October 8, 2012 between the Company and IGS. The funds were advanced by way of two secured convertible notes. The convertible notes bear interest at a rate of 6% per annum, have a three-year term, and were secured by the Company’s contractual rights to the Mogollon property. The Company has the right to prepay the notes at any time without any premium or penalty. Should the Company fail to repay the notes on the maturity date or should an event of default occur, then IGS may choose to have the outstanding amounts repaid in the Company’s shares at a conversion rate equal to the daily volume weighted average sales price for the twenty trading days immediately preceding the date of conversion.

On October 31, 2015,  the note became convertible and the CFA computed an embedded  conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial carrying value of the embedded conversion option was $98,091. During the year ended June 30, 2016, amortization of loan discount was recognized as interest expense of $48,251 and during the year ended June 30, 2017, amortization of loan discount recognized as interest expense was $49,840 and the unamortized discount balance was $0 at June 30, 2017. On June 30, 2017 and 2016, the total outstanding principal balance on the IGS Secured Convertible Note totaled $0 and $2,903,316, respectively, and accrued interest was $0 and $642,624, respectively. In December 2016 the court administered trust paid $174,507 to the note holder and was applied against the accrued interest on the note. IGS never submitted a conversion notice and in March 2017 reached an agreement with the Company for a cash settlement of $88,282 on the outstanding principle and accrued interest as payment in full. The settlement amount was paid by wire transfer in April 2017.

At the time of the agreed settlement, the outstanding principle and accrued interest aggregated $3,563,662 and the Company recorded a gain on extinguishment of debt of $3,475,380 on the settlement.

Convertible Unsecured Notes

On October 22, 2014, the Company signed a $500,000 Convertible Note with an accredited investor and received a consideration of net proceeds $75,000, net an original issue discount (“OID) of $8,333. The Consideration on the Note has a Maturity date of two years from the Effective Date and has a 10% OID component attached to it. The Company may repay the Consideration at any time on or before 120 days from the Effect Date and there would be no interest due on the Consideration. If the Company does not repay a Consideration on or before 120 days from its Effective Date, a one- time interest charge of 12% shall be applied to the principal sum. If the Company does not pay a Consideration prior to the 120-day period, the Company may not make further payments on this Note prior to Maturity Date without written approval from the Investor. The Investor may pay additional Consideration to the Company in such amounts and at such dates as the Investor may choose in its sole discretion. During the fiscal year ended June 30, 2015, the investor converted note principle of $68,900 into 1,800,000 shares of restricted common stock. During the fiscal year ended June 30, 2016, the investor converted the balance of the note principle and added interest charges of $24,433 into 916,078 shares of restricted common stock.


33



The original consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. During the fiscal year ended June 30, 2016, amortization of loan discount was recognized as interest expense of $20,185.

On February 25, 2015, a second consideration tranche of $50,000 was delivered under this Convertible Note under the same terms and conditions, net of and OID charge of $5,556. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. During the fiscal year ended June 30, 2016, amortization of loan discount was recognized as interest expense of $60,973. During the fiscal year ended June 30, 2016, the investor converted principle and added interest charges aggregating $62,223 into 27,522,855 shares of restricted common stock.

During the year ended June 30, 2016, the Company recorded $90,081 as resolution of derivative liability upon note conversions back into Additional Paid-in Capital.

On June 24, 2015, a third Consideration tranche of $50,000 was delivered under this Convertible Note under the same terms and conditions, net of and OID charge of $5,556. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. During the fiscal years ended June 30, 2016, $6,666 was added to the note principle and note discount and amortization of the loan discount was recognized as interest expense of $5,541 for the fiscal year ended June 30, 2016. No note conversions were made on the note during the fiscal years ended June 30, 2016 and 2015. During fiscal year ended June 30, 2016, $31,111 in default charges was added to the note balance. At June 30, 2017 and 2016 the note balance was $0 and $93,333 respectively, and amortization of the loan discount was recognized as interest expense of $56,088 for the year ended June 30, 2017, and the unamortized loan discount balance as of June 30, 2017 and 2016, was $0 and $56,088, respectively.

The conversion price with this investor is the lesser of $0.0425 or 65% of the lowest trade price in the 25 trading days previous to the conversion date. The note was not converted and was retired for $90,000 in installments, the final installment made on January 25, 2017, and the Company recorded a gain on extinguishment of debt of $3,333.

On January 20, 2015 the Company signed a $250,000 Convertible Note with an accredited Investor and received on January 20, 2015, a consideration of net proceeds $50,000, net of an OID of $5,556. The consideration on the Note has a Maturity date of two years from payment of each consideration and has a 10% OID component attached to it. A one- time interest charge of 12% is applied to the principal sum on the on the date of the consideration. The Note principal and interest shall be paid at Maturity date or sooner as provided within the Note and conversion provisions. The Investor may pay additional consideration to the Company in such amounts and at such dates as the Investor may choose in its sole discretion. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method.

On June 9, 2015, a second Consideration tranche of $50,000 was delivered under this Convertible Note under the same terms and conditions, net of an original issue discount (“OID) of $5,556. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. During the fiscal year ended June 30, 2016, amortization of loan discounts on the two notes was recognized as interest expense of $66,388. During the fiscal year ended June 30, 2016, the investor converted the note principle and added interest charges of $60,192 under the first consideration into 18,007,333 shares of restricted common stock. During the fiscal year ended June 30, 2016, penalties and default charges of $43,347 were added to the two note balances. At June 30, 2017 and 2016, the note balances were $-0- and $107,599, respectively and the unamortized loan discounts were $0 and $55,445, respectively. During the year ended June 30, 2017, amortization of the loan discount recognized as interest expense was $55,445.     

The conversion price with this investor is the lesser of $0.125 or 60% of the lowest trade price in the 25 trading days previous to the conversion date. At June 30, 2016, the two note tranches had aggregated outstanding principal $107,599 and had a conversion price of $0.0003. During the three months ended September 30, 2016, the note was not converted and was retired for $93,000 in installments, the final installment made on September 6, 2016. The transaction resulted in recognition of a gain on extinguishment of debt of $14,599.


34



 

The components of the unsecured convertible notes payable are as follows:

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

Principal

 

 

Unamortized

 

 

 

 

 

Amount

 

 

Discount

 

 

Net

       Current portion 

$

-

 

$

 -

 

$

-

 

 

 

 

 

 

 

 

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

Principal

 

 

Unamortized

 

 

 

 

 

Amount

 

 

Discount

 

 

Net

        Current portion

$

3,554,249

 

$

 (161,814

)

$

 3,392,435

 

NOTE 8 – SENIOR SECURED GOLD STREAM CREDIT AGREEMENT

On December 23, 2011, the Company and its subsidiaries entered into a Senior Secured Gold Stream Credit Agreement (the “Credit Agreement”) with Waterton. The Credit Agreement provided for two $10 million tranches and a $5 million revolving working capital facility. On December 23, 2011, the Company closed the first $10 million tranche of the Credit Agreement. The second $10 million tranche was earmarked for fund but was not drawn down. On February 26, 2016, the note balance was $7,755,685 and accrued interest was $5,746,404 and these amounts were eliminated with the 363 Asset Sale where Waterton received all the assets of the Company for all debt and any other agreement obligations as agreed on in the bankruptcy filings in August 2015.  

Debtor in Possession Financing

In connection with the prepetition negotiations of the restructuring support agreement, Waterton Global Value LP (“Waterton”), holders of the Company’s senior notes agreed to provide the Company and the Chapter 11 Subsidiaries a debtor in possession credit facility (the “DIP Credit Agreement"). The DIP Credit Agreement provided for a multi draw net term loan of which a net $2,037,595 was advanced, which became available to the Company upon the satisfaction of certain milestones and contingencies. Waterton also initially advanced a Bridge loan of $200,000 and also charged a structuring fee of $32,203. Pursuant to the Plan the borrowings under the Bridge loan and DIP Credit Agreement, at the option of the lenders to the DIP Credit Agreement, are part of the purchase price of all assets in the “363 Asset Sale”.  Net advances under the DIP Credit Agreement at February 26, 2016, were  $2,237,595 along with the accrued interest and fees aggregating $101,421 and were eliminated with the 363 Asset Sale where Waterton received all the assets of the Company for all debt and any other agreement obligations as agreed on in the bankruptcy filings in August 2015.

 

NOTE 9 – NOTES PAYABLE

Pursuant to Share Exchange Agreement (the "Share Exchange Agreement") with Canarc Resource Corp., a British Columbia, Canada corporation whose common shares are listed on the TSX Exchange under the symbol CCM ("Canarc") on July 15, 2014, the Company and Carnac entered into an interim financing facility pursuant to which Canarc advanced a $200,000 loan to the Company and a $20,000 merger advance. The loan bears interest an initial compounded rate of 1% a month and is due and payable upon the closing of a gold bond financing by the Company or January 15, 2015, if the financing does not close. The financing did not close under this Agreement and the interest rate was increased to 14% per annum on the outstanding balance.

In December 2016 the court administered trust paid $9,897 to the note holder and was applied against the accrued interest on the note and was recorded as a gain on trust debt forgiveness. The principal and accrued interest outstanding at June 30, 2017 is in past due and in default. The principle balance outstanding at June 30, 2017 and 2016 was $232,522 and $220,000, respectively.  During the year ended June 30, 2017, the Company made a reclassification of the compounded interest amount to the principle in the amount of $12,522. Accrued interest on note at June 30, 2017 and 2016 was $63,222 and $47,402, respectively.

On June 1, 2012, the Company entered into an installment sales contract for $593,657 to purchase certain equipment. The term of the agreement is for 48 months at an interest rate of 5.75%, with the equipment securing the loan. The balance owed on the note was $398,793 at June 30, 2017 and 2016 and had a accrued interest of $64,757 and $59,238, respectively. In December 2016 the court administered trust paid $17,412 to the note holder and was applied against the accrued interest on the note and this amount was recorded as a gain on trust debt forgiveness. The Company has been unable to make its monthly payments since November 2013, currently is due and in default and the equipment has been returned to the vendor for sale and remains unsold at June 30, 2017.

In conjunction with the Merger Agreement, Tyhee and the Company entered into a Bridge Loan Agreement, pursuant to which Tyhee was obligated to advance up to $3 million to the Company in accordance with the terms thereof. Tyhee advanced the Company only


35



$1,745,092 under the Bridge Loan as of June 30, 2014. The Bridge Loan bears an annual interest rate of 24%. At this time the Company and Tyhee are in disagreement as to the due date of the Bridge Loan. Tyhee has provided the Company with purported notice of default under the Bridge Loan Agreement. The Company has numerous claims against Tyhee resulting from the Merger Agreement, Tyhee’s failure to fund the total $3 million under the Bridge loan Agreement and Tyhee’s allocation of the proceeds from the Bridge Loan Agreement. At June 30, 2014, the Company recorded merger expenses that are due to Tyhee of $269,986 and is included in accrued liabilities at June 30, 2017 and 2016. This amount is net of a break fee of $300,000 due to the Company from Tyhee. Accrued interest on note at June 30, 2017 and 2016, was $1,308,578 and $990,657, respectively is due and in default. In December 2016 the court administered trust paid $91,788 to the note holder and was applied against the accrued interest on the note and recorded as a gain on trust debt forgiveness.  

The following summarizes notes payable:

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

Working capital advances, interest at 1% per month, due January 15, 2015

  212,521

 

$

200,000

Merger advance

 

20,000

 

 

20,000

Installment sales contract on equipment, interest at 5.75%, payable in 48 monthly installments of $13,874, including interest through July 2016.

 

398,793

 

 

398,793

Unsecured bridge loan note payable, interest at 2% monthly, payable August 17, 2014, six months after the first advance on the bridge loan.

 

1,745,092

 

 

1,745,092

Notes payable - current

$

2,376,406

 

$

      2,363,885

NOTE 10 – FAIR VALUE MEASUREMENTS

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3

 

Pricing inputs that are generally observable inputs and not corroborated by market data.

 Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.  A slight change in unobservable inputs such as volatility can significantly have a significant impact on the fair value measurement of the derivatives liabilities.

 The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.


36



 

 

The Company’s financial instruments consist of derivative instruments which are measured at fair value on a recurring basis. The derivatives are measured on their respective origination dates, at the end of each reporting period and at other points in time when necessary, such as modifications, using Level 3 inputs in accordance with GAAP. The Company does not report any financial assets or liabilities that it measures using Level 1 or 2 inputs. The fair value measurement of financial instruments and other assets as of June 30, 2017 and 2016 are as follows:  

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

   None

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

   Derivative instruments

 

-

 

 

-

 

$

 -

 

$

-

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

   None

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

   Derivative instruments

 

-

 

 

-

 

$

 306,488

 

$

 306,488

 

NOTE 11 - CONTINGENCIES AND COMMITMENTS

Chapter 11 Bankruptcy

On August 26, 2015, the Company filed for Chapter 11 Bankruptcy protection in Delaware in order to secure the existing assets from creditor actions. Case No. 15-11761 (MFW).  Santa Fe’s CEO filed in his Affidavit in Support of the first day motion (full affidavit can be researched in the Delaware court filings. Case# 15-11761 MFW on August 26, 2015) that we have only one remaining option (plan) to have an orderly sale of all assets to satisfying qualified debt without any plan for the thereafter and he began working with Canaccord Genuity Inc. (“Canaccord”) as our investment banker to assist with these efforts. The “asset sale” took place in February 2016 and left Santa Fe Gold and Subsidiaries without any assets but with all debt.

After the dismissal of the bankruptcy case, the Company will have no assets, but is still liable for all commitments and debts outstanding.  SFG Barbados, Lordsburg Mining Company and AZCO will be dormant and all the commitments and debts will stay with the respective companies and all debt is currently in default and due. The court set up a Trust fund that will be funded by the activities of the Summit mine for five (5) years and the trust funds will be distributed by an independent trustee to all credit holders on record.


37



 

The table below summarizes the carrying value of the assets sold and the liabilities disposed in the 363 Asset Sale as of asset transfer on February 26, 2016:

 

February 26, 2016

Assets Sold

Restricted cash

$236,628 

Prepaid expenses and other current  assets

39,584 

Property, plant and equipment, net

4,992,154 

Mine development properties, net

10,532,965 

Mineral properties, net

599,897 

 

$16,401,228 

 

Liabilities Disposed

Notes payable

$9,993,280 

Accrued interest

5,815,622 

Accrued DIP fees

32,203 

Asset retirement obligation

245,494 

Accrued CSA fees

329,938 

Total

$16,416,537 

Net gain on the 363 Asset Sale

$15,309 

 

Upon receiving the Certification of Counsel Regarding Satisfaction of Conditions in Debtors’ Motion to dismiss Chapter 11 Cases, on June 15, 2016, the Company received the Court Order Dismissing the Chapter 11 Case under the Bankruptcy Code.

 

In December 2016 the court administered trust paid $464,763 to credit holders of the Company, and is recorded as a gain on trust debt extinguishment and payments were applied as follows:

Accounts payable

$138,879

Accrued compensation

8,775

Accrued liabilities

1,443

Note holders – accrued interest

315,666

Total

$464,763

Commodity Supply Agreement  

In December 2009, the Company entered into a definitive gold stream agreement (the “Gold Stream Agreement”) with Sandstorm to deliver a portion of the life-of-mine gold production (excluding all silver production) from the Company’s Summit silver-gold mine. Under the agreement the Company received advances of $4,000,000 as an upfront deposit, plus continue to receive future ongoing payments equal to the lesser of: $400 per ounce or the prevailing market price, (the “Fixed Price”) for each ounce of  gold delivered pursuant to the agreement for the life of the mine. The Company purchases and delivers refined gold in order to satisfy the requirements of the Gold Stream Agreement and receives the Fixed Price per ounce in cash from Sandstorm. The difference between the prevailing market price and the Fixed Price per ounce for gold delivered is credited against the upfront deposit of $4,000,000 until the obligation is reduced to zero. Future ongoing payments for gold deliveries will continue at the Fixed Price per ounce with no additional credits or advances to be received from Sandstorm. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, the Company may be required to return to Sandstorm any remaining uncredited balance of the original $4,000,000 upfront deposit. See NOTE 6 - COMPLETION GUARANTY PAYABLE. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The net cost of delivering refined gold along with other related transactional costs corresponding to the Gold Stream Agreement are recorded in Other Expenses as financing costs - commodity supply agreements.

Under the Gold Stream Agreement the Company has a recorded obligation at June 30, 2017 and 2016, of 3,709 ounces of undelivered gold valued at approximately $3.1 and $3.4 million, respectively, in accrued liabilities net of the Fixed Price of $400 per ounce to be received upon delivery. The Summit silver-gold mine property referred to in this Gold Stream Agreement was sold in the 363 Asset Sale as of asset transfer on February 26, 2016:

Office and Real Property Leases


38



On August 1, 2015, the Company moved the office to a single room located in Albuquerque, NM, at the home of the CFO for a monthly rent of $500 until the Company is required to lease increased office space due to additional personnel requirements. Rental expense totaled $6,000 for year ended June 30, 2017 and 2016, respectively.

Title to Mineral Properties

Although the Company has taken steps, consistent with industry standards, to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

Prior Corporate Officer

On April 10, 2017 we reached a non-disclosure agreement with our prior CEO, Mr. Jordaan, about his outstanding back wages and amounts due for legal services rendered to the Company prior assuming the position of CEO. Mr. Jordaan resigned as CEO and from the board effective May 6, 2016. Mr. Jordann is still considered a related party and at June 30, 2017 and 2016, the Company owed to related parties an aggregated amount of $230,527 and $269,787, respectively. and is included respectively in accounts payable.  All claims by Mr. Jordaan were settled in the agreement with the final payment on September 21, 2017.

NOTE 12 - STOCKHOLDERS’ DEFICIT

Stock Returned and Cancelled

On August 1, 2016, a shareholder returned 6,956,750 common shares to the Company for no value received by the shareholder and the shares were recorded at Par Value of $13,914.

On December 14, 2016, employees, a director and a consultant returned 15,956,748 shares to the Company in order to be able to raise more funds to acquire additional assets by the Company for no value received by the shareholders and the shares were recorded at Par Value of $31,914.

Common Stock Issuances

During the fiscal year ended June 30, 2017, the Company:

 

 

(i)

Issued an aggregate of 9,365,360 shares of restricted common stock for consulting services at a value of $475,007 on the date of issuance;

 

 

 

 

(ii)

Sold an aggregate of 40,840,519 shares of restricted common stock to accredited investors for cash proceeds of $1,354,084 and issued 3,712 shares of restricted common stock for reimbursement of bank transfer fees at value of $288; and

 

(iii)

Issued an aggregate of 40,840,519 shares of restricted common stock for the exercise of warrants to accredited investors for cash proceeds of $1,354,084.

 

 

 

The issuance of the restricted common shares during our fiscal year 2017, were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof because such issuance did not involve a public offering.

 


39



 

During the fiscal year ended June 30, 2016, the Company:

 

 

(i)

Issued an aggregate of 14,217,561 shares of restricted common stock for consulting services at a value of $14,218 on the date of issuance;

 

 

 

 

(ii)

Received $7,500 for the exercise of warrants for 7,500,000 shares of restricted common stock;

 

(iii)

Issued 3,739,187  shares of restricted common stock for  consulting services at a value of $69,139 on the dates of issuance;

 

 

 

 

(iv)

Issued an aggregate of 18,007,333 shares of restricted common stock to an accredited investor for the partial conversion of  convertible notes aggregating $60,192, and

 

 

 

 

(v)

Issued an aggregate of 28,438,933 shares of restricted common stock to an accredited investor for the partial conversion convertible notes aggregating $86,655.

 

 

 

The issuance of the restricted common shares during our fiscal year 2016, were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof because such issuance did not involve a public offering.

 

Warrants

During the fiscal year ended June 30, 2017, the Company issued 40,840,519 warrants as part of a private placement to accredited investors and the warrants were exercised on the issuance date. During the year ended June 30, 2017, 1,100,000 warrants expired.

 

Stock Options and the Amended and Restated Equity Incentive Plan

 

During year ended June 30, 2017, no options were granted and 7,940,000 options were cancelled or expired. Options aggregating 5,000,000 were cancelled as subsequently determined to be an unauthorized issuance

 

 

 

 

Stock option and warrant activity, within the and 2007 EIP and outside of these plan, for the years ended June 30, 2017 and 2016 are as follows:

 

 

Stock Options

 

 

Stock Warrants

 

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

Average

 

 

 

Number of

 

 

Exercise

 

 

Number of

 

 

Exercise

 

 

 

Shares

 

 

Price

 

 

Shares

 

 

Price

 

Outstanding at June 30, 2015

 

12,510,000

 

$

0.07

 

 

20,896,054

 

$

0.37

 

Granted

 

---

 

$

---

 

 

7,500,500

 

$

0.001

 

Canceled

 

(4,110,000

)

$

0.09

 

 

(10,452,620

 

0.385

 

Expired

 

(25,000

)

$

0.36

 

 

---

 

$

---

 

Exercised

 

---

 

 

---

 

 

(7,500,500

)

$

0.001

 

Outstanding at June 30, 2016

 

8,375,000

 

$

0.02

 

 

10,443,434

 

$

0.35

 

Granted

 

---

 

$

---

 

 

40,840,519

 

$

0.033

 

Canceled

 

(7,900,000

)

$

0.02

 

 

(40,840,519

$

0.033

 

Expired

 

(40,000

)

$

0.36

 

 

(1,100,000

)

$

0.94

 

Exercised

 

---

 

 

---

 

 

---

 

 

---

 

Outstanding at June 30, 2017

 

435,000

 

$

0.22

 

 

9,343,434

 

$

0.28

 

 


40



 

Stock options and warrants outstanding and exercisable at June 30, 2017, are as follows:

 

 

Outstanding and Exercisable Options

 

 

 

 

 

 

 

 

Outstanding and Exercisable Warrants

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

Contractual

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Contractual

 

 

Weighted

 

Exercise

 

 

 

 

 

 

 

Remaining

 

 

Average

 

 

Exercise

 

 

 

 

 

 

 

 

Remaining

 

 

Average

 

Price

 

Outstanding

 

 

Exercisable

 

 

Life

 

 

Exercise

 

 

Price

 

 

Outstanding

 

 

Exercisable

 

 

Life

 

 

Exercise

 

Range

 

Number

 

 

Number

 

 

(in Years)

 

 

Price

 

 

Range

 

 

Number

 

 

Number

 

 

(in Years)

 

 

Price

 

$0.07

 

100,000

 

 

100,000

 

 

2.51

 

$

0.07

 

$

0.15

 

 

4,320,000

 

 

4,320,000

 

 

1.62

 

$

0.15

 

$0.08

 

100,000

 

 

100,000

 

 

1.51

 

$

0.08

 

$

0.38

 

 

523,434

 

 

523,434

 

 

0.21

 

$

0.38

 

$0. 32

 

100,000

 

 

100,000

 

 

0.14

 

$

0.32

 

$

0.40

 

 

4,500,000

 

 

4,500,000

 

 

0.08

 

$

0.40

 

$0.36

 

135,000

 

 

135,000

 

 

0.50

 

$

0.36

 

$

0.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

435,000

 

 

435,000

 

 

 

 

 

 

 

 

 

 

 

10,443,434

 

 

10,443,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding Options

 

 

1.11

 

$

0.22

 

 

Outstanding Warrants

 

 

 

 

 

0.80

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable Options

 

 

1.11

 

$

0.22

 

 

Exercisable Warrants

 

 

 

 

 

0.80

 

$

0.28

 

 

As of June 30, 2017, the aggregate intrinsic value of all stock options and warrants vested and expected to vest was $0 and the aggregate intrinsic value of currently exercisable stock options and warrants was $3,760. The intrinsic value of each option or warrant share is the difference between the fair market value of the common stock and the exercise price of such option or warrant share to the extent it is "in-the-money". Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the quarter and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.094 closing stock price of the common stock on June 30, 2017. The total number of in-the-money options and warrants vested and exercisable as of June 30, 2017 was 200,000.

The total intrinsic value associated with options exercised during the year ended June 30, 2017 was $0. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option or warrant holder to exercise the options.

The total fair value of options and warrants granted during the year ended June 30, 2017 was approximately $0. The total grant-date fair value of option and warrant shares vested during the year ended June 30, 2017 was $0.

The Company adopted its 2007 EIP (2007 Plan) pursuant to which the Company reserved and registered 8,000,000 shares stock and option grants. As of June 30, 2017, there were 4,550,000 shares available for grant under the 2007 Plan, excluding the 435,000 options outstanding under the 2007 Plan. The 2007 Plan expired on July 24, 2017 and will not be renewed.

NOTE 13 - INCOME TAXES

The Company has had no income tax expense or benefit since July 1, 1997, because of operating losses. Deferred tax assets and liabilities are determined based on the estimated future tax effect of differences between the financial statement and tax reporting basis of assets and liabilities, as well as for net operating loss carry forwards, given the provisions of existing tax laws. The Company files income tax returns in the U.S. and state jurisdictions and there are open statutes of limitations for taxing authorities to audit the Company’s tax returns from years ended June 30, 2012 through the current period.

The approximate income tax benefit is computed by applying the U.S. federal income tax rate of 35% to net (loss) before taxes for the fiscal years ended after June 30, 2012, and 34% for the prior year periods.

 

 

2017

 

 

2016

 

Tax benefit at the federal statutory rate

$

(900,326

)

$

1,737,087

 

State tax benefit

 

(192,927

 

372,233

 

Expiration of state operating benefit

 

(637,669

)

 

(395,871

)

Decrease (increase) in valuation allowance

 

1,730,922

 

 

(1,713,449

)

Income tax expense

$

 ---

 

$

 ---

 

 


41



 

The components of the deferred tax assets at June 30, 2017 and 2016 are as follows:

Deferred Tax Asset

 

2017

 

 

2016

 

  Federal net operating loss carry forwards

$

21,204,364

 

$

34,269,743

 

  State net operating loss carry forwards

 

2,753,249

 

 

3,280,936

 

  Valuation allowance

 

(23,957,613

)

 

(37,550,679

)

  Net deferred tax asset

$

 ---

 

$

 ---

 

In assessing the realizability of estimated deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Due to the Company’s history of losses, the deferred tax assets are fully offset by a valuation allowance as of June 30, 2017 and 2016.

At June 30, 2017, the Company had estimated federal tax basis net operating loss carry forwards for federal income tax purposes of approximately $101 million. Net operating losses for federal income tax purposes may be carried back for two years and forward for twenty years. The net operating losses expire in varying amounts from June 30, 2019 to 2037.

At June 30, 2017, the Company had estimated state tax basis net operating loss carry forwards for state income tax purposes of approximately $34.1 million. Net operating losses for state income tax purposes may be carried forward for five years. These losses expire in varying amounts from June 30, 2017 to 2022.

 

NOTE 14 – RELATED PARTY TRANSACTIONS    

 

On August 1, 2015, the Company leased a home office space from the Company CFO for $500 a month for the corporate administrative office in Albuquerque, NM until such time growth requires a larger corporate administrative office.

 

Boonyin Investments is a foreign investor who deposited $1,729,687 and received 36,030,019 shares with an average price of $0.048 during our fiscal year ending in June 2017.

 

The board authorized on June 16, 2016, the hiring of Nataliia Mueller, wife of the Company’s CFO, with an annual wage of $48,500 as an assistant to the CFO.

 

Prior to becoming a staff member of the Company, Mr. Laws our CEO, received a consulting fee and converted in January 01, 2018 to be a full staff member. During the fiscal year ended June 30, 2017, Mr. Laws received consulting fees of $125,000.

 

On March 8, 2018, the board decided in a special meeting that the 2.5 million options awarded to each of Erich Hofer and Frank Mueller were declared void retroactively and should be removed from the financial reporting.  At a later time, the board will revisit the awards based on the recommendation by the President of the Company for the staff members who were essential in reviving the Company from bankruptcy.

 

In order to expedite purchases of equipment and associated expenses in Silver City on behalf of the Company, SFG deposited funds into Mr. Laws escrow account until a new bank account was opened at Wells Fargo.  Expenses and purchase of equipment was done in that account. During the current fiscal year $421,000 was deposited to the account by the Company and Mr. Laws expended $470,420 on behalf of the Company, resulting at the close of our current fiscal year $49,420 due Mr. Laws. The $49,420 due Mr. Laws is presented in the balance sheet as Payable to Related Party.

 

An individual consultant, who is instrumentally helpful to the Company in raising funds and is compensated on commission basis, as disclosed in NOTE 17 – SUBSEQUENT EVENTS, Recent Issuances of Unregistered Securities. During the period 7/22/16 to 6/30/17 received commissions totaling $267,322. In December 2016, the consultant returned 1,739,187 shares previously issued for assisting the Company moving forward in order that SFG could use them for fundraising and no value was received by the consultant.

 

On December 2016, an employee, a director and a consultant returned 14,217,561 shares to the Company in order to be able to raise more funds to acquire additional assets by the Company for no value received by the parties.  

 

Part of the sold shares and options in fiscal 2016, aggregating 81,681,038 shares, 20,000,000 were issued to an individual who will be joining the board in April 2018.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that


42



the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

NOTE 15 – SUMMARY OF GAIN ON DEBT EXTINGUISHMENT

Below is a summary of gain on debt extinguishment recognized for the year ended June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

 

Settlement

 

 

Gain

 

Accounts Payable

$

343,902  

 

 

$          10,734

 

 

$         333,168 

 

IGS note principle

 

2,962,947  

 

 

88,282

 

 

2,874,665

 

IGS accrued interest

 

600,715  

 

 

-

 

 

600,715

 

Convertible notes

 

450,000  

 

 

13,500

 

 

436,500

 

Convertible note accrued interest

 

153,688  

 

 

-

 

 

153,688

 

Vista convertible note

 

80,155  

 

 

65,556

 

 

14,599

 

JMJ convertible note

 

93,333  

 

 

90,000

 

 

3,333

 

 

 $

4,684,740  

 

 

$        268,072

 

 

$      4,416,668

 

 

NOTE 16 – LEGAL PROCEEDINGS

All legal proceedings stayed with the filing of Chapter 11 bankruptcy. At the time of the bankruptcy filing several litigations were filed in several courts. Santa Fe believes that the following suits will be stayed pursuant to the Bankruptcy Code. After dismissal of the Chapter 11 filings, we have not been notified of any of the below cases if they will continue or not.

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-2-2-CV-2015- 06048, County of Bernalillo, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-721-CV-2015- 00058, County of Sierra, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-608-CV- 201500165

County of Quintero, NM. Series of collection cases by Boart Longyear Company, who obtained Utah judgment for equipment delivered to Lordsburg Mining Company

Santa Fe Gold Corporation v. Tyhee Gold Corp., Brian K. Briggs, SRK Consulting (US), Inc., and Bret Swanson, Case No: 14CV032866, District Court, Denver County, Colorado

Santa Fe is seeking damages for breach of the Confidentiality Agreement as well as for conversion of Santa Fe’s confidential information. Tyhee Gold Corp. has filed a counter-claim for tortuous interference with prospective contractual relationships with Koza Gold. At this time, there can be no determination of the outcome.

Wagner Equipment Co. v. Lordsburg Mining Company, Case No. D-2014-02372, County of Bernalillo, NM 28

Collection case by Wagner equipment, who obtained judgment for equipment delivered to Lordsburg Mining Company.

In October 2013, Lone Mountain Ranch, LLC, owner of the surface estate overlying our Ortiz gold property, filed a lawsuit against the Company and our lessor, Ortiz Mines, Inc. The lawsuit seeks to clarify Lone Mountain Ranch's rights and obligations under the split estate regime. Specifically, Lone Mountain Ranch seeks a declaratory judgment that it may participate in permit hearings, agency proceedings, and private activities related to the permitting of the Ortiz project without being in violation of common law duties to not interfere with development of the mineral estate. The Company conducted a strategic evaluation as whether or not to continue with the Ortiz Gold Project. Given the public opposition to the Ortiz Gold Project, Santa Fe has decided not to further pursue the Ortiz Gold Project. Lone Mountain Ranch LLC sued Ortiz Mines Inc against any mining activities on the property, and Santa Fe Gold was only a co-defender.  With the bankruptcy, we, SFG, were dismissed.

We are in litigation with two vendors for claims for approximately $140,400 and $125,876, respectively against us. If the Company is unsuccessful in raising additional funding, we may not be able to pay resolve these lawsuits and our business may not continue as a going concern. In the event we cannot raise the necessary capital or we cannot restructure through negotiated modifications, we may


43



be required to effect under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 or Chapter 7 of the U.S. Bankruptcy Code (“Chapter 11 or “Chapter 7”). See “Risk factors.” The claims were against Lordsburg Mining company, were stayed during the proceedings and all claims remained.  At this time, there can be no determination of the outcome.

The court set up a Trust fund that will be funded by the activities of the Summit mine for five (5) years and the trust funds will be distributed by an independent trustee to all credit holders on record.  Currently all debts at the time of the bankruptcy are currently due and in default. None of the claims have been reopened since June 2016.

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. Other than the above-described litigation, as of June 30, 2017, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on its financial statements in any given reporting period. However, in the opinion of Management, after consulting with legal counsel, the ultimate liability related to the current outstanding litigation is not expected to have a material adverse effect on its financial statements.

NOTE 17 – SUBSEQUENT EVENTS

Recent Issuances of Unregistered Securities

Between July 01, 2017 and May 30, 2018, the Company has raised an additional $4,127,227 from additional equity purchases from a private overseas investment company and a number of associated investors. The stock and warrant shares have not been issued at this time and the stock certificates and warrant shares (approximately 51,590,344 shares) will be issued at the same time at a varying price per share. In connection with this offering, the Company has incurred placement fees consisting of a cash fee of 10% of the full combined dollar amount of units placed in the offering plus warrants exercisable for 10% of the shares and warrants included in the units placed. To date, no placement agent fee warrants have been issued. The Company has incurred a cash fee amounting to $412,723 in connection with this raise.

Other Events

On February 2, 2017, an agreement was reached with an investor for the return on 20,000,000 shares and the issuance of 2,000,000 shares on a new certificate. On July 28, 2017, the investor physically returned 20,000,000 shares to the transfer agent and they were cancelled and were deducted from the outstanding shares. The investor was issued 2,000,000 shares on a new certificate. The 18,000,000 shares are to be re-issued at a later time and the obligation will be accounted for as a derivative liability at the fair value of the shares and marked to market at each balance sheet date.

Between April 10, 2017 and January 02, 2018, Santa Fe Gold transferred $2.5 million to acquire properties for Santa Fe Gold and the staking of all the claims currently owned by Santa Fe Gold. The announcement was made on September 17, 2017 that we acquired 100% of Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company, which includes formerly optioned AG1 Silver Mine and all lands surrounding the project to include potential Porphyry Silver Discovery and all rights to same. The transactions subsequent to our current fiscal year end are summarized below:


44



- On August 18, 2017, the Company signed the Bullard’s Peak Agreement and delivered an additional $100,000 towards the purchase price.

- On August 30, 2017, the Company delivered an additional $900,000 to Bullard’s Peak towards the purchase price under terms of the Agreement.

- On September 8, 2017, the Company delivered $500,000 to Bullard’s Peak towards the purchase price under terms of the Agreement.

- On October 13, 2017, the Company delivered $500,000 to Bullard’s Peak towards the purchase price under terms of the Agreement.

- On January 2, 2018, the Company delivered $500,000 to Bullard’s Peak towards the purchase price under terms of the Agreement

              - The escrow payment made under the Agreement was thought to have been transferred at March 31. 2017 and was subsequently was determined that it had not been transfer as of the filing of this report and as of the date of this report filing this acquisition has not closed. See NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Escrow Deposit.

 

The Equity Incentive Plan from 2007 expired on July 24, 2017 and was not renewed.

All claims by Mr. Jordan were settled in the agreement with the final payment on September 21, 2017.

 

On November 30, 2017 the Company signed a purchase agreement with the Fortune Graphite Inc and Worldwide Graphite Producers Ltd. to purchase claims in the Province of British Columbia, Canada for $200,000 Canadian Dollars each to be made in installments. The Company will receive title to the claims upon payment of the final installment. Per the agreement, the Company is obligated to issue 5M common shares to each party seven days from the agreement date and were valued at $1,050,000 on the date of issuance.

 

On February 12, 2018 the Company agreed to settle an outstanding Notes Payable with Canarc Resources. The Company will make four installment payments as follows:

 

First Payment: SFG shall make a first payment to Canarc in the amount of $25,000 by February 14, 2018;

Second Payment: SFG shall make a second payment to Canarc in the amount of $25,000 by June 30, 2018;

Third Payment: SFG shall make a third payment to Canarc in the amount of $85,000 by September 30, 2018; and

Fourth Payment: SFG shall make a fourth and final payment to Canarc in the amount of $85,000 by December 31, 2018.

On February 19, 2018 the Company signed a letter of intent with Robert Rogers Inc. to purchase load claims at the Rose Mine located in Grant County, New Mexico for installment payments totaling $200,000. The Company delivered its first payment of $25,000 on February 19, 2018.

On February 28, 2018 the Company filed for a permit to start operations at the Bullard’s Peak property. The permit was awarded on March 07, 2018.

On April 5, 2018, the board had a special meeting to discuss a change for the Audit Chair. It was decided to make Brian Adair Chairman of the Audit committee effective immediately.

On March 8, 2018, the board decided in a special meeting that all options awarded to Erich Hofer, Frank Mueller and Tom Laws are declared void retroactively and all options should be removed from the financial reporting.  At a later time, the board will revisit the awards based on the recommendation by the President of the Company for the staff members who were essential in reviving the Company from bankruptcy.


45



On April 06, 2018 the Company entered into an engagement with a Financial Advisory group for a four month term.  The fees: $2,000 monthly and 50,000 shares of Common Stock that has not been issued at this time.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

During the year ended June 30, 2017, our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of June 30, 2017, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed in our reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. This was due to the following material weakness:

Due to the Company’s continuing financial condition, the Company had limited personnel which resulted in a lack of segregation of duties and a lack of formal reviews at multiple levels.

Inherent Limitations over Internal Controls

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:

 

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

 

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the year ended June 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting


46



The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company’s assessment, management has concluded that its internal control over financial reporting was not effective as of June 30, 2017, due to the material weaknesses described above, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

No Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding the Company’s internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act provides an exemption from the independent auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act for small issuers that are neither a large accelerated filer nor an accelerated filer. The Company qualifies for this exemption.

ITEM 9B. OTHER INFORMATION

     None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following individuals serve as the directors and executive officers of our Company as of the date of this annual report:

Name

 

Age

 

Position

 

Date Elected or Appointed

Erich Hofer

 

56

 

Director

Chairman of the Board

 

August 20, 2012

October 15, 2014

 

 

 

 

 

 

 

Thomas Laws

 

58

 

Chief Executive Officer

Director and President

 

August 1, 2016

August 1, 2016

 

 

 

 

 

 

 

Frank G. Mueller

 

62

 

Chief Financial Officer

Director

 

May 7, 2014

August 1, 2016

 

 

 

 

 

 

 

Brian Adair

 

50

 

Director

Chairman of the Audit Committee

 

April 5, 2018

April 5, 2018

Erich Hofer, joined our board of directors in August 2012. Mr. Hofer is a finance and management executive with over 30 years of international business experience in engineering, energy, manufacturing and financial services. As principal of HFE MAC LLC since 2007, he provides management and advisory services to public and private companies and has assumed key management roles for clients, several of which have been natural resources companies. From 1999 to 2007, Mr. Hofer was CFO for three Swiss technology, manufacturing and energy management companies, and from 1995 to 1998 was financial controller for Zurich State Bank. He also served as Chief of Logistics, Colonel and a Member of General Staff in the Swiss Army. Mr. Hofer holds a MBA Degree from the University of Chicago, and three degrees, including Master of Finance, Bachelor of Economics and Bachelor of Engineering from universities in Switzerland, and received BS and MBA Degrees from the State University of New York at Buffalo.

Tom Laws, is a metallurgist and mining analyst with over 40 years of experience in the mining industry. Mr. Laws’ mining career began in Alaska operating a Placer Gold Mine. He then joined Phelps Dodge Corporation, at the time the world’s largest copper company. His role was a Metals Accounting Specialist and Cost Analyst at the Hidalgo Smelter located in Playas, New Mexico. He later moved to the Tyrone Mine in Tyrone, New Mexico. Eventually, Mr. Laws returned to the Hidalgo Smelter in Playas, New Mexico as controller.

Mr. Laws was then appointed to oversee costs and budget accounting at Chino Mines. He progressed to become a transaction specialist at Kennecott Mining. There he facilitated the Phelps Dodge Corporation purchase of Chino mines and related companies. After the transaction, Mr. Laws assumed accounting implementation and operational control of the Chino and Kennecott acquisitions for Phelps Dodge Corporation, now part of Freeport-McMoRan Inc., one of the World's largest Copper and Gold Miners.

Mr. Laws is intimately familiar with mining operations in the Southwestern United States and in particular the Arizona and New Mexico environs. With a large client base in New Mexico, Mr. Laws has worked with a number of mining companies, right up to the


47



present, helping them to evaluate materials, economic utility and the most effective processing methods, looking to develop and optimize their mining output. His extensive area knowledge, broad experience and understanding of the local mineralogy in the mining districts of the Southwest, combined with his many years with Phelps Dodge and Kennecott, gives him a unique perspective on where the most coveted and valuable opportunities are known to exist and specialized knowledge of both large and small projects in the region, with special access and rights to some sizable ore deposits, infrastructure and mines in the area. Mr. Laws was appointed to CEO and to the board of directors of Santa Fe Gold August 1 2016.

Frank G. Mueller,  joined Santa Fe Gold in June 2010 as Assistant Controller. He was promoted to Chief Financial Officer and Treasurer in May 2014. On August 01, 2016 he was appointed by majority vote to the board of directors. Mr. Mueller has 28 years of experience in accounting and financial management. Prior to his employment with Santa Fe Gold, Mr. Mueller served for six years as the Senior Business Manager for two divisions of Cornell Company, a publicly traded organization. Mr. Mueller was responsible for financial reporting, revenues, budgeting and inventory for 20 plus facilities in multiple states. Mr. Mueller holds a Bachelor of Science Degree in Business Administration, with Honors, from the University of Texas in El Paso and a Master’s Degree in Accounting from New Mexico State University.

Brian Adair, earned his Bachelor’s degree in Business Administration from LaRoche College. He then continued his studies at Duquesne University to earn his Master’s degree. Brian’s vision to protecting and preserving personal wealth paved the way to establish Adair Financial Group in 2004. It is a comprehensive, solutions-driven firm, well known for high standards and business ethics. His client’s needs are addressed in a collaborative fashion by using the client’s advisory team of financial, legal and tax experts, often representing multiple generations of families. Adair Financial Group can handle any case regardless of the complexity and is unique in that the intellectual property is not reserved for just the ultra-wealthy client.

 

In 2012, the National Senior Market recognized Brian as a “Finalist for Advisor of the Year”. This was quite an honor considering, Adair Financial Group was less than ten years old and only five advisors were recognized. In addition, Brian was recently inducted into the “Top of the Table - Million Dollar Round Table” organization. This elite industry group recognizes top financial services professionals. His designation as the “Top of the Table” is only awarded to the top 1% of the top 1% of financial professionals – internationally.

Board Meetings and Committees

During fiscal 2017, our board met several times and took action by unanimous consent on all matters acted on. All of our directors attended all of the meetings of our board telephonically most of the meetings and its assigned committees during fiscal 2017.

Our entire board considers all major decisions concerning our business. Our board has also established committees so that certain matters can be addressed in more depth than may be possible at a board meeting. Our board’s current standing committees are as follows, with the “X” denoting the members of the committee:

 

 

Corporate

 

 

 

 

 

 

 

 

 

Governance

 

 

Audit

 

 

Compensation

 

Name

 

Committee

 

 

Committee

 

 

Committee

 

Employee Director:

 

 

 

 

 

 

 

 

 

None

 

 

 

 

 

 

 

 

 

Non-Employee Directors:

 

 

 

 

 

 

 

 

 

Erich Hofer

 

X(1) 

 

 

X (1)

 

 

 

 

_________________
(1) Chairman

Our board will in the future, once we are back in business, will adopted a charter for each committee. The charters will later be available on our website at www.santafegoldcorp.com. The information contained on our website is and will not, and should not be considered, a part of this financial statement. The information below sets out the future members of each of our board committees and summarizes the functions of each of the committees.

Nominating and Corporate Governance Committee

The primary purposes of the Committee are:

·identifying individuals qualified to become directors;  

·monitoring the implementation of our corporate governance guidelines; and  

·overseeing the evaluation of our management and our board.  


48



No Committee meetings were held in the fiscal year 2017. We do not anticipate any significant change in the composition of the planned Committees prior to our next annual meeting of stockholders.

The Committee will be responsible for identifying individuals qualified to become directors and for evaluating potential or suggested director nominees.

The Committee plans to perform a preliminary evaluation of potential candidates primarily based on the need to fill any vacancies on our board, the need to expand the size of our board and the need to obtain representation in key market areas. Once a potential candidate is identified that fills a specific need, the Committee plans to perform a full evaluation of the potential candidate. This evaluation will include reviewing the potential candidate’s background information, relevant experience, willingness to serve, independence and integrity. In connection with this evaluation, the Committee may interview the candidate in person or by telephone. After completing its evaluation, the Committee will make a recommendation to the full board as to the persons who should be nominated by our board. Our board determines the nominees after considering the recommendations and a report of the Committee. To date, the Committee has not paid a fee to any third party to assist in the process of identifying or evaluating director candidates.

Audit Committee

The primary purposes of the Committee are:

·assisting our board in fulfilling its oversight responsibilities by reviewing the financial information to be provided to stockholders and others;  

·overseeing and evaluating our system of internal controls established by management; and  

·supervising the audit and financial reporting process (including direct responsibility for the appointment, compensation and oversight of the independent auditors engaged to perform the annual audit and quarterly reviews with respect to our financial statements.  

Audit Committee Report

The Committee at June 30, 2017 consists of Mr. Hofer, and he serves as chairman. We do not anticipate a change in the composition of the Committee prior to our next annual meeting of stockholders. Mr. Hofer is considered “independent” under the NASDAQ listing standards and applicable SEC rules. Mr. Hofer qualifies as an “audit committee financial expert” as defined by the rules promulgated by the SEC. Each Audit Committee member is able to read and understand fundamental financial statements, including our consolidated balance sheet, consolidated statement of operations and consolidated statement of cash flows.

The Audit Committee is responsible primarily for assisting the board in fulfilling its oversight responsibility of reviewing the financial information that will be provided to stockholders and others, appointing the independent registered public accounting firm, reviewing the services performed by the Company’s independent registered public accounting firm and internal audit department, evaluating the Company’s accounting policies and the Company’s system of internal controls that management and the board have established, and reviewing significant financial transactions. The Audit Committee does not itself prepare financial statements or perform audits, and its members are not auditors or certifiers of the Company’s financial statements.

In fulfilling its oversight responsibility of appointing and reviewing the services performed by the Company’s independent registered public accounting firm, the Audit Committee carefully reviews the policies and procedures for the engagement of the independent registered public accounting firm, including the scope of the audit, audit fees, auditor independence matters and the extent to which the independent registered public accounting firm may be retained to perform non-audit related services.

The Company maintains an auditor independence policy that bans its auditors from performing non-financial consulting services, such as information technology consulting and internal audit services. This policy mandates that the Audit Committee approve the audit and non-audit services and related budget in advance, and that the Audit Committee be provided with quarterly reporting on actual spending. This policy also mandates that the Company may not enter into auditor engagements for non-audit services without the express approval of the Audit Committee.

Compliance with Section 16(a) of The Securities Exchange Act of 1934

Based solely on our review of the copies of such forms we received, or written representations from certain reporting persons, we believe that, during the fiscal year ended June 30, 2017, our officers, directors and greater than ten percent beneficial owners complied with all applicable filing requirements to the best of our knowledge.


49



Code of Business Conduct

Our board has adopted a code of business conduct that is applicable to all members of our board, our executive officers and our employees. We have posted our code of business conduct on our website at www.santafegoldcorp.com.

Code of Ethics for CEO and Senior Financial Officers

 Effective June 15, 2006, we adopted a Code of Ethics for CEO and Senior Financial Officers that applies to our CEO and all officers. This code was filed as an exhibit to our Annual Report on Form 10-KSB for the year ended June 30, 2006. The code summarizes the legal, ethical and regulatory standards that we must follow and is a reminder to our directors and officers of the seriousness of that commitment. Compliance with this code and high standards of business conduct is mandatory for each of our officers. As adopted, our Code of Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2) compliance with applicable governmental laws, rules and regulations;

3) the prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in the Code of Ethics; and

4) accountability for adherence to the Code of Ethics.

We will provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent to: Santa Fe Gold Corporation, P.O. Box 25201, Albuquerque, NM 87125.

ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION

Summary Compensation Table

The following table summarizes the compensation awarded to, earned by or paid during the last two fiscal years to Named Executive Officers, including (a) our principal executive officer; (b) each of our Company’s two most highly compensated executive officers, other than the principal executive officer, and who were serving as executive officers at the end of or during the fiscal year ended June 30, 2017, and whose total compensation exceeded $100,000 per year; and (c)up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer of our Company at the end of the year ended June 30, 2016.

Summary Compensation Table

Name and
Principal
Position

Year

Salary
($)

Bonus
($)

Stock
Awards
($)

Option
Awards
($)

Non-
Equity
Incentive
Plan
Compensation
($)

Non-
qualified
Deferred
Compensation
Earnings
($)

All
Other
Compensation
($)

Total
($)

Thomas Laws 

CEO, President

2017   

137,500   

-   

-   

-   

-   

-   

-   

137,500   

 

2016   

-   

-   

-   

-   

-   

-   

-   

-   

Frank Mueller

2017   

90,800   

-   

-   

-   

-   

-   

-   

90,800   

 

2016   

85,000   

-   

-   

-   

-   

-   

-   

85,000   

 

 

(1)

Tom Laws receives as a consultant $150,000 as annual compensation and started with the Company on a full-time basis on January 1, 2018.

 

 

 

 

(2)

Mr. Mueller received a salary of $85,000 annually but starting in April 2014 salaries for staff were cut in half and the remainder was deferred and is still outstanding as of filing of this report. On May 5, 2017, the board increased the annual salary to $120 ,000


50



Outstanding Equity Awards as of June 30, 2017

The following table summarizes the outstanding equity awards as of June 30, 2017, for each of our named executive officers:

 

Outstanding Equity Awards as of June 30, 2016

 

Option Awards

Stock Awards

Name

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options
(#)
Un-exercisable

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
 #)

Option
Exercise
Price
($)

Option
Expiration
Date

Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)

Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)

Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)

Frank G.
Muller

10,000

 

N/A

 

0.36

 

 

12/31/2017

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Compensation of Directors

The following table summarizes the compensation of our Company’s directors for the fiscal year ended June 30, 2017:

Name(1)

Fees
Earned
or Paid in
Cash
($)

Stock
Awards
($)




Option
Awards
($)(2)

Non-Equity
Incentive
Plan
Compen-
sation
($)

Non-
qualified
Deferred
Compen-
sation
Earnings
($)

All Other
Compen-
sation
($)

Total
($)

Thomas Laws

-

-

-

-

-

-

-

Erich Hofer (1)

-

-

-

-

-

-

-

Frank Mueller

-

-

-

-

-

-

-

(1)Mr. Hofer received consulting fees on a monthly basis rather than a board fee.  

Effective July 1, 2013, we adopted the following schedule of annual fees for non-employee independent directors:


51



Policy for Compensation of Non-Employee Independent Directors Effective July 1, 2013
(Fees Paid Quarterly)

Quarterly Retainer:

$2,000

Attendance per Full Day Board Meeting:

$1,000

Attendance less than Full Day Board Meeting:

$500

Attendance per Telephonic Board Meeting:

$500

Annual Committee Membership:

$1,000

Annual Committee Chairmanship

$500

Attendance per Committee Meeting:

$500

Approval of Circular Resolution

$-0-

Stock Option Grants: .

Exercise price is based on the fair market value on the date of grant; five year term unless earlier terminated or exercised

Upon First Appointment to the Board:

200,000 options vesting twelve months from the date of grant.

January 1st of Each Year:

100,000 options vesting six months from the date of grant.

Expenses:

Reimbursement for out-of-pocket expenses in connection with attendance of board meetings and committee meetings.

Employment and Change in Control Agreements

On May 16, 2016, we entered into change of control agreements with our chief financial officer, who is also our secretary and treasurer. The change of control agreements provides that if there is a change of control of the Company and the individual leaves the employment of the Company, for reason other than discharge for cause, death, or disability, within six months after such change of control, the employee shall receive a lump sum cash payment of 200% of the base salary in effect at the time of change of control. In addition, the employee will continue to be covered by our medical, health, life and dental plans for 24 months after such cessation of employment.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, as of May 30, 2018, certain information regarding beneficial ownership of our capital stock according to the information supplied to us, that were beneficially owned by (i) each person known by the Company to be the beneficial owner of more than 5% of each class of the Company’s outstanding voting stock, (ii) each director, (iii) each named executive officer identified in the Summary Compensation Table, and (iv) all named executive officers and directors as a group.

 


52



Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.

 

 

Common Stock

 

Name and Address of Beneficial Owner

 

Shares

 

 

% of Class (1)