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EX-14 - CODE OF ETHICS - GOLDEN PHOENIX MINERALS INCgpxm10k20091231ex14.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - GOLDEN PHOENIX MINERALS INCgpxm10k20091231ex31-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - GOLDEN PHOENIX MINERALS INCgpxm10k20091231ex31-1.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 - GOLDEN PHOENIX MINERALS INCgpxm10k20091231ex32-1.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2009

OR

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

Commission File No. 000-22905

GOLDEN PHOENIX MINERALS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
 
41-1878178
(State or Other Jurisdiction
 
(I.R.S. Employer Identification
Of Incorporation or Organization)
 
Number)
     
1675 East Prater Way, Suite 102, Sparks, Nevada
 
89434
(Address of Principal Executive Offices)
 
(Zip Code)

Registrant’s telephone number, including area code (775) 853-4919

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

Common Stock, par value $0.001 per share
(Title of Class)


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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o No þ

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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þNo o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).    Yes oNo o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.    þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company þ

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

The aggregate market value of voting stock held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2009, was $4,054,297.  For purposes of this computation, it has been assumed that the shares beneficially held by directors and officers of registrant were “held by affiliates”; this assumption is not to be deemed to be an admission by such persons that they are affiliates of registrant.

The number of shares of registrant’s common stock outstanding as of April 5, 2010 was 234,328,762.
 
 
 
 


 
 

TABLE OF CONTENTS

PART I
   
         
ITEM 1.
 
BUSINESS
 
3
ITEM 1A.
 
RISK FACTORS
  13
ITEM 1B.
 
UNRESOLVED STAFF COMMENTS
  20
ITEM 2.
 
PROPERTIES
  20
ITEM 3.
 
LEGAL PROCEEDINGS
  20
         
PART II
   
         
ITEM 5.
 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  22
ITEM 6.
 
SELECTED FINANCIAL DATA
  24
ITEM 7.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  24
ITEM 7A.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  37
ITEM 8.
 
FINANCIAL STATEMENTS
  37
ITEM 9.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL  DISCLOSURE
  37
ITEM 9A(T).
 
CONTROLS AND PROCEDURES
  37
ITEM 9B.
 
OTHER INFORMATION
  38
         
PART III
   
         
ITEM 10.
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  39
ITEM 11.
 
EXECUTIVE COMPENSATION
  42
ITEM 12.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  50
ITEM 13.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  51
ITEM 14.
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES
  52
         
PART IV
   
         
ITEM 15.
 
EXHIBITS
  53
   
SIGNATURES
  54

 
 

 
 
PART I

 
ITEM 1.  BUSINESS

Description Of Business

As used in this Annual Report on Form 10-K, unless otherwise indicated, the terms “we,” “us,” “our” and “the Company” refer to Golden Phoenix Minerals, Inc., a Nevada corporation.

Forward-Looking Statements and Associated Risks. This Annual Report on Form 10-K contains forward-looking statements.  Such forward-looking statements include statements regarding, among other things, (1) our estimates of mineral reserves and mineralized material, (2) our projected sales and profitability, (3) our growth strategies, (4) anticipated trends in our industry, (5) our future financing plans, (6) our anticipated needs for working capital, (7) our lack of operational experience and (8) the benefits related to ownership of our common stock.  Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology.  These statements constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.  This information may involve known and unknown risks, uncertainties, and other factors that 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.  These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in this filing 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 Item 1A below and other risks and matters described in this filing and in our other SEC filings.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur as projected.  We do not undertake any obligation to update any forward-looking statements.

The Company

We are a mineral exploration, development and production company, formed in Minnesota on June 2, 1997.  On September 21, 2007, our shareholders voted in favor of a Plan of Merger to reincorporate from the State of Minnesota to the State of Nevada.  The reincorporation was completed on May 30, 2008.

Our business includes acquiring and consolidating mineral properties that we believe have a high potential for new mineral discoveries and profitability.  Our primary focus is on properties containing gold, silver and molybdenum that are located in Nevada.

Our main remaining mining property assets are the Northern Champion molybdenum property located in Ontario, Canada and the Duff claim block, located adjacent to the Ashdown Mine in northwestern Nevada.  In February 2007, we completed a purchase agreement with four individuals for the Northern Champion molybdenum property located in Ontario, Canada, and we plan to take bulk samples for metallurgical and market testing, and to actively explore and delineate molybdenum mineralization on the property as funding is available.  With available funding, we also plan to commence a surface mapping and sampling program covering sections of the 4,400 acres of claims within the Duff claim block.

 
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Some of our more significant recent events include the following:

·      On March 10, 2010, subsequent to our year end, we closed the Exploration, Development and Mining Joint Venture Members’ Agreement (the “Members’ Agreement”) entered into on December 31, 2009 with Scorpio Gold Corporation (“Scorpio Gold”) and its US subsidiary, Scorpio Gold (US) Corporation (“Scorpio US”).  At the closing, we sold Scorpio US an undivided 70% interest in the Mineral Ridge mineral properties and various related assets (the “Mineral Ridge Mine”) for a purchase price of $3,750,000 cash (less those amounts previously advanced to us by Scorpio Gold) and 7,824,750 common shares of stock of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately following the sale, the Company and Scorpio US each contributed their respective interests in the Mineral Ridge Mine to a joint venture formed to own and operate the Mineral Ridge Mine called Mineral Ridge Gold, LLC, a Nevada limited liability company (the “Mineral Ridge LLC”).  We also contributed to the Mineral Ridge LLC our interest in the reclamation bonds related to the Mineral Ridge Mine and Scorpio US contributed a net smelter royalty encumbering the Mineral Ridge Mine, which Scorpio US had acquired simultaneously with the closing of the Members’ Agreement.  We currently own a 30% membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in, and is the Manager of, the Mineral Ridge LLC, and has agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into production and, provided it does so within 30 months of the closing of the Members’ Agreement, will then have the right to increase its interest in the Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US qualifies to increase its ownership interest to 80%, it will also have the option to purchase our then remaining 20% interest for a period of 24 months following the commencement of commercial production..  There can be no assurance that Scorpio US will be successful in its ability to raise sufficient capital to fund the development of the Mineral Ridge Mine and attain a successful level of operations.

·      On January 25, 2010, we entered into an Employment Separation and Severance Agreement with David A. Caldwell, our former Chief Executive Officer and director (the “Caldwell Separation Agreement”).  The Caldwell Separation Agreement provides that Mr. Caldwell will form a new company, Phoenix Development Group, LLC, a Nevada limited liability company (“PDG”), to operate as a mine exploration and evaluation enterprise.  It is contemplated that Mr. Caldwell will serve as the Chief Executive Officer and Exploration Geologist of PDG and that we will own a 25% ownership interest in PDG in exchange for ongoing monthly cash payments of $7,500 (“PDG Payments”), such payments to commence 30 days after the formation of PDG and continue on a monthly basis for a period of 24 months, to be further detailed in a contribution agreement by and between PDG and the Company at a later time.  Further, pursuant to the Caldwell Separation Agreement, we will have a right of first refusal  to negotiate with PDG for the purchase of any mining, mineral or exploration property rights identified and acquired by PDG.  In addition, as set forth in the Caldwell Separation Agreement, PDG can be issued shares of our common stock in lieu of the PDG Payments.  There can be no assurance that PDG will be successful in its efforts to identify and acquire mineral property rights that will lead to significant commercial opportunities for us.

·      We suspended the molybdenum mining operations of the Ashdown Project LLC (the “Ashdown LLC”) in November 2008 in response to a substantial decline of molybdenum oxide market prices.  On May 13, 2009, we completed an agreement to sell 100% of our ownership interest in the Ashdown LLC. to Win-Eldrich Gold, Inc. (“WEG”).  WEG was a 40% co-owner of the Ashdown LLC with the Company since inception of the Ashdown LLC in September 2006.  The $5.3 million purchase price due the Company will be payable over a 72 month term, and WEG assumed substantially all of the liabilities of the Ashdown LLC.  There can be no guarantee or assurance that WEG will be successful in its ability to raise sufficient capital to fund the operations of the Ashdown LLC, attain a sustained profitable level of operations from the Ashdown LLC, or pay the Company the $5.3 million promissory note.

 
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The Company’s mining properties are discussed in further detail below.

Our corporate directors and officers have prior management experience with large and small mining companies.  We believe that we have created the basis for a competitive minerals exploration/development and operational company through assembling a group of individuals with experience in target generation, ore discovery, resource evaluation, mine development and mine operations.

We intend to continue to explore and develop properties.  We plan to provide joint venture opportunities for mining companies to conduct exploration or development on mineral properties we own or control.  We, together with any future joint venture partners, intend to explore and develop selected properties to a stage of proven and probable reserves, at which time we would then decide whether to sell our interest in a property or take the property into production alone or with our future partner(s).  By joint venturing our properties, we may be able to reduce our costs for further work on those properties, while continuing to maintain and acquire interests in a portfolio of gold and base strategic metals properties in various stages of mineral exploration and development.  We expect that this corporate strategy will minimize the financial risk that we would incur by assuming all the exploration costs associated with developing any one property, while maximizing the potential for success and growth.

Sources of Available Land for Mining and Exploration

There are at least five sources of land available for exploration, development and mining: public lands, private fee lands, unpatented mining claims, patented mining claims, and tribal lands.  The primary sources for acquisition of these lands are the United States government, through the Bureau of Land Management and the United States Forest Service, state and Canadian Provincial governments, tribal governments, and individuals or entities that currently hold title to or lease government and private lands.

There are numerous levels of government regulation associated with the activities of exploration and mining companies.  Permits, which we are maintaining and amending include “Notice of Intent” to explore, “Plan of Operations” to explore, “Plan of Operations” to mine, “Reclamation Permit,” “Air Quality Permit,” “Water Quality Permit,” “Industrial Artificial Pond Permit,” and several other health and safety permits.  These permits are subject to amendment or renewal during our operations.  Although there is no guarantee that the regulatory agencies will timely approve, if at all, the necessary permits for our current operations or other anticipated operations, we have no reason to believe that necessary permits will not be issued in due course.  The total cost and effects on our operations of the permitting and bonding process cannot be estimated at this time.  The cost will vary for each project when initiated and could be material.

The Federal government owns public lands that are administered by the Bureau of Land Management or the United States Forest Service.  Ownership of the subsurface mineral estate can be acquired by staking a twenty (20) acre mining claim granted under the General Mining Law of 1872, as amended (the “General Mining Law”).  The Federal government still owns the surface estate even though the subsurface can be controlled with a right to extract through claim staking.  Private fee lands are lands that are controlled by fee-simple title by private individuals or corporations.  These lands can be controlled for mining and exploration activities by either leasing or purchasing the surface and subsurface rights from the private owner.  Unpatented mining claims located on public land owned by another entity can be controlled by leasing or purchasing the claims outright from the owners.  Patented mining claims are claims that were staked under the General Mining Law, and through application and approval the owners were granted full private ownership of the surface and subsurface estate by the Federal government.  These lands can be acquired for exploration and mining through lease or purchase from the owners.  Tribal lands are those lands that are under control by sovereign Native American tribes.  Areas that show promise for exploration and mining can be leased or joint ventured with the tribe controlling the land.

 
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Competition And Mineral Prices

The mining industry has historically been intensely competitive and the increasing price of gold since 2002 has led a number of companies to begin once again to aggressively acquire claims and properties.

Capital Equipment and Expenditures

During the year ended December 31, 2009, our efforts were primarily focused on completing the sale of our interest in the Ashdown LLC and the formation of the joint venture related to the Mineral Ridge property; therefore, no material capital equipment was acquired by us.  The operations of our drilling department, formed in 2008, were suspended during the early portions of 2009 pending additional funding.  However, the drilling equipment was leased to a third-party operator for latter portions of 2009 and successfully used for exploratory drilling at the Mineral Ridge property.  The equipment is currently idle, pending future drilling opportunities.


Mining Properties And Projects

With the sale of our interest in the Ashdown, LLC and the formation of the Mineral Ridge LLC, our primary mining property assets are the Northern Champion molybdenum property located in Ontario, Canada and the Duff claims block, located adjacent to the Ashdown Mine in northwestern Nevada.  We also have retained a 30% membership in the Mineral Ridge LLC, which plans to bring the Mineral Ridge Mine into commercial production.

As further discussed below, we completed a purchase agreement with four individuals for the Northern Champion molybdenum property located in Ontario, Canada, and we plan to take bulk samples for metallurgical and market testing, and to actively explore and delineate molybdenum mineralization on the property as funding is available.  With available funding, we also plan to commence a surface mapping and sampling program covering sections of the 4,400 acres of claims within the Duff claims block.

Figures 1 and 2 below display our mining properties.

 
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Figure 1. Map showing the locations of the Nevada properties discussed in this Annual Report.  Our Duff claims block is located adjacent to the Ashdown Mine, which we sold our interest in on May 13, 2009, and we currently own a 30% interest in a joint venture which intends to place the Mineral Ridge Mine in commercial production.

 
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Figure 2. Map showing the Northern Champion property located within the Province of Ontario, Canada. The acquisition of this property was completed in February 2007.

 
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Northern Champion Property, Ontario, Canada

The Northern Champion property consists of approximately 880 acres in Griffith and Brougham Townships in the Province of Ontario, Canada (“Northern Champion Property”). On April 18, 2006, we executed a Purchase Agreement with Robert R. Robitaille, Douglas Lalonde, Sheldon Davis and Ronald E. Dockweiler (collectively, the “Vendors”) to acquire five (5) registered claims totaling 22 units on the Northern Champion Property together with a NI 43-101 Technical Report and Feasibility Study describing a molybdenite deposit within the area of the claims.

Pursuant to the terms of the agreement, we were obligated to pay $125,000 in four (4) equal quarterly installments of $31,250 commencing on August 15, 2006. Each payment was to be distributed as follows, $9,991.50 to Mr. Lalonde, $9,247.45 to each of Messrs. Robitaille and Davis, and $2,763.61 to Mr. Dockweiler. In addition, the agreement provided that we would issue 735,000 shares of our common stock to the Vendors. Mr. Lalonde received 235,000 shares, each of Messrs. Robitaille and Davis received 217,500 shares and Mr. Dockweiler received 65,000 shares. The agreement also provides that the Vendors will retain a 3.3% Net Smelter Return (“NSR”) on the sales of minerals taken from the Northern Champion Property. Each of Messrs. Lalonde, Robitaille and Davis will be entitled to receive 1% of the Net Smelter Return and Mr. Dockweiler will be entitled to receive 0.3% of the Net Smelter Return. Additionally, we will have the right of first refusal to purchase 1.65% of said Net Smelter Return from the Vendors for $1,650,000. We will have the ability to purchase 0.5% of said Net Smelter Return from each of Messrs. Lalonde, Robitaille and Davis and 0.15% of said Net Smelter Return from Mr. Dockweiler.

On February 12, 2007, the parties agreed to convert the remaining cash payments to an equivalent number of restricted shares of our common stock valued at the market close of $0.295 per share on that date. On February 16, 2007, 423,729 restricted shares of our common stock were issued to the Vendors and the purchase was completed. We now own 100% of the Northern Champion Property subject to the NSR reserved by the Vendors.

Duff Claims Block, Humboldt County, Nevada

We own the Duff claims block comprised of 211 mineral claims located along the western flank of the Pine Forest Range, 20 miles south of Denio, Humboldt County, Nevada.  The claims block, which was acquired in 2007, abuts the Ashdown Mine to the north and extends south to the border of the Blue Lake Wilderness Study Area.  The geology of the region is primarily tertiary cretaceous granites with quartz outcroppings.  Metals historically mined in the general region include gold, molybdenum, copper, tungsten and antimony.

The major mine feature of the Duff claims is the Adams Mine, which at one time produced silica.  However, there are historical reports that substantial gold was also extracted from the quartz rock.  Gold has also been mined in the Vicksburg, Ashdown and Cherry Creek canyons to the north, and Leonard Canyon to the south of the Duff claims.

Joint Venture Interest in Mineral Ridge Gold Mine, Esmeralda County, Nevada

The Mineral Ridge Mine is located four miles northwest of the town of Silver Peak and thirty-two miles west of Tonopah in Esmeralda County, Nevada. The property consists of 54 patented and 140 unpatented mining claims totaling nearly 3,880 acres, or 6 square miles. The property is accessed on the east side from state highway 265 and on the west side from a well-maintained gravel road. Heavy trucks access the site from the west entrance by way of state highway 264, which connects to state highway 773 and U. S. highway 6.  Also included are 3 private land parcels, which are located outside the main Mineral Ridge mine area. These are the abandoned Blair town site, the Silver Peak mill site, and deeded land west of Mineral Ridge over certain springs. These private lands total about 430 acres. The total combined acreage is equal to approximately 6.78 square miles.

 
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We purchased the Mineral Ridge mine in late 2000 out of bankruptcy.  Additional commitments were also assumed, including obligations to pay advanced royalty payments of $60,000 per year and the annual permit cost for the Nevada Department of Environmental Protection of approximately $20,000 during the time the permits were being transferred to us from the previous operator. We believe that prior mine operators had spent about $30 million on the property, which includes approximately $18 million in office, process, and ancillary facilities, about $2 million in engineering and feasibility studies, about $6 million in drilling and assays, $2 million in past permitting costs, and the remainder in site preparation.

The Mineral Ridge property holds three separate potentially economic mineable gold deposits, the Drinkwater, Mary, and Brodie. We believe that the property holds further mineral potential with identified targets potentially containing additional gold mineralization.  Operations began in 2003 once the bond (discussed below) was in place, including adding chemicals to the process solutions, plumbing the pad with drip lines and main trunk pipes, and mining both new and old stockpiled materials.  Our operations have yielded certain amounts of precious metal product (dore, a mixture of gold and silver) that has been sold resulting in revenues of approximately $2.3 million in 2005 and 2004.  In January 2005, we temporarily idled the mine pending full reviews of engineering and metallurgy, and optimization of a revised mine and operations plan.

In 2001, Golden Phoenix filed a $1.8 million interim reclamation bond, which allowed the Company to hold the Mineral Ridge property while other permitting was underway. We negotiated an interim bond amount to keep the project at status quo until a new plan and bond amount could be negotiated. On May 8, 2003, we received the new amended operating permit and on June 23, 2003, we filed a $2.7 million reclamation bond with the Bureau of Land Management with respect to the Mineral Ridge mine. We utilized an insurance-backed financial assurance program to acquire the bond. The program structure includes an insurance policy that will pay reclamation expenses as they occur. The insurance enabled us to acquire the necessary reclamation bond at a fixed and discounted rate for a term of 12 years.  It also allows us the flexibility to increase the bond in the future as operations recommence at Mineral Ridge.

As discussed previously, on March 10, 2010, we closed that certain Exploration, Development and Mining Joint Venture Members’ Agreement (the “Members’ Agreement”) entered into on December 31, 2009 with Scorpio Gold Corporation (“Scorpio Gold”) and its US subsidiary, Scorpio Gold (US) Corporation (“Scorpio US”), pursuant to which we sold Scorpio US an undivided 70% interest in our Mineral Ridge properties and various related assets (collectively referred to herein as the “Properties”).  At the closing, we received a purchase price of $3,750,000 in cash (less those sums previously advanced to us by Scorpio Gold), and 7,824,750 common shares of capital stock of Scorpio Gold at a deemed price of Cdn $0.50 per share (the “Sale”).   Immediately following the Sale, the Company and Scorpio US each contributed their respective interests in the Properties to a joint venture entity formed to own the Properties and conduct operations thereon, called Mineral Ridge Gold, LLC, a Nevada limited liability company (the “Mineral Ridge LLC”).  We also contributed to the Mineral Ridge LLC our interest in the above-referenced reclamation bonds related to the Properties and Scorpio US contributed that certain net smelter return royalty encumbering the Properties (the “NSR”), which NSR was acquired simultaneous with the closing.  In exchange for such contributions, we obtained an initial 30% ownership interest in the Mineral Ridge LLC and Scorpio US obtained an initial 70% ownership interest in the Mineral Ridge LLC.

 
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Scorpio US is the Manager of the Mineral Ridge LLC and has agreed to carry all finance costs necessary to bring the Properties into commercial production and, provided it does so within 30 months of the Closing, will then have the right to increase its joint venture interest in the Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US qualifies to increase its ownership interest in the LLC to 80%, it will also have the option to purchase the Company’s then-remaining 20% interest for a period of 24 months following the commencement of commercial production.

Bridge Loan and Debt Restructuring Agreement

As further detailed below under the section entitled Results of Operations within the Management’s Discussion and Analysis of Financial Condition and Results of Operations, on January 30, 2009, we entered into a Bridge Loan and Debt Restructuring Agreement with one of our investors, Crestview Capital Master, LLC (“Crestview”), whereby we entered into a bridge loan and a restructuring of certain original debt owed by the Company to Crestview.  The bridge loan, in the principal amount of $1,000,000, was secured by an interest in the Mineral Ridge property and was repaid in full at the closing of the joint venture transaction with Scorpio US on March 10, 2010, at which time Crestview released its security interest in the property.  Crestview maintains an ongoing security interest in our ownership interest in the Mineral Ridge LLC until we pay in full the debt restructuring promissory note in the principal amount of $1,000,000 plus interest accrued thereon, which has a maturity date of August 6, 2010.  Further, we issued Crestview an irrevocable assignment of fifty percent (50%) of our right to any proceeds from distributions made by the Mineral Ridge LLC, to be applied as a mandatory prepayment on the debt restructuring promissory note.

Alaskan Royalties

We own a 1% net smelter return royalty on two properties located in Alaska, Glory Creek and Uncle Sam.  We are not required to perform any work or make any payments for these royalties.

The Glory Creek property is 100% controlled by Great American Mineral Exploration, Inc. (“GAME”).  It is located in the Bonnifield mining district, about 60 miles south of Fairbanks.  Exploration work on the property has defined an anomalous zone of gold mineralization that requires drilling for the next phase of work.  We do not know if or when a discovery of gold mineralization will be made.

The Uncle Sam property is also 100% controlled by GAME.  The property is located in the Richardson Gold District, about 60 miles southeast of Fairbanks.  Their work has defined a strongly anomalous gold zone that requires drilling for the next phase of work.  Sumitomo and Kennecott acquired claims that abut the GAME position, and work by these entities and their Joint Venture partners have produced very strong results.  We do not know if or when a discovery of gold mineralization will be made.

Preliminary negotiations have been entered with GAME to explore the conversion of these royalty interests into an equity stake in this private company.  It is not certain what the outcome of these discussions will be.

Discontinued Ashdown Operations

On February 25, 2009, we entered into a Binding Memorandum of Understanding as well as two related binding side letter agreements (collectively, the “MOU”) with Win-Eldrich Gold, Inc. (“WEG”) , whereby we agreed to sell 100% of our ownership interest in the Ashdown LLC to WEG (the “Ashdown Sale”).  WEG was a co-owner of the Ashdown LLC with the Company since the inception of the Ashdown LLC in September 2006, with the Company owning a 60% membership interest and WEG owning a 40% membership interest.  The Ashdown LLC placed the Ashdown property into commercial operation in December 2006, and had sales of molybdenite concentrates of $10,398,361 for the year ended December 31, 2007 and sales of $10,537,370 during 2008 prior to suspension of operations in November 2008 due to significant declines in the market price of molybdenum.

 
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On May 13, 2009, pursuant to the material terms of the MOU, as further revised, negotiated and mutually agreed to by the Parties, we entered into definitive agreements that superseded the MOU, including a Purchase and Sale of LLC Membership Interest Agreement with WEG, to effectuate the Ashdown Sale (the “Purchase Agreement”).  As consideration for the Ashdown Sale and the Parties’ mutual release of certain claims against the other pursuant to the terms of a Settlement and Release Agreement (the “Release”), WEG will pay $5.3 million (the “Purchase Price”) to the Company, which will be satisfied by the issuance of a Limited Recourse Secured Promissory Note (the “Note”), for the full amount of the Purchase Price.

In particular, WEG will pay the Company $5.3 million and assume the majority of all obligations and liabilities held by the LLC, all as detailed and more fully set forth in the Purchase Agreement.  Pursuant to the terms and conditions of the Purchase Agreement and the Note, the Company, WEG and the LLC have also entered into a Security Agreement, a Short Form Deed of Trust and Assignment of Rents Agreement (the “Deed of Trust”), and certain other releases and side letter agreements (together with the Purchase Agreement and the Note, collectively, the “Transaction Documents”).

The terms and conditions of the Note, including term, interest rate and description of security interest are as follows: the terms of the Note include the payment of the Purchase Price together with simple interest on the unpaid principal amount of the Note at rate equal to the Wall Street Journal Prime rate plus two percent (2.00%), computed on a quarterly basis beginning April 1, 2009, for a term of 72 months, with the first payment due one (1) year from the date of Closing.  As security for the Note, the Purchase Price shall be secured by the assets and property of the LLC as well as one hundred percent (100%) of WEG’s ownership interest in the LLC (the “Collateral”).  The sole recourse of the Company under the Note for the collection of amounts owed and in the event of default shall be foreclosure as to the Collateral, as further detailed in the Security Agreement and Deed of Trust by and between the Parties.

Because of the current uncertainty of collecting the Note or realizing any value from the assets and property of the LLC upon foreclosure, the Note has been reduced 100% by an allowance account and recorded at no value in the accompanying consolidated balance sheet as of December 31, 2009, and no gain on disposition of our interest in the Ashdown LLC attributed to the $5.3 million Note has been recorded in the accompanying consolidated statements of operations for the year ended December 31, 2009.  We did, however, record a loss on sale of interest in joint venture of $235,303 for year ended December 31, 2009 resulting from our assumption of certain liabilities in the transaction and the elimination of all investment and loan accounts related to the Ashdown LLC.  Further gain, if any, on disposition of the interest in the Ashdown LLC will be recorded as cash payments are received on the Note or, if required, upon disposition of any assets or property of the Ashdown LLC due to foreclosure on the Note.

Pursuant to the Release, the Parties agreed to terminate any and all litigation and ongoing disputes existing between the Parties effective at Closing.

Finally, pursuant to the Purchase Agreement, Perry Muller, President of WEG, or his assignee, agreed to pay up to $100,000 of all payments made in settlement of the amounts owed by the Ashdown LLC to Retrievers LLC, and we secured a release from Retrievers LLC of any claim or title in or to the Ashdown Mill property, with Mr. Muller becoming the sole owner of the Ashdown Mill property (the “Retriever’s Settlement”).  Upon completion of the Retriever’s Settlement, Mr. Muller agreed to lease the Ashdown Mill property to the Ashdown LLC and convey the Ashdown Mill to the Ashdown LLC upon repayment to Mr. Muller by the Ashdown LLC of $100,000, plus a loan fee amount of $10,000, all as pursuant to that certain Ashdown Mill Binding Side Letter Agreement, dated May 13, 2009.

 
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Employees

Corporate Office

We have 2 key professionals and 2 support staff to perform management functions. We intend to employ independent contractors to fulfill short-term needs for accounting, permitting, and other administrative functions, and may staff further with employees as we bring new projects on line.

Drilling Services Division

We have suspended the operations of our drilling services division, pending additional funding and project opportunities, and currently do not have any employees in this division.

ITEM 1A.  RISK FACTORS

The risks described below are the ones we believe are most important for you to consider.  These risks are not the only ones that we face.  If events anticipated by any of the following risks actually occur, our business, operating results or financial condition could suffer and the price of our common stock could decline.

We Have A Limited Operating History With Significant Losses And Expect Losses To Continue For The Foreseeable Future.

We have yet to establish any history of profitable operations. We have incurred net losses of $2,798,747 and $7,056,582 for the years ended December 31, 2009 and 2008, respectively.  As a result, at December 31, 2009 we had an accumulated deficit of $47,421,049 and a total stockholders’ deficit of $6,355,454.  Our revenues have not been sufficient to sustain our operations. We recently sold our member interest in the Ashdown LLC.  The Ashdown LLC has been the only source of our operating revenues for the past three years.  We expect that our revenues will not be sufficient to sustain our operations for the foreseeable future.  Our profitability will require the successful commercialization of our mineral interest. We may not be able to successfully commercialize our mineral interests or ever become profitable.

There Is Doubt About Our Ability To Continue As A Going Concern Due To Recurring Losses From Operations, Accumulated Deficit And Working Capital Deficit All Of Which Means That We May Not Be Able To Continue Operations.

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with our consolidated financial statements for the years ended December 31, 2009 and 2008 with respect to the uncertainty of our ability to continue as a going concern.  As discussed in Note 2 to our consolidated financial statements for the year ended December 31, 2009, we have generated significant losses from operations, and had an accumulated deficit of $47,421,049 and a total stockholders’ deficit of $6,355,454 at December 31, 2009, which together raises doubt about our ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2 to our consolidated financial statements for the year ended December 31, 2009.

 
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The Consideration Received From The Sale Of Our Interest In The Ashdown LLC Is A Promissory Note For $5.3 million, The Collection Of Which Is Uncertain.

As consideration for the sale of our interest in the Ashdown LLC on May 13, 2009, WEG is obligated to pay us $5.3 million , which was satisfied by the issuance of a Limited Recourse Secured Promissory Note.  The Note bears interest at a rate equal to the Wall Street Journal Prime rate plus 2.0%, computed on a quarterly basis beginning April 1, 2009, for a term of 72 months, with the first payment due May 13, 2010.  The Note is secured by the assets and property of the LLC as well as 100% of WEG’s ownership interest in the LLC.  Our sole recourse under the Note for the collection of amounts owed and in the event of default shall be foreclosure as to the collateral, as further detailed in the Security Agreement and Deed of Trust by and between the Parties.  Because of the current uncertainty of collecting the Note or realizing any value from the assets and property of the LLC upon foreclosure, the Note has been reduced 100% by an allowance account and recorded at no value in the accompanying consolidated balance sheet as of December 31, 2009, and no gain on disposition of our interest in the Ashdown LLC attributed to the $5.3 million Note has been recorded in the accompanying consolidated statements of operations for the year ended December 31, 2009.

The Mineral Ridge LLC Has Been Recently Formed And Its Ultimate Success Is Uncertain

We currently own a 30% membership interest in the Mineral Ridge LLC which was formed on March 10, 2010.  Scorpio US owns a 70% membership interest in and is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into production and, provided it does so within 30 months of the closing of the Members’ Agreement, will then have the right to increase its interest in the Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US qualifies to increase its ownership interest to 80%, it will also have the option to purchase our then remaining 20% interest for a period of 24 months following the commencement of commercial production..  There can be no assurance that Scorpio US will be successful in its ability to raise sufficient capital to fund the development of the Mineral Ridge Mine and attain a successful level of operations.

We May Not Have Access To Capital In The Future As A Result Of Disruptions In Capital And Credit Markets.

Our ability to access capital or credit necessary to continue operations may be hindered by the continuing difficulties in the capital and credit markets both in the U.S. and internationally.  Moreover, longer term volatility and continued disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation of financial institutions, reduced alternatives or failures of significant financial institutions could affect adversely our access to the liquidity needed for our business in the longer term.  Such disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged.  The disruptions in the capital and credit markets have also resulted in higher interest rates on publicly issued debt securities and increased costs under credit facilities.  The continuation of these disruptions could increase our interest expense and capital costs and could affect adversely our results of operations and financial position including our ability to grow our business through joint ventures, sales or acquisitions.

We May Not Be Able To Secure Additional Financing To Meet Our Future Capital Needs Due To Changes In General Economic Conditions.

We anticipate needing significant capital to conduct further exploration and development needed to bring our existing mining properties into production, meet certain debt obligations and/or to continue to seek out appropriate joint venture partners or buyers for certain mining properties.  We may use capital more rapidly than currently anticipated and incur higher operating expenses than currently expected, and we may be required to depend on external financing to satisfy our operating and capital needs.  We may need new or additional financing in the future to conduct our operations or expand our business.  Any sustained weakness in the general economic conditions and/or financial markets in the United States or globally could affect adversely our ability to raise capital on favorable terms or at all.  From time to time we have relied, and may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes.  We may be unable to secure additional debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding.  If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders.  If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations on our operations including our ability to declare and pay dividends.  Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.

 
14

 

We May Not Be Able to Bring Our Obligations Current.

Due to the financial hardships we faced with the discontinuance of operations at Ashdown and subsequent sale of our membership interest in the Ashdown LLC, certain vendors and lenders of the Company have initiated actions to collect balances that are passed due.  We are attempting to negotiate mutually beneficial settlements with such vendors and lenders.  However, in the event that we do not have or are unable to raise sufficient capital to bring our obligations current or cannot negotiate settlements, we will experience difficulty in achieving our business objectives and will likely experience a negative impact on our business, financial condition and results of operations.

The Validity Of Our Unpatented Mining Claims Could Be Challenged, Which Could Force Us To Curtail Or Cease Our Business Operations.

A majority of our properties consist of unpatented mining claims, which we own or lease.  These claims are located on federal land or involve mineral rights that are subject to the claims procedures established by the General Mining Law.  We must make certain filings with the county in which the land or mineral is situated and with the Bureau of Land Management and pay annual holding fees of $133.50 per claim.  If we fail to make the annual holding payment or make the required filings, our mining claim could be void or voidable.  Because mining claims are self-initiated and self-maintained rights, they are subject to unique vulnerabilities not associated with other types of property interests.  It is difficult to ascertain the validity of unpatented mining claims from public property records and, therefore, it is difficult to confirm that a claimant has followed all of the requisite steps for the initiation and maintenance of a claim.  The General Mining Law requires the discovery of a valuable mineral on each mining claim in order for such claim to be valid, and rival mining claimants and the United States may challenge mining claims.  Under judicial interpretations of the rule of discovery, the mining claimant has the burden of proving that the mineral found is of such quality and quantity as to justify further development, and that the deposit is of such value that it can be mined, removed and disposed of at a profit.  The burden of showing that there is a present profitable market applies not only to the time when the claim was located, but also to the time when such claim’s validity is challenged.  However, only the federal government can make such challenges; they cannot be made by other individuals with no better title rights than us.  It is therefore conceivable that, during times of falling metal prices, claims that were valid when they were located could become invalid if challenged.  Title to unpatented claims and other mining properties in the western United States typically involves certain other risks due to the frequently ambiguous conveyance history of those properties, as well as the frequently ambiguous or imprecise language of mining leases, agreements and royalty obligations.  No title insurance is available for mining.  In the event we do not have good title to our properties, we would be forced to curtail or cease our business operations.

 
15

 

Environmental Controls Could Curtail Or Delay Exploration And Development Of Our Mines And Impose Significant Costs On Us.

We are required to comply with numerous environmental laws and regulations imposed by federal and state authorities.  At the federal level, legislation such as the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation Liability Act and the National Environmental Policy Act impose effluent and waste standards, performance standards, air quality and emissions standards and other design or operational requirements for various components of mining and mineral processing, including molybdenum, gold and silver mining and processing.  In addition, insurance companies are now requiring additional cash collateral from mining companies in order for the insurance companies to issue a surety bond.  This addition of cash collateral for a bond could have a significant impact on our ability to bring properties into production.

Many states, including the State of Nevada (where our Mineral Ridge and Ashdown properties are located), have also adopted regulations that establish design, operation, monitoring, and closing requirements for mining operations.  Under these regulations, mining companies are required to provide a reclamation plan and financial assurance to ensure that the reclamation plan is implemented upon completion of mining operations.  Additionally, Nevada and other states require mining operations to obtain and comply with environmental permits, including permits regarding air emissions and the protection of surface water and groundwater.  Although we believe that we are currently in compliance with applicable federal and state environmental laws, changes in those laws and regulations may necessitate significant capital outlays or delays, may materially and adversely affect the economics of a given property, or may cause material changes or delays in our intended exploration, development and production activities.  Any of these results could force us to curtail or cease our business operations.

Proposed Legislation Affecting The Mining Industry Could Have An Adverse Effect On Us.

During the past several years, the United States Congress considered a number of proposed amendments to the General Mining Law of 1872, which governs mining claims and related activities on federal lands.  For example, a broad based bill to reform the General Mining Law of 1872, the Hardrock Mining and Reclamation Act of 2007 (H.R. 2262) was introduced in the U.S. House of Representatives on May 10, 2007 and was passed by the U.S. House of Representatives on November 1, 2007, and has been submitted to the U.S. Senate where no action has been taken to date.

In 1992, a federal holding fee of $100 per claim was imposed upon unpatented mining claims located on federal lands.  This fee was increased to $125 per claim in 2005 ($133.50 total with the accompanying County fees included).  Beginning in October, 1994, a moratorium on processing of new patent applications was approved.  In addition, a variety of legislation over the years has been proposed by the United States Congress to further amend the General Mining Law.  If any of this legislation is enacted, the proposed legislation would, among other things, change the current patenting procedures, limit the rights obtained in a patent, impose royalties on unpatented claims, and enact new reclamation, environmental controls and restoration requirements.

For example, the Hardrock Mining and Reclamation Act of 2007 (H.R. 2262), if enacted, would have several negative impacts on the Company including but not limited to: requiring royalty payments of 8% of gross income from mining a claim on Federal land, or 4% of claims on Federal land that existed prior to the passage of this act; and prohibition of certain areas from being open to the location of mining claims, including wilderness study areas, areas of critical environmental concern, areas included in the National Wild and Scenic Rivers System, and any area included in maps made for the Forest Service Roadless Area Conservation Final Environmental Impact Statement.

 
16

 

The extent of any such changes to the General Mining Law of 1872 that may be enacted is not presently known, and the potential impact on us as a result of future congressional action is difficult to predict.  If enacted, the proposed legislation could adversely affect the economics of developing and operating our mines because many of our properties consist of unpatented mining claims on federal lands.  Our financial performance could therefore be materially and adversely affected by passage of all or pertinent parts of the proposed legislation, which could force us to curtail or cease our business operations.

The Development And Operation Of Our Mining Projects Involve Numerous Uncertainties.

Mine development projects, including our planned projects, typically require a number of years and significant expenditures during the development phase before production is possible.

Development projects are subject to the completion of successful feasibility studies, issuance of necessary governmental permits and receipt of adequate financing.  The economic feasibility of development projects is based on many factors such as:

 
estimation of reserves;

 
anticipated metallurgical recoveries;

 
future molybdenum, gold and silver prices; and

 
anticipated capital and operating costs of such projects.

Our mine development projects may have limited relevant operating history upon which to base estimates of future operating costs and capital requirements.  Estimates of proven and probable reserves and operating costs determined in feasibility studies are based on geologic and engineering analyses.

Any of the following events, among others, could affect the profitability or economic feasibility of a project:

 
unanticipated changes in grade and tonnage of material to be mined and processed;

 
unanticipated adverse geotechnical conditions;

 
incorrect data on which engineering assumptions are made;

 
costs of constructing and operating a mine in a specific environment;

 
availability and cost of processing and refining facilities;

 
availability of economic sources of power;

 
adequacy of water supply;

 
17

 

 
adequate access to the site;

 
unanticipated transportation costs;

 
government regulations (including regulations relating to prices, royalties, duties, taxes, restrictions on production, quotas on exportation of minerals, as well as the costs of protection of the environment and agricultural lands);

 
fluctuations in metal prices; and

 
accidents, labor actions and force majeure events.

Any of the above referenced events may necessitate significant capital outlays or delays, may materially and adversely affect the economics of a given property, or may cause material changes or delays in our intended exploration, development and production activities.  Any of these results could force us to curtail or cease our business operations.

Mineral Exploration Is Highly Speculative, Involves Substantial Expenditures, And Is Frequently Non-Productive.

Mineral exploration involves a high degree of risk and exploration projects are frequently unsuccessful.  Few prospects that are explored end up being ultimately developed into producing mines.  To the extent that we continue to be involved in mineral exploration, the long-term success of our operations will be related to the cost and success of our exploration programs.  We cannot assure you that our mineral exploration efforts will be successful.  The risks associated with mineral exploration include:

 
The identification of potential economic mineralization based on superficial analysis;

 
the quality of our management and our geological and technical expertise; and

 
the capital available for exploration and development.

Substantial expenditures are required to determine if a project has economically mineable mineralization.  It may take several years to establish proven and probable reserves and to develop and construct mining and processing facilities.  Because of these uncertainties, our current and future exploration programs may not result in the discovery of reserves, the expansion of our existing reserves or the further development of our mines.

The Price Of Molybdenum, Gold and Silver are Highly Volatile And A Decrease In The Price Of Molybdenum, Gold or Silver Would Have A Material Adverse Effect On Our Business.

The profitability of mining operations is directly related to the market prices of metals.  The market prices of metals fluctuate significantly and are affected by a number of factors beyond our control, including, but not limited to, the rate of inflation, the exchange rate of the dollar to other currencies, interest rates, and global economic and political conditions.  Price fluctuations of metals from the time development of a mine is undertaken to the time production can commence can significantly affect the profitability of a mine.  Accordingly, we may begin to develop one or more of our mines at a time when the price of metals makes such exploration economically feasible and, subsequently, incur losses because the price of metals decreases.  Adverse fluctuations of the market prices of metals may force us to curtail or cease our business operations.

 
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Our Mineral Reserve Estimates are Potentially Inaccurate.

We estimate our mineral reserves on our properties as either “proven reserves” or “probable reserves.”  Our mineral reserve figures and costs are primarily estimates and are not guarantees that we will recover the indicated quantities of these metals.  We estimate proven reserve quantities based on sampling and testing of sites conducted by us and by independent companies hired by us.  Probable reserves are based on information similar to that used for proven reserves, but the sites for sampling are less extensive, and the degree of certainty is less.  Reserve estimation is an interpretive process based upon available geological data and statistical inferences and is inherently imprecise and may prove to be unreliable.
 
Our reserves are reduced as existing reserves are depleted through production.  Reserves may be reduced due to lower than anticipated volume and grade of reserves mined and processed and recovery rates.
 
Reserve estimates are calculated using assumptions regarding metals prices.  These prices have fluctuated widely in the past.  Declines in the market price of metals, as well as increased production costs, capital costs and reduced recovery rates, may render reserves uneconomic to exploit.  Any material reduction in our reserves may lead to increased net losses, reduced cash flow, asset write-downs and other adverse effects on our results of operations and financial condition.  Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations.  No assurance can be given that the amount of metal estimated will be produced or the indicated level of recovery of these metals will be realized.
 
Mining Risks And Insurance Could Have An Adverse Effect On Our Profitability.

Our operations are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties, such as unusual or unexpected geological formations, environmental pollution, personal injuries, flooding, cave-ins, changes in technology or mining techniques, periodic interruptions because of inclement weather and industrial accidents.  Although we currently maintain insurance to ameliorate some of these risks, more fully described in the description of our business in this filing, such insurance may not continue to be available at economically feasible rates or in the future be adequate to cover the risks and potential liabilities associated with exploring, owning and operating our properties.  Either of these events could cause us to curtail or cease our business operations.

The Market Price Of Our Common Stock Is Highly Volatile, Which Could Hinder Our Ability To Raise Additional Capital.

The market price of our common stock has been and is expected to continue to be highly volatile.  Factors, including regulatory matters, concerns about our financial condition, operating results, litigation, government regulation, developments or disputes relating to agreements, title to our properties or proprietary rights, may have a significant impact on the market price of our stock.  The range of the high and low bid prices of our common stock over the last three (3) years has been between $0.35 and $0.01.  In addition, potential dilutive effects of future sales of shares of common stock by shareholders and by us, and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the price of our securities, which could hinder our ability to raise additional capital to fully implement our business, operating and development plans.

 
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Penny Stock Regulations Affect Our Stock Price, Which May Make It More Difficult For Investors To Sell Their Stock.

Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC.  Penny stocks generally are equity securities with a price per share of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market.  The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account.  In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules.  Our securities are subject to the penny stock rules, and investors may find it more difficult to sell their securities.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.  PROPERTIES

Our principal executive office consists of 7,000 square feet located at 1675 East Prater Way, Suite 102, Sparks, Nevada 89434. The principal offices are leased from WDCI, Inc in Sparks Nevada.  The lease has a seven (7) year term signed May 12, 2004, and is renewable.  We consider our existing facilities to be adequate for our foreseeable needs.  See the discussion above for a description of our mineral properties.

ITEM 3.  LEGAL PROCEEDINGS

With the shutdown of Ashdown operations, the sale of our interest in the Ashdown LLC and the ongoing difficulty raising capital, certain of our vendors and lenders have initiated actions to collect balances that are past due.  We are negotiating mutually beneficial settlements and payment plans with these parties.  However, our ability to bring such obligations current is dependent on our ability to raise additional capital.  There can be no assurance that we will be successful in these efforts.

Tetra Financial Group, LLC – On January 29, 2009, Tetra Financial Group, LLC (“Tetra”) filed a complaint in the Third District Court of Utah in Salt Lake County against the Ashdown Project, LLC, the Company, Win-Eldrich Mines Limited and certain principals of each company, claiming the breach of a lease agreement for the lease of two (2) ten-ton hauler trucks.  In February 2010, a settlement agreement was reached with Tetra resulting in no material financial impact to the Company.

Earl Harrison - We received a default judgment dated February 2, 2009 from the Second District Court of the State of Nevada in Washoe County entered in favor of Mr. Earl Harrison, awarding Mr. Harrison $165,197 plus accrued interest through December 31, 2008 of $5,094 and additional interest that accrues at a daily rate of $18.66 until the obligation is paid in full.  The judgment relates to a promissory note and accrued interest stemming from the lease of Mr. Harrison’s mining equipment and other amounts due him prior to the formation of the Ashdown LLC.  Additionally, on May 1, 2009, we received an Execution Order providing for attachment of personal property and/or certain specified amounts of earnings of the Company.  We have been in discussions with Mr. Harrison, and expect to reach an amicable resolution to this outstanding obligation and to extinguish this debt as funding allows.

 
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Ed Staub & Sons Petroleum, Inc. - On April 16, 2009, a complaint was filed in the Sixth District Court of the State of Nevada in Humboldt County against Ashdown LLC, the Company and WEG, requesting payment of $107,992 owed to them by the Ashdown LLC under an Application for Credit for the provision of fuel by the plaintiff, as well as seeking certain other relief, including a temporary restraining order on the proposed sale of the Company’s interest in Ashdown LLC.  The parties have been in discussions and expect to reach an amicable resolution to this outstanding obligation and to extinguish this debt as funding allows.

DMC-Dynatec Mining Services Corporation - On February 13, 2009, DMC Mining Services Corporation filed a complaint against the Company and the Ashdown Project, LLC in the U.S. District Court, District of Nevada (Reno), claiming approximately $108,448 due for mechanic’s labor based on a service contract  A default judgment as to both the Company and the Ashdown LLC was entered on July 26, 2009, which obligation was expressly assumed by WEG in connection with the closing of the sale of the Company’s interest in the Ashdown LLC on May 13, 2009.  As of the date of this Report, it is our understanding that WEG has negotiated a settlement with DMC Mining with respect to such obligation and that we will be indemnified and held harmless for any liability or obligation to DMC Mining in connection with the sale of our interest in Ashdown.

 
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PART II

ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has been publicly traded since August 6, 1997.  The securities are traded on the OTC Bulletin Board, and quoted on the OTC Bulletin Board under the symbol “GPXM.OB.”  The following table sets forth for the periods indicated the range of high and low bid quotations per share as reported by the OTC Bulletin Board for our past 2 years.  These quotations represent inter-dealer prices, without retail markups, markdowns or commissions and may not necessarily represent actual transactions.
 
Year 2008
High
Low
First Quarter
$0.31
$0.17
Second Quarter
$0.22
$0.16
Third Quarter
$0.19
$0.07
Fourth Quarter
$0.08
$0.01

Year 2009
High
Low
First Quarter
$0.03
$0.01
Second Quarter
$0.05
$0.01
Third Quarter
$0.04
$0.02
Fourth Quarter
$0.09
$0.03

Holders

On April 5, 2010, the closing price of our common stock as reported on the Over-the-Counter Bulletin Board was $0.05 per share.  On April 5, 2010, we had approximately 270 holders of record of common stock and 234,328,762 shares of our common stock were issued and outstanding, plus an additional 33,897,259 shares issuable upon the exercise of outstanding options and warrants.

Dividend Policy

We have not paid any dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.  We intend to retain any earnings to finance the growth of the business.  We cannot assure you that we will ever pay cash dividends.  Whether we pay any cash dividends in the future will depend on the financial condition, results of operations and other factors that the Board of Directors will consider.

Securities Authorized for Issuance under Equity Compensation Plans

In April 1998, the Board approved the Golden Phoenix Minerals, Inc. Stock Option Incentive Plan (the “1997 Stock Option Incentive Plan”), under which employees and directors of the Company are eligible to receive grants of stock options.  The Company has reserved a total of 1,000,000 shares of common stock under the 1997 Stock Option Incentive Plan.  Subsequent to this, the Employee Stock Incentive Plan of 2002 amended the 1997 Stock Option Incentive Plan and allows for up to 4,000,000 options to be granted (the “2002 Stock Option Incentive Plan”).  In addition to these qualified plans, the Company created a class of non-registered, non-qualifying options in 2000 to compensate its three principal employees for deferred salaries.  The Company’s executive management administers the plan.  Subject to the provisions of the 2002 Stock Option Incentive Plan, the Board has full and final authority to select the individuals to whom options will be granted, to grant the options, and to determine the terms and conditions and the number of shares issued pursuant thereto.

 
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On October 23, 2006, the Board approved the 2006 Non-Employee Director Stock Option Plan providing for 2,000,000 shares of the Company’s common stock to be reserved for issuance of awards of non-qualified stock options to non-employee directors of the Company pursuant to the terms and conditions set forth in the plan.

On September 21, 2007, our shareholders approved the 2007 Equity Incentive Plan (the “2007 Plan”) providing 9% of the total number of outstanding shares of common stock of the Company to be reserved and available for grant and issuance at the effective date of the 2007 Plan, with an increase at the beginning of each year if additional shares of common stock were issued in the preceding year so that the total number of shares reserved and available for grant and issuance, not including shares that are subject to outstanding awards, will be 9% of the total number of outstanding shares of common stock of the Company on that date.  No more than 2,000,000 shares of common stock shall be granted in the form of Incentive Stock Options.  Under the 2007 Plan, grants may be made to any director, officer or employee of the Company or other person who, in the opinion of the Board, is rendering valuable services to the Company, including without limitation, an independent contractor, outside consultant, or advisor to the Company.

The Company has also issued stock options on a stand-alone basis under no specific plan, which have been approved by the Board.

The following table presents information concerning outstanding stock options and warrants issued by the Company as of April 5, 2010.
 
Plan Category
(a) Number of
securities to be
issued upon
exercise of
of outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding options
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
       
Equity Compensation Plans Approved by Security Holders (1)
  2,050,000
$0.17
21,315,842
Equity Compensation Plans not Approved by Security Holders (2)
31,847,259
$0.06
       
Total
33,897,259
$0.05
21,315,842
____________

 
(1) Includes shares issuable upon exercise of stock options to employees and directors under the 2007 Plan.
 
(2) Includes 2,265,000 shares issuable upon exercise of stock options and 29,582,259 shares issuable upon exercise of warrants and stock purchase rights.

 
23

 

Recent Sales of Unregistered Securities
 
During the three months ended December 31, 2009, the Company issued a total of 6,500,000 unregistered common shares for the following consideration:
 
Name
 
# Shares
   
Amount
 
Consideration
               
Michael Margolin
    750,000     $ 14,962  
Cash
Lesweek Pty. Ltd.
    2,500,000       49,875  
Cash
Bradley Watts
    2,250,000       44,888  
Cash
Michael Fitzsimonds
    1,000,000       100,000  
Debt Repayment
                   
      6,500,000     $ 209,725    

We believe these transactions did not involve any public offering within the meaning of Section 4(2) of the Securities Act of 1933, as amended (the “Act”), and accordingly are exempt from the registration requirements of the Act and from various similar state exemptions.

Purchase of Equity Securities by the Small Business Issuer and Affiliated Purchasers

During the fourth quarter of the year ended December 31, 2009, neither the Company nor any of its affiliates purchased any equity securities of the Company.

ITEM 6.  SELECTED FINANCIAL DATA

This information is not required because we are a smaller reporting company.

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

Forward Looking Statements

Except for historical information, the following Management’s Discussion and Analysis contains forward-looking statements based upon current expectations that involve certain risks and uncertainties.  Such forward-looking statements include statements regarding, among other things, (a) our estimates of mineral reserves and mineralized material, (b) our projected sales and profitability, (c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for working capital, (g) our lack of operational experience and (h) the benefits related to ownership of our common stock.  Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology.  This information may involve known and unknown risks, uncertainties, and other factors that 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.  These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” as well as in this 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 Report generally.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.

 
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Overview

Golden Phoenix Minerals, Inc. (the “Company,” “Golden Phoenix,” “we,” “us” or “our”) is a mineral exploration, development and production company formed in Minnesota on June 2, 1997.  On May 30, 2008, we reincorporated in Nevada.  Our business includes acquiring and consolidating mineral properties with potential production and future growth through exploration discoveries.  Acquisition emphasis is focused on properties containing gold, silver, molybdenum and other strategic minerals that present low political and financial risk and exceptional upside potential. Currently, our main focus is in Nevada.

On May 13, 2009, we completed an agreement to sell 100% of our ownership interest in the Ashdown Project LLC (the “Ashdown LLC”) and, on March 10, 2010, closed an agreement dated December, 2009 for the purpose of contributing our Mineral Ridge Mine into the Mineral Ridge LLC to place the Mineral Ridge Mine into production.  As a result, the Ashdown LLC and the Mineral Ridge Mine are classified as discontinued operations for all periods presented in the consolidated financial statements.

We are pleased to report the completion of the sale of our interest in the Ashdown, LLC and believe that we have received fair and valuable consideration in the form of the note receivable of $5.3 million.  In addition, we believe that substantial value is represented in the assets of the Ashdown LLC that have been pledged as collateral for the note receivable.  However, generally accepted accounting principles preclude us from presenting an asset in our consolidated balance sheet as of December 31, 2009 and recognizing any gain on sale of our interest in the Ashdown LLC attributed to the note due to the uncertainty of collecting the note or realizing any value from the assets and property of the Ashdown LLC upon foreclosure.  Therefore, we have recorded a 100% valuation allowance against the $5.3 million note receivable as of December 31, 2009.  Payments received from WEG in the future, if any, will be recorded as either interest income or gain on sale of our interest in the Ashdown LLC.

With the sale of our interest in the Ashdown, LLC and the formation of the Mineral Ridge LLC, our primary mining property assets are the Northern Champion molybdenum property located in Ontario, Canada and the Duff claims block, located adjacent to the Ashdown Mine in northwestern Nevada.

In February 2007, we completed a purchase agreement with four individuals for the Northern Champion molybdenum property located in Ontario, Canada, and we plan to take bulk samples for metallurgical and market testing, and to actively explore and delineate molybdenum mineralization on the property as funding is available.  With available funding, we also plan to commence a surface mapping and sampling program covering sections of the 4,400 acres of claims within the Duff claims block, which was acquired in 2007.

Going Concern

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, we have a history of operating losses since our inception in 1997, and have an accumulated deficit of $47,421,049 and a total stockholders’ deficit of $6,355,454 at December 31, 2009, which together raises doubt about our ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Historically, we have obtained working capital from debt and equity financing, the exercise of options and warrants, and from a production payment purchase agreement to fund our activities.  The deterioration of capital markets has made it difficult for us to obtain debt and equity financing.  On January 30, 2009, we entered into a Bridge Loan and Debt Restructuring Agreement with Crestview Capital Master, LLC (“Crestview), whereby we borrowed $1 million.  Subsequently, the maturity date of this loan was extended from November 6, 2009 to February 6, 2010, and from February 6 to the earlier of the completion of a joint venture with respect to the Mineral Ridge Mine or April 6, 2010.  The loan was repaid in full on March 10, 2010, concurrent with the closing of the Mineral Ridge LLC, however, we remain obligated to Crestview under that certain Debt Restructuring Secured Promissory Note in the principal amount of $1 million issued pursuant to the Bridge Loan and Debt Restructuring Agreement, which has a maturity date of August 6, 2010.

 
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The operations of the Ashdown LLC have also funded a significant portion of our operating costs and expenses.  We suspended the mining operations of the Ashdown LLC in November 2008 in response to a substantial decline of molybdenum oxide market prices, with only incidental revenues during the period from January 1, 2009 through May 13, 2009.  On May 13, 2009, we completed an agreement to sell 100% of its ownership interest in the Ashdown LLC. to Win-Eldrich Gold, Inc. (“WEG”).  The $5.3 million purchase price due us will be payable over a 72 month term, and WEG will assume substantially all of the liabilities of the Ashdown LLC.  There can be no guarantee or assurance that WEG will be successful in its ability to raise sufficient capital to commence again the operations of the Ashdown LLC, attain a sustained profitable level of operations from the Ashdown LLC, or pay us the $5.3 million promissory note.

On March 10, 2010, subsequent to our year end, we closed the Exploration, Development and Mining Joint Venture Members’ Agreement (the “Members’ Agreement”) entered into on December 31, 2009 with Scorpio Gold and Scorpio US.  At the closing of the Members’ Agreement, we sold Scorpio US an undivided 70% interest in the Mineral Ridge Mine for a purchase price of $3,750,000 cash (less those amounts previously advanced to us by Scorpio Gold) and 7,824,750 common shares of stock of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately following the sale, the Company and Scorpio US each contributed their respective interests in the Mineral Ridge Mine to the Mineral Ridge LLC, a joint venture formed to own and operate the Mineral Ridge Mine.  We currently own a 30% membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in and is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into production.  There can be no assurance that Scorpio US will be successful in its ability to raise sufficient capital to fund the development of the Mineral Ridge Mine and attain a successful level of operations.

With the shutdown of Ashdown operations and the ongoing difficulty raising capital, certain of our vendors and lenders have initiated actions to collect balances that are past due.  We are negotiating mutually beneficial settlements and payment plans with these parties.  With the closing of the Mineral Ridge LLC, we did receive additional funds to repay certain obligations, including repayment of a $1,000,000 bridge loan.  However, the ability to bring all obligations current is dependent on the our ability to raise additional capital.  Further, there can be no assurance that we will attain a successful level of operations from our other properties, or to continue to raise capital at favorable rates or at all.  If we are unable to obtain profitable operations and positive operating cash flows and raise sufficient capital to meet scheduled and past due debt obligations, we may be forced to scale back our development plans or to significantly reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.  The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 
26

 

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a wide variety of estimates and assumptions that affect: (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increases, these judgments become even more subjective and complex. We have identified certain accounting policies that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 of the Notes to the Consolidated Financial Statements, and several of these critical accounting policies are as follows:

Property and Equipment.  Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over estimated useful lives of the assets, ranging from 5 to 7 years.

Mine development costs are capitalized after proven and probable reserves have been identified.  Amortization of mine development costs will be calculated using the units-of-production method over the expected life of the operation based on the estimated proven and probable reserves.  With the sale of our interest in the Ashdown LLC and the formation of the Mineral Ridge LLC, as of December 31, 2009, we had no proven or probable reserves.  Accordingly, through December 31, 2009, mining equipment and buildings are currently being depreciated on a straight-line basis over their estimated economic useful life rather than on a units-of-production method.

Property Acquisition and Deferred Mineral Property Development Costs. Mineral property acquisition and deferred mineral property development costs are recorded at cost and will be capitalized once determination has been made that a mineral property has proven or probable reserves that can be produced profitably. On the commencement of profitable commercial production, depletion of each mineral property acquisition and associated deferred property development costs will be computed on the units of production basis using estimated proven and probable reserves.

Exploration Properties.  Mineral exploration expenditures are expensed as incurred. Property acquisition costs relating to exploration properties are also expensed until the economic viability of the project is determined and proven and probable reserves quantified. Costs associated with economically viable projects are depreciated and amortized in accordance with the policies described above.

Proven and Probable Ore Reserves.  On a periodic basis, management reviews the reserves that reflect estimates of the quantities and grades of metals at our mineral properties which management believes can be recovered and sold at prices in excess of the total cost associated with mining and processing the mineralized material. Management’s calculations of proven and probable ore reserves are based on, along with independent consultant evaluations, in-house engineering and geological estimates using current operating costs, metals prices and demand for our products. Periodically, management obtains external determinations of reserves.

Reserve estimates will change as existing reserves are depleted through production, as well as changes in estimates caused by changing production costs and/or metals prices. Reserves may also be revised based on actual production experience once production commences. Declines in the market price of metals, as well as increased production or capital costs or reduced recovery rates, may render ore reserves uneconomic to exploit. Should that occur, restatements or reductions in reserves and asset write downs in the applicable accounting periods may be required. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. No assurance can be given that the estimate of the amount of metal or the indicated level of recovery of these metals will be realized.
 
We currently have no proven or probable ore reserves.
 
 
27

 
 
Closure, Reclamation and Remediation Costs.  Current laws and regulations require certain closure, reclamation and remediation work to be done on mineral properties as a result of exploration, development and operating activities.  We periodically review the activities performed on our mineral properties and makes estimates of closure, reclamation and remediation work that will need to be performed as required by those laws and regulations and makes estimates of amounts that are expected to be incurred when the closure, reclamation and remediation work is expected to be performed. Future closure, reclamation and environmental related expenditures are difficult to estimate in many circumstances due to the early stages of investigation, uncertainties associated with defining the nature and extent of environmental contamination, the uncertainties relating to specific reclamation and remediation methods and costs, application and changing of environmental laws, regulations and interpretation by regulatory authorities and the possible participation of other potentially responsible parties.

We have estimated costs associated with closure, reclamation and environmental reclamation of the Mineral Ridge property, which are included in its consolidated financial statements in liabilities of discontinued operations, in accordance with generally accepted accounting principles, in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 410, Asset Retirement and Environment Obligations.

Property Evaluations and Impairment of Long-Lived Assets.  We review and evaluate the carrying amounts of our mining properties and related buildings and equipment, and other long-lived assets when events or changes in circumstances indicate that the carrying amount may not be recoverable. Estimated future net cash flows, on an undiscounted basis, from a property or asset are calculated using estimated recoverable minerals (considering current proven and probable reserves and mineralization expected to be classified as reserves where applicable); estimated future mineral price realization (considering historical and current prices, price trends and related factors); and operating, capital and reclamation costs. Reduction in the carrying value of property, plant and equipment, or other long-lived assets, with a corresponding charge to earnings, are recorded to the extent that the estimated future net cash flows are less than the carrying value.

Estimates of future cash flows are subject to risks and uncertainties. It is reasonably possible that changes in circumstances could occur which may affect the recoverability of our properties and long-lived assets.

Note Receivable.  As of December 31, 2009, the note receivable of $5.3 million received from WEG in the sale of our interest in the Ashdown LLC has been reduced by a 100% valuation allowance due to the uncertainty of collecting the note or realizing any value from the assets and property of the Ashdown LLC upon foreclosure.  Payments received from WEG in the future, if any, will be recorded as either interest income or gain on sale of our interest in the Ashdown LLC.

Revenue Recognition.  Revenue from the sale of precious metals is recognized when title and risk of ownership passes to the buyer and the collection of sales proceeds is assured.  Revenue from the occasional rental of drilling equipment is recognized when the agreed upon rental period is completed and the collection of rental proceeds is assured.

 
28

 
 
Income Taxes.  We recognize a liability or asset for deferred tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled.  Deferred tax items mainly relate to net operating loss carry forwards and accrued expenses.  These deferred tax assets or liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  Deferred tax assets are reviewed periodically for recoverability, and valuation allowances are provided when it is more likely than not that some or all of the deferred tax assets may not be realized.  As of December 31, 2009 and 2008, we have fully reduced our deferred tax assets by recording a valuation allowance.

Stock-Based Compensation and Equity Transactions.  We have stock-based compensation plans, which are described more fully in the Notes to our Consolidated Financial Statements.  In accordance with ASC Topic 718, Compensation – Stock Compensation, we measure the compensation cost of stock options and other stock-based awards to employees and directors at fair value at the grant date and recognize compensation expense over the requisite service period for awards expected to vest.

Except for transactions with employees and directors that are within the scope of ASC Topic 718, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.  Additionally, in accordance with ASC Topic 505-50, Equity-Based Payments to Non-Employees, we have determined that the dates used to value the transaction are either: (1) the date at which a commitment for performance by the counter party to earn the equity instruments is established; or (2) the date at which the counter party’s performance is complete.

Recent Accounting Pronouncements

In June 2009, the FASB issued guidance now codified as ASC Topic 105, Generally Accepted Accounting Principles.  This standard establishes the FASB Accounting Standards Codification™ as the source of authoritative U.S. generally accounting principles (GAAP) recognized by the FASB to be applied to nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this standard, the Codification will supersede all then-existing non-SEC accounting and reporting standards.  All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative.  This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009, or our quarter ended September 30, 2009. We implemented this standard with no material impact on our consolidated financial statements.

In May 2009, the FASB issued guidance now incorporated into ASC Topic 855, Subsequent Events.  This standard sets forth: (a) the period after the balance sheet during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  The standard is effective for interim and annual periods ending after June 15, 2009, or our fiscal quarter ended June 30, 2009.  The implementation of this standard did not have a material impact on our consolidated financial statements.

 
29

 

In December 2007, the FASB issued guidance now incorporated into ASC Topic 810, Consolidation, that requires the ownership interests in subsidiaries held by parties other than the parent (minority interests) be clearly identified, labeled, and presented within the equity section of the consolidated balance sheet.  The guidance also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of operations, and that entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  The guidance is effective for fiscal years beginning on or after December 15, 2008, or our fiscal year beginning January 1, 2009.  Effective January 1, 2009, we revised our presentation for the noncontrolling interest in the Ashdown LLC in the accompanying consolidated financial statements for the years ended December 31, 2009 and 2008.


RESULTS OF OPERATIONS

Revenues

With the sale of our interest in the Ashdown LLC and the presentation of its operations as discontinued operations in our consolidated financial statements, we reported no sales of minerals for the years ended December 31, 2009 and 2008.

During the year ended December 31, 2009, we had rental income from the use of our drilling equipment of $63,056.  We had no rental income in the prior year.

Operating Costs and Expenses

Operating costs and expenses reported in the accompanying condensed consolidated statements of operations exclude the operating costs and expenses of the Ashdown LLC and the Mineral Ridge Mine due to the classification of these operations as discontinued operations.

General and administrative expenses were $1,760,363 and $3,023,051 for the years ended December 31, 2009 and 2008, respectively.  General and administrative expenses include investor relations, salaries and wages of officers and office and accounting personnel, legal and professional fees, and stock-based compensation expense.  The decrease in the current year is due to the substantial reduction in the number of employees and related administrative expenses pursuant to the suspension of operations at Ashdown and the sale of our interest in the Ashdown LLC.

Depreciation and amortization expense for the years ended December 31, 2009 and 2008 was $78,438 and $109,702, respectively.  Depreciation and amortization expense in the current year is less than in the prior year due to the retirement of certain mining and milling equipment in the current year.

Royalties expense for the year ended December 31, 2009 was $70,090, representing an amount that was converted to a note payable to an officer of the Company.  Royalties expense for the year ended December 31, 2008 was $1,158,337, comprised of cash royalty payments to members of Ashdown Milling and the issuance of our common stock to two of its members to buy out their membership interests in Ashdown Milling, thus reducing future royalty obligations on Ashdown LLC production.
 
 
30

 

Other Income (Expense)

Interest and other income for the year ended December 31, 2009 and 2008 was $4,541 and $11,264, respectively.  The decrease in interest and other income in the current year is due to decreased levels of interest-bearing deposits.

Interest expense for the years ended December 31, 2009 and 2008 was $760,521 and $97,089, respectively.  The increase in interest expense during the current year is due primarily to the addition of $2,000,000 of interest-bearing debt in the first quarter of 2009 and interest expense recorded upon the issuance of warrants associated with fund raising activities.

During the years ended December 31, 2009 and 2008, we reported a gain on extinguishment of debt of $1,032,579 and $46,528, respectively.  The increase in the gain in the current year resulted primarily from the restructuring of a production payment obligation of $1,974,456 to a long-term debt obligation of $1,000,000.

We reported a loss on sale of marketable securities in the year ended December 31, 2008 of $141,482.  We had no marketable security transactions during the year ended December 31, 2009.

Gains or losses on the disposal of property and equipment were insignificant to our consolidated financial statements in the years ended December 31, 2009 and 2008.

Discontinued Operations

We have reported the results of operations of the Ashdown LLC and the Mineral Ridge Mine in our consolidated financial statements as discontinued operations for the years ended December 31, 2009 and 2008, including the following:

   
2009
   
2008
 
   
Ashdown
LLC
   
Mineral
Ridge
   
 
Total
   
Ashdown
LLC
   
Mineral
Ridge
   
 
Total
 
                                     
Revenues
  $ 321,115     $ -     $ 321,115     $ 10,537,370     $ -     $ 10,537,370  
                                                 
Loss before income taxes
  $ (668,186 )   $ (593,423 )   $ (1,261,609 )   $ (1,014,488 )   $ (2,062,188 )   $ (3,076,676 )
Provision for income taxes
    -       -       -       -       -       -  
Loss from discontinued operations
    (668,186 )     (593,423 )     (1,261,609 )     (1,014,488 )     (2,062,188 )     (3,076,676 )
Loss on sale of interest in joint venture
    (235,303 )     -       (235,303 )     -       -       -  
Loss from discontinued operations
    (903,489 )     (593,423 )     (1,496,912 )     (1,014,488 )     (2,062,188 )     (3,076,676 )
Loss from discontinued operations attributable to noncontrolling interest
      267,274         -         267,274         496,352         -         496,352  
Loss from discontinued operations attributable to the Company
  $ (636,215 )   $ (593,423 )   $ (1,229,638 )   $ (518,136 )   $ (2,062,188 )   $ (2,580,324 )

The Ashdown LLC commenced operations and had its first sale of molybdenite concentrates in December 2006, with operations and sales ramping up during most of 2007.  We suspended the mining operations of the Ashdown LLC in November 2008 in response to a substantial decline of molybdenum oxide market prices, with only incidental revenues during the period from January 1, 2009 through May 13, 2009, the date we sold our interest in the Ashdown LLC.  No amounts for the Ashdown LLC are included in our consolidated statements of operations subsequent to that date.

 
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The Ashdown LLC reported a loss of $668,186 for the year ended December 31, 2009 compared to a loss of $1,014,488 for the year ended December 31, 2008.  As discussed above, mining operations were suspended and we had only incidental revenues in fiscal 2009 up to the date of sale of our interest in the Ashdown LLC.  We recognized a loss on sale of the interest in the Ashdown LLC of $235,303 in the year ended December 31, 2009.

Amounts included in loss from discontinued operations for the Mineral Ridge Mine include costs and expenses to maintain the property on standby status and exploration and development activities.  These expenses decreased in the current year due to lack of funding and the suspension of related activities of our drilling department.

Liquidity And Capital Resources

We have a history of operating losses since our inception in 1997, and had an accumulated deficit of $47,421,049 and a working capital deficit of $6,201,847 at December 31, 2009.

During the year ended December 31, 2009, we used net cash of $1,220,429 in operating activities, compared to $1,314,903 net cash used in operating activities during the year ended December 31, 2008.  The decrease in net cash used in operating activities in the current year is primarily due to the elimination of the non-cash gain on extinguishment of debt of $1,032,579 in the current year calculation.  Substantially all of the gain on extinguishment of debt resulted from the restructuring of a production payment obligation of $1,974,456 to a long-term debt obligation of $1,000,000.

During the year ended December 31, 2009, net cash provided by investing activities was $896,528 consisting of $900,000 in deposits received from Scorpio Gold, $353 in proceeds for the purchase of property and equipment, partially offset by the acquisition of property and equipment of $3,825.  During the year ended December 31, 2008, net cash used in investing activities was $222,498 consisting of $243,057 for the purchase of property and equipment, partially offset by proceeds from the sale of marketable securities of $20,559.

During the year ended December 31, 2009, net cash provided by financing activities was $1,117,997, comprised of proceeds from the issuance of debt of $1,000,000, proceeds from the amounts due related parties of $6,000, proceeds from the issuance of common stock of $249,400, and proceeds from the exercise of options and warrants of $3,000, partially offset by the payment of severance obligations of $21,429, debt of $72,905 and amounts due related parties of $46,069.

During the year ended December 31, 2008, net cash provided by financing activities was $636,807, comprised of proceeds from the amounts due related parties of $171,370, proceeds from the issuance of common stock of $739,122, and proceeds from the exercise of options and warrants of $25,658, partially offset by payments of severance obligations of $113,247, debt of $31,172, amounts due related parties of $114,898 and the payments of production payment obligation – related party of $40,026.

Our liquidity has been negatively impacted by the deterioration of capital markets, making it increasingly difficult for us to obtain debt and equity financing.  In addition, due to significant declines in the market price of molybdenum, during the first week of November 2008, we suspended the operations of the Ashdown LLC, where production costs per pound exceeded the market price per pound.  On February 25, 2009, we entered into an agreement to sell 100% of our ownership interest in the Ashdown LLC to Win-Eldrich Gold, Inc. (“WEG”) for $5.3 million.  The sale was completed on May 13, 2009.  As a result, we currently have no operating revenues and we will require additional funding from debt and equity financing to meet our current obligations, including substantial obligations that are past due.

 
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The $5.3 million purchase price due us from WEG will be payable over a 72 month term commencing one year from the closing of the sale, and WEG will assume substantially all of the liabilities of the Ashdown LLC.  There can be no guarantee or assurance that WEG will be successful in its ability to raise sufficient capital to recommence the operations of the Ashdown LLC, attain a sustained profitable level of operations from the Ashdown LLC, or pay us the $5.3 million promissory note.

We entered into a letter agreement dated May 19, 2009, as subsequently amended on July 17, 2009, with Scorpio Gold for the purpose of completing due diligence prior to entering into a possible joint venture to place the Mineral Ridge Mine into production.  Upon execution of the letter agreement, Scorpio Gold paid us $50,000 and commenced a 15 day due diligence period.  On June 18, 2009, Scorpio Gold notified us that it had completed preliminary due diligence and intended to proceed with the acquisition of the Mineral Ridge Mine and the formation of a joint venture.

Through December 31, 2009, Scorpio Gold paid us an additional $850,000 plus certain expenses, as part of ongoing monthly payments to be credited toward the ultimate purchase price while the parties finalized negotiations and definitive agreements.  The payments to us are non-refundable, and the total payments through December 31, 2009 of $900,000 have been recorded as a deposit, a current liability.

On March 10, 2010, subsequent to year end, we closed the Members’ Agreement entered into on December 31, 2009 with Scorpio Gold and Scorpio US.  At the closing of the Members’ Agreement, we sold Scorpio US an undivided 70% interest in the Mineral Ridge Mine for a purchase price of $3,750,000 cash (less those amounts previously advanced to us by Scorpio Gold) and 7,824,750 common shares of stock of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately following the sale, the Company and Scorpio US each contributed their respective interests in the Mineral Ridge Mine to the Mineral Ridge LLC to own and operate the Mineral Ridge Mine.  We also contributed to the Mineral Ridge LLC our interest in the reclamation bonds related to the Mineral Ridge Mine and Scorpio US contributed a net smelter royalty encumbering the Mineral Ridge Mine, which Scorpio US had acquired simultaneously with the closing of the Members’ Agreement.  We currently own a 30% membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in and is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into production and, provided it does so within 30 months of the closing of the Members’ Agreement, will then have the right to increase its interest in the Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US qualifies to increase its ownership interest to 80%, it will also have the option to purchase our then remaining 20% interest for a period of 24 months following the commencement of commercial production.  There can be no assurance that Scorpio US will be successful in its ability to raise sufficient capital to fund the development of the Mineral Ridge Mine and attain a successful level of operations.

In connection with the closing of the Members’ Agreement and the formation of the Mineral Ridge LLC on March 10, 2010, we repaid the $1,000,000 Bridge Loan and Crestview released its security interest in the Mineral Ridge Mine.

At December 31, 2009, we had cash of $94,785, but total current liabilities of $6,312,136.  Our current liabilities at December 31, 2009 included deposits received from Scorpio Gold totaling $900,000, which were credited to the cash portion of the purchase price of our 70% interest in the Mineral Ridge Mine. With no operating revenues and difficulties experienced in raising debt and equity capital, our current cash and cash equivalents and the proceeds from the sale of our interest in the Mineral Ridge Mine will be sufficient for our current level of operations in the near term.  We have, however, significantly reduced our operating costs, including a reduction in force.  In order to increase the level of our operations, commence again the activities of our drilling department and explore or develop our mineral properties, we will require additional capital.

 
33

 

With the shutdown of Ashdown operations and the ongoing difficulty raising capital, certain of our vendors and lenders have initiated actions to collect balances that are past due.  We are negotiating mutually beneficial settlements and payment plans with these parties.  However, the ability to bring the obligations current is dependent on our ability to raise additional capital.  Further, there can be no assurance that we will attain a successful level of operations from our other properties, or to continue to raise capital at favorable rates or at all.  If we are unable to obtain profitable operations and positive operating cash flows and raise sufficient capital to meet scheduled and past due debt obligations, we may be forced to scale back our development plans or to significantly reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.

On January 30, 2009, we entered into a Bridge Loan and Debt Restructuring Agreement (the “Agreement”) with Crestview Capital Master, LLC (the “Lender”), whereby the Company and the Lender entered into a bridge loan and a restructuring of the original debt in the amount of $1,974,456 owed by us to the Lender pursuant to the Production Payment Purchase Agreement and Assignment, dated June 12, 2007 (the “Original Debt”).

Pursuant to the Agreement, we borrowed from the Lender the principal amount of $1,000,000 (the “Principal Amount”) in exchange for the Company issuing the Lender a Bridge Loan Secured Promissory Note (the “Bridge Note”) for the Principal Amount plus interest to accrue on a quarterly basis at a rate of the Wall Street Journal Prime Rate plus 2%.  On October 26, 2009, we and the Lender agreed to restructure the Bridge Note to extend the maturity date from November 6, 2009 to February 6, 2010.  Pursuant to a side letter agreement between the Company and the Lender dated January 13, 2010, the Lender agreed to extend the Maturity Date for successive one week periods for an extension fee of $10,000 per weekly period, prorated for any portion thereof, but in no event beyond April 6, 2010.  On March 10, 2010, the Bridge Note was repaid in full concurrently with the formation of the Mineral Ridge LLC.

Additionally, pursuant to the Agreement, the Company and Lender restructured the Original Debt, which was recorded as a production payment obligation, a current liability in our consolidated balance sheet as of December 31, 2008.  In consideration of the reduction of the Original Debt from $1,974,456 to $1,000,000, we executed a Secured Promissory Note in the principal amount of $1,000,000 (the “Debt Restructuring Note”) together with interest at a rate equal to the Wall Street Journal Prime Rate plus 2%, with a maturity date of August 6, 2010, as well as issue certain warrants to purchase Company common stock as further described below.  As a result, we recorded a gain on extinguishment of debt of $974,456 in the accompanying consolidated statement of operations for the year ended December 31, 2009.  Upon formation of the joint venture with Scorpio US in relation to the Mineral Ridge Property, we issued an irrevocable assignment to the Lender of 50% of all distributions to be made to us by the joint venture as prepayment for the amount outstanding on the Debt Restructuring Note.  Upon payment in full of the Debt Restructuring Note and any additional note issued pursuant to Section 3 of the Bridge Note, the Lender will release the joint venture from the assignment.

On October 26, 2009, the Company and Crestview also agreed to restructure the terms of the $1 million Debt Restructuring Note to change the maturity date from February 6, 2011 to August 6, 2010.  We executed an Amended and Restated Debt Restructuring Promissory Note dated October 29, 2009 to reflect the same.  The terms of the Amended and Restated Debt Restructuring Note were also modified to require us to prepay the Amended and Restated Debt Restructuring Note to the extent of 50% of any debt or equity financing received by us.  As a result of the change in the maturity date, the Debt Restructuring Loan of $1 million has been recorded as a current liability in the accompanying consolidated balance sheet at December 31, 2009.

 
34

 

We paid the Lender $50,000 as part of the consideration for amending each of the Bridge Loan and debt restructuring agreements set forth above.

As of the Closing of the Bridge Loan and Debt Restructuring, and as additional consideration for the restructuring of the Original Debt, we issued to the Lender warrants to purchase 23,000,000 shares of the Company’s common stock, at an exercise price of $0.03 per share, for a purchase period of 24 months (the “Debt Restructuring Warrants”). The Debt Restructuring Warrants and the Bridge Warrants (collectively referred to herein as the “Warrants”) are subject to certain registration rights, which the Lender, at present, has agreed to waive in lieu of utilizing Rule 144, as necessary, to remove any restrictive legends on its securities.  The provisions of the Debt Restructuring Warrants were modified pursuant to an Amended and Restated Restructuring Warrant dated October 29, 2009 to provide that in the event there is an issuance of shares or common stock, convertible debt or equity, or warrants or options, at a price per share or convertible or exercisable at a price per share below the Warrant Price (as defined), then the Warrant Price shall be reduced to the price per share of the common stock so issued or issuable, and the number of Warrant Shares (as defined) shall be adjusted to the extent required to enable the Holder to acquire additional shares of common stock representing the same percentage of the shares issued and/or issuable as a result of the transaction as the number of Warrant Shares exercisable immediately prior to the transactions represents of the number of shares of common stock issued and outstanding immediately prior to the transaction.

As security for the Bridge Note and the Debt Restructuring Note, the Parties agreed to amend and restate their Security Agreement, dated June 12, 2007, which secures the Company’s repayment obligations pursuant to the Agreement (the “Amended Security Agreement”).  The secured interest in favor of the Lender has been perfected by the filing of a UCC-1 Financing Statement with the Nevada Secretary of State as well as the filing of a Deed of Trust and Mortgage with Esmeralda County.

Pursuant to the Agreement, in consideration of our issuance of the Bridge Note, the Debt Restructuring Note, the Debt Restructuring Warrants, and the Amended Security Agreement, the Lender released us from all past, present, and future claims relating to the Original Debt provided that we pay the interest and principal of the current obligations on the day such interest and principal become payable.

Because production payments from the Ashdown mine were not assured at the time of the agreement with Ashdown Milling, the transaction was originally accounted for as the sale of an interest in mineral properties with the related gain to be deferred until we began making payments according the terms of the agreement.  A total of $1,500,000 was advanced to us pursuant to this agreement, with the proceeds allocated as follows.

Common stock
  $ 370,100  
Warrants
    225,333  
Deferred revenue
    904,567  
         
    $ 1,500,000  

The allocation of the proceeds to common stock was based on the quoted market price of the Company’s common stock on the date the shares were issued to the Ashdown Milling members.  The allocation of the proceeds to warrants, also recorded to common stock, was based on the estimated value of the warrants calculated using the Black-Scholes valuation model.

 
35

 

With the commencement of mining operations at the Ashdown mine, we reclassified the deferred revenue to a production payment obligation – related party, a current liability, to be repaid from our share of production distributions received from the Ashdown LLC.  As of December 31, 2008, we had paid the $904,567 production payment obligation.  Amounts paid to Ashdown Milling members in excess of the original obligation recorded of $904,567 will be reported as royalties expense.

On February 6, 2008 we bought out the membership interests of two members of Ashdown Milling, Charles D. Murphy and Acco Investment Inc., in exchange for 1,866,667 shares of the Company’s common stock and $139,092 cash paid to each of them.  As a result, their membership interests in Ashdown Milling were extinguished, and our remaining production payment to be paid to Ashdown Milling was reduced from a 12% net smelter returns royalty on the minerals produced to 7.2%.

For the year ended December 31, 2008, we reported royalties expense of $1,158,337 comprised of the following:

Common stock – 3,733,334 shares at $0.225 per share
  $ 840,000  
Exercise of warrants – 300,000 shares at $0.20 per share
    60,000  
Cash payments
    258,337  
         
    $ 1,158,337  

As a consequence of the sale of our interest in the Ashdown LLC, the members of Ashdown Milling will no longer have a net smelter returns royalty on Ashdown LLC production.  We intend to pay the remaining royalty obligation as sales proceeds are received from WEG.

We continue to investigate other potential financing sources.

 
36

 

ITEM 7A.  QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8.  FINANCIAL STATEMENTS

Our consolidated financial statements appear beginning at page F-1.

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

None.

ITEM 9A (T).  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2009.  Based on that evaluation, the Company’s chief executive officer and chief financial officer concluded that the disclosure controls and procedures employed at the Company were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Exchange Act Rules 13a-15(f).  The Company’s internal control system is designed to provide reasonable assurance to its management and board of directors regarding the preparation and fair presentation of published financial statements.  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under that framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

We believe that our consolidated financial statements for the year ended December 31, 2009 included in this report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  The Company’s internal control over financial reporting was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met.  In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
37

 

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the fourth fiscal quarter, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION

None.


 
38

 

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following table sets forth the names and ages of our current directors and executive officers and positions with us held by each person.  Our Board of Directors (the “Board”) consists of 6 seats.  Directors serve for a term of one (1) year and stand for election at our annual meeting of shareholders.  Pursuant to our Bylaws, a majority of directors may appoint a successor to fill any vacancy that occurs on the Board between annual meetings.  Our executive officers are appointed by our Board of Directors.  There are no family relationships among our directors and executive officers.

        Name
Age
                Position
     
Thomas J. Klein
47
Chief Executive Officer, Director
J. Roland Vetter
58
Chief Financial Officer, Director
Robert P. Martin
59
President, Secretary, Chairman of the Board, Director
David A. Caldwell
49
Former Chief Executive Officer, Former Chief Financial Officer, Former Director
Corby G. Anderson
53
Director
Kent D. Aveson
57
Director
Clyde C. Harrison
66
Director, Chair of the Audit Committee
Donald R. Prahl
63
Former Chief Operating Officer

Biographies

Thomas J. Klein.  Mr. Klein has been a director of the Company since December, 2008 and was appointed to the position of Chief Executive Officer, effective February 1, 2010.  Mr. Klein is a Tier One capital markets advisor having specialized in high net worth corporate and trust accounts for a premier Canadian bank.  Additionally, Mr. Klein advises resource-based small cap companies, assisting in all aspects of creative funding and restructuring.  Mr. Klein has recently co-founded MI3 Capital, which is focused on investing in the resource sector, specifically those companies that are in or near production.  From May, 1996 to August, 2001, Mr. Klein was an investment advisor at Scotia Capital Markets in the wealth management division providing investment portfolio advice for high net worth private and corporate clients.  From September, 2001 to March, 2003, Mr. Klein joined Blackmont Capital, Inc. as an investment advisor and served on the internal listing committee.  Mr. Klein provided advice to corporate clients for mergers and acquisitions as well as initial public offerings.  From April, 2003 to October, 2003, Mr. Klein worked in Institutional Sales with PI Financial Corp.  Since October, 2003, Mr. Klein has worked as a consultant for Private Venture Capital, providing specialized advice to public and private small cap companies in the resource and high tech sectors.

J. Roland Vetter.  Mr. Vetter was appointed as the Company’s Chief Executive Officer, effective February 1, 2010.  Mr. Vetter is also a Director and served as the Chairman of the Audit Committee of the Company from May, 2008 until February 1, 2010.  Since 2006, Mr. Vetter has been the CFO of QuadTech International, Inc.  Since 2004, Mr. Vetter has been CFO and a director of iPackets International, Inc.  Since May 2008, Mr. Vetter has been CFO of Albonia Innovative Technologies, Ltd.  Since April 2008, Mr. Vetter has been CFO of Conventus Energy, Inc.  From 2002 to 2008, Mr. Vetter was a director of Dasek Securities, Ltd., a Bermuda company.  From 2003 to 2005, Mr. Vetter was the president and CFO of Cardinal Minerals, Inc.  From 2003 to 2004, Mr. Vetter was the CFO of Globetech Ventures, Inc.  From 2005 to 2007, Mr. Vetter was the President and CFO of International Gold Resources, Inc.  From 1986 to 1998, Mr. Vetter held various positions with Zimco Group, part of the New Mining Business Division of Anglo American Corporation.  Mr. Vetter was the former Group Financial Services Director for the Zimco Group and a former Chairman of the Anglo American Audit Liaison Committee.  Mr. Vetter is a member of both the Canadian and South African Institute of Chartered Accountants.  He earned his Bachelor of Commerce and Bachelor of Accounting degrees from the University of the Witwatersrand in South Africa.

 
39

 

Robert P. Martin.  Effective February 1, 2010, Mr. Martin was appointed to serve as the Chairman of the Company’s Board.  Mr. Martin has been President of the Company since January, 2007 and Corporate Secretary since January, 2006.  Mr. Martin served as Executive Vice President from January, 2006 to January, 2007.  Mr. Martin first joined the Company as Director of Corporate Development in 2005.  Since 1992, Mr. Martin has been the co-owner, CEO and Vice President of Waikiki Beach Activities, Inc., a Hawaii-based beach and pool concessionaire under contract to the Hilton Corporation.  Mr. Martin’s background includes company turn-arounds, communications, public relations and human resources.  He holds a Bachelor of Science degree in Political Science from Washington University and completed post-graduate business studies at the University of Washington.  Since 1985, Mr. Martin has donated time as President of Pacific Marine Research, a non-profit education organization based in Seattle, Washington.

David A. Caldwell. Effective February 1, 2010, Mr. Caldwell resigned as the Chief Executive Officer, Chief Financial Officer and as a member of the Board of Directors of the Company.  Mr. Caldwell had been a Director of the Company since its inception in 1997.  He had been the Chief Executive Officer since January, 2007 and the Chief Financial Officer since November, 2008.  Mr. Caldwell served as President and Chief Operating Officer from January, 2006 to his appointment as Chief Executive Officer in January, 2007.  Further information regarding Mr. Caldwell’s separation can be found on our Current Report on Form 8-K as filed with the SEC on January 29, 2010.

Corby G. Anderson, Ph.D.  Dr. Anderson has served as a Director of the Company since September, 2006.  Since 1997, Dr. Anderson has been a Director and the Principal Process Engineer for the Center for Advanced Mineral and Metallurgical Processing at Montana Tech in Butte, Montana.  He is professionally registered as a Charted Chemical Engineer and as a Qualified Professional.  In addition to being a full research professor, Dr. Anderson has 28 years of experience in process, chemical and metallurgical engineering and industrial plant operations.  He has implemented hydrometallurgical technologies for precious and base metal recovery, process control, separations and refining.  Dr. Anderson has been responsible for engineering design, start-up and operations of mineral processing and hydrometallurgical plants processing a broad range of precious and base metals.  He is active in many professional organizations including participation as an SME Director and Vice President, IPMI Director, Trustee for Northwest Mining Association and Fellow of the Institution of Chemical Engineers.  He received his B.Sc., Chemical Engineering, from Montana State University, his M.Sc., Metallurgical Engineering, from Montana Tech, and his Ph.D., Metallurgical Engineering, from the University of Idaho. Dr. Anderson holds several international patents in process engineering.

Kent D. Aveson.  Mr. Aveson has been a director of the Company since September, 2006.  From October, 2007 to November, 2008, Mr. Aveson was the general manger of the Ashdown Project LLC, a subsidiary of the Company.  From 2005 to October, 2007, Mr. Aveson was the Director of Continuous Improvement for Barrick Goldstrike Mines, Inc.’s Bald Mountain Mine in Elko, Nevada.  This involved support of the Underground Division to problem solve, plan and develop improvement teams, train, and deliver multi-million dollar annual cost savings.  From 2001 to 2005, Mr. Aveson held various management positions with Washington Tru Solutions, Inc.  This involved managing mine waste operations.  From 1997 to 2001, he was manager of mines for Mississippi Potash, Inc.  He is also a former member of the Board of Directors for the New Mexico State Mining Association.  He is a two-time recipient of MSHA’s top Sentinels of Safety Award and a four-time winner of the New Mexico Operator of the Year Award. Mr. Aveson has 33 years of mining experience.  Mr. Aveson earned his B.S. in Geological Engineering from the University of Utah.

 
40

 

Clyde C. Harrison.  Mr. Harrison has been a director of the Company since June 27, 2009.  Mr. Harrison was appointed Chair of the Company’s Audit Committee, effective February 1, 2010.  Most recently, Mr. Harrison was the Founding Member of Beeland Management Company, LLC.  During his 5-year tenure as its CEO, Mr. Harrison managed the Rogers Raw Materials Index Funds, which gained 150% while the benchmark S&P index gained 1%.  From 2004 until 2007, Mr. Harrison was a member of the board of directors of Geocom Resources, Inc., an early exploration stage mineral resource company.  Mr. Harrison has served as a pension fund consultant and has extensive experience as a derivative trader.  Mr. Harrison began his career in 1968 in finance with Lamson Brothers.  In 1974, he became General Partner with Carl Icahn, managing hedge positions for corporate takeovers.  Mr. Harrison later served as a consultant to Commerz Bank, creating the risk control system employed to relocate their futures headquarters from Europe to Chicago.  Mr. Harrison has also served as General Partner for a number of private investment and trading funds.  Mr. Harrison is a former member of the Managed Futures Committee of the Chicago Mercantile Exchange.  He has consulted for NBD Bank and Northern Trust, and Mr. Harrison has served as a Special Consultant to the Chairman of the Chicago Board Options Exchange.  Mr. Harrison is a prior member of the International Monetary Market.
 
Donald R. Prahl.  Mr. Prahl served as the Company’s Chief Operating Officer from January 31, 2007 until July 28, 2009, when the Company and Mr. Prahl entered into a Separation Agreement.  Formerly, beginning on August 14, 2006 and ending on January 31, 2007, Mr. Prahl served as the Vice President of Operations of the Company and the Interim General Manager at the Ashdown Mine.
 
Nominations to the Board of Directors

There were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.

Audit Committee Financial Expert

We have established a separate Audit Committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  We believe Mr. Vetter, former Audit Committee Chairman, was an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K during the fiscal year ended December 31, 2009.  Currently, we believe Mr. Harrison, current Audit Committee Chairman is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K.

Audit Committee Report

The Audit Committee reviews the Company’s internal accounting procedures, consults with and reviews the services provided by the Company’s independent accountants and makes recommendations to the Board of Directors regarding the selection of independent accountants.  In fulfilling its oversight responsibilities, the Committee has reviewed and discussed the audited financial statements with management and discussed with the independent auditors the matters required to be discussed by SAS 61. Management is responsible for the financial statements and the reporting process, including the system of internal controls.  The independent auditors are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles.

 
41

 


The Committee discussed with the independent auditors, the auditors’ independence from the management of the Company and received written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1.

After review and discussions, the Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  The Committee also recommended to the Board that HJ & Associates, LLC be appointed as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009.

Two independent directors currently serve on our Audit Committee: Mr. Harrison (Audit Committee Chairman) and Dr. Anderson.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires our officers and directors and persons who own more than 10% of a registered class of our securities to file reports of change of ownership with the SEC.  Officers, directors and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies of all 16(a) forms they file.

Based solely on our review of the copies of such forms that we received, or written representations from certain reporting persons that no forms were required for those persons, we believe that during fiscal year 2009 all filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with by such persons in a timely manner.

Involvement in Certain Legal Proceedings

No director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 5 years.

Code of Ethics

We have adopted a code of ethics, which is available at our website at www.golden-phoenix.com.

ITEM 11.   EXECUTIVE COMPENSATION

Summary Compensation

The Compensation Committee of the Board of Directors reviews and approves executive compensation policies and practices.  Our executive compensation philosophy and the elements of our executive compensation program in fiscal 2009 are summarized as follows:

 
·
The main objectives of our executive compensation program are attracting, motivating and retaining the best executives and aligning their interests with our strategy of maximizing shareholder value.
 
 
·
During fiscal 2009, total direct compensation under our executive compensation program consisted of base salary generally determined by employment contracts and long-term equity incentive opportunities.  However, due to ongoing financial difficulties in 2009, significant portions of executive compensation obligations were deferred until such time as additional capital is available. There were no bonus opportunities in fiscal year 2009.

 
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·
The Compensation Committee is responsible for evaluating and setting the compensation levels of our executive officers.  In setting compensation levels for executive officers other than the Chief Executive Officer, the Compensation Committee solicits the input and recommendations of our Chief Executive Officer (formerly, David A. Caldwell; currently, Thomas J. Klein).

 
·
The Compensation Committee did not engage outside consultants in determining fiscal year 2009 executive compensation.

 
·
The Compensation Committee considers all relevant competitive factors in determining compensation for our executive officers.

The following table sets forth information regarding all forms of compensation received by the named executive officers during the fiscal years ended December 31, 2009 and December 31, 2008, respectively:
Name and Principal Position
 
Year
Salary
($)
Bonus
($)
Stock Awards
($)
Option Awards
($)(1)
Non-Equity Incentive Plan Compensation
($)
Non-Qualified Deferred Compensation Earnings
($)
All Other Compensation
($)
Total
($)
(a)
 
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
                     
Thomas J. Klein
Chief Executive Officer(2)
 
2009
2008
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
                     
J.Roland Vetter
Chief Financial Officer(3)
 
2009
2008
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
$-
$-
 
                     
Robert P. Martin
President
 
 
2009
2008
$-
$116,108
$-
$-
$-
$-
$9,611
$16,018
$-
$-
$-
$-
$12,970(6)
$-
$22,581
$132,126
               
Former Executive Officers
             
David A. Caldwell
Former Chief Executive Officer
and Chief Financial Officer(4)
 
2009
2008
$-
$127,048
 
$-
$-
$-
$-
 
$9,611
$16,018
$-
$-
$-
$-
$-
$-
$9,611
$143,066
                     
Donald R. Prahl
Former  Chief Operating
Officer(5)
 
2009
2008
$-
$96,154
$-
$-
$-
$-
$12,814
$32,827
$-
$-
$-
$-
$18,000(7)
$-
$30,814
$128,981
 
 
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(1)           The amounts in column (f) reflect the dollar amount recognized for financial statement reporting purposes for the years ended December 31, 2009 and 2008 in accordance with SFAS 123(R).

(2)           Mr. Klein was appointed as Chief Executive Officer, effective February 1, 2010.  Note that the numbers stated for compensation received in this table only reflect compensation received in Mr. Klein’s capacity as an executive officer.  Director compensation is provided below.

(3)           Mr. Vetter was appointed as Chief Financial Officer, effective February 1, 2010.  Note that the numbers stated for compensation received in this table only reflect compensation received in Mr. Vetter’s capacity as an executive officer.  Director compensation is provided below.

(4)           Mr. Caldwell resigned as Chief Executive Officer and Chief Financial Officer effective February 1, 2010.

(5)           Mr. Prahl resigned as Chief Operating Officer on July 28, 2009.

(6)           The other compensation paid to Mr. Martin in 2009 consisted of a commission earned pursuant to his Supplemental Compensation Agreement, discussed further below.

(7)           The other compensation paid to Mr. Prahl in 2009 consisted of miscellaneous non-employee compensation.

The officers’ deferred compensation as of December 31, 2009 is payable to the following officers or former officers of the Company:

David A. Caldwell
  $ 352,873  
Robert P. Martin
    268,570  
Other
    14,915  
         
    $ 636,358  

The officers’ compensation has been deferred in accordance with the employment agreements of the respective officers due to working capital constraints, and was not part of a formal compensation deferral program which would allow the officers to defer awards earned under other compensation plans.

 
44

 

Outstanding Equity Awards at December 31, 2009 Year-End

Name
Number of Securities Underlying Unexercised Options (#)
 
Equity Incentive Plan Award: Number of Securities Underlying Unexercised
Unearned
Options (#) Unexercisable
 
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
Exercisable
 
Option
Exercise
Price
($)
 
Option
Expiration
Date
(a)
(b)
 
(c)
 
(d)
 
(e)
 
(f)
                   
David A. Caldwell(1)
200,000
 
-
 
-
 
0.15
 
02/27/2010
David A. Caldwell
600,000
 
-
 
-
 
0.24
 
02/13/2011
David A. Caldwell
250,000
  -  
-
 
0.19
 
05/08/2013
David A. Caldwell
200,000
 
-
 
-
 
0.19
 
05/08/2013
Robert P. Martin
50,000
 
-
 
-
 
0.15
 
02/27/2010
Robert P. Martin
40,000
 
-
 
-
 
0.19
 
02/02/2010
Robert P. Martin
200,000
 
-
 
-
 
0.24
 
02/13/2011
Robert P. Martin
250,000
     
-
 
0.19
 
05/08/2013

Columns (g) through (j) have been omitted since the Company has not granted any stock awards.

(1)           Mr. Caldwell resigned as Chief Executive Officer and Chief Financial Officer effective February 1, 2010.

Compensation of Directors

Starting January 1, 2007, the Company adopted a stipend system to compensate our directors, whereby each director receives $1,000 per month.  Subsequent to our year ended December 31, 2009, the Board revised this policy such that director stipends are $500 per month.  Further, reasonable expenses related to the performance of duties as a director are reimbursed upon submission of evidence of payment therefore.  The following table sets forth compensation paid to our non-executive directors for the fiscal year ended December 31, 2009.

Name
Fees Earned
or Paid
in Cash
 ($)
Stock
Awards
($)(1)
Option
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings
 ($)
All
Other
Compensation
($)
Total
($)
                 
Thomas J. Klein(2)
$8,000
$-
$1,520
$-
$-
$-
$9,520
 
                 
Corby G. Anderson
$14,000
$-
$-
$-
$-
$-
$14,000
 
                 
Kent D. Aveson
$8,000
$-
$-
$-
$-
$-
$8,000
 
                 
Clyde C. Harrison
$4,000
$-
$2,562
$-
$-
$-
$6,562
 
                 
J. Roland Vetter(3)
$13,000
$-
$-
$-
$-
$-
$13,000
 
                 
David A. Caldwell(4)
$13,000
$-
$-
$-
$-
$-
$13,000
 
 
 
45

 

(1)           The amounts for stock awards and option awards reflect the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2009 in accordance with SFAS 123(R).

(2)           Mr. Klein was appointed as Chief Executive Officer, effective February 1, 2010.  This table only reflects compensation received by Mr. Klein in his capacity as a director.

(3)           Mr. Vetter was appointed as Chief Financial Officer, effective February 1, 2010.  This table only reflects compensation received by Mr. Vetter in his capacity as a director.

(4)           Mr. Caldwell resigned as Chief Executive Officer and Chief Financial Officer effective February 1, 2010.

Stock Option Plans

In April, 1998, the Board approved the Golden Phoenix Minerals, Inc. Stock Option Incentive Plan (the “1997 Stock Option Incentive Plan”), under which employees and directors of the Company are eligible to receive grants of stock options.  The Company has reserved a total of 1,000,000 shares of common stock under the 1997 Stock Option Incentive Plan.  Subsequent to this, the Employee Stock Incentive Plan of 2002 amended the 1997 Stock Option Incentive Plan and allows for up to 4,000,000 options to be granted (the “2002 Stock Option Incentive Plan”).  These options are qualified and registered with the SEC.  In addition to these qualified plans, the Company created a class of non-registered, non-qualifying options in 2000 to compensate its three principle employees for deferred salaries.  The Company’s executive management administers the plan.  Subject to the provisions of the 2002 Stock Option Incentive Plan, the Board has full and final authority to select the individuals to whom options will be granted, to grant the options, and to determine the terms and conditions and the number of shares issued pursuant thereto.

On October 23, 2006, the Board approved the 2006 Non-Employee Director Stock Option Plan providing for 2,000,000 shares of the Company’s common stock to be reserved for issuance of awards of non-qualified stock options to non-employee directors of the Company pursuant to the terms and conditions set forth in the plan.

On September 21, 2007, the Shareholders approved the 2007 Equity Incentive Plan providing for 9% of the total number of outstanding shares of the Company’s common stock at the beginning of each fiscal year to be available for issuance of awards of Incentive and Nonqualified Stock Options, Stock and Stock Appreciation Rights.  However, not more than 2,000,000 shares of stock shall be granted in the form of Incentive Stock Options.  On July 15, 2008, 10,000,000 shares underlying the options under this 2007 Equity Incentive Plan were registered with the U.S. Securities and Exchange Commission.

Employment Agreements of Executive Officers and Directors

David A. Caldwell

On January 25, 2010, we entered into an Employment Separation and Severance Agreement, dated as of January 19, 2010, with David A. Caldwell, our then-current CEO, interim CFO and a member of the Company’s Board (the “Caldwell Separation Agreement”).  Pursuant to the terms of the Caldwell Separation Agreement, Mr. Caldwell resigned from his positions as CEO, CFO and as a member of the Board effective as of February 1, 2010.  The Caldwell Separation Agreement terminated the Employment Agreement between the Company and Mr. Caldwell dated February 27, 2006, as amended by that certain Addendum to Employment Agreement dated January 31, 2007 (collectively, the “Caldwell Employment Agreement”).

 
46

 

Under the terms of the Caldwell Separation Agreement, in settlement of all outstanding amounts owed to Mr. Caldwell, including, but not limited to, those amounts due in accrued and unpaid salary, expenses, director’s fees and repayment of certain loans made to the Company, as well as all amounts owed as severance pursuant to the terms of the Caldwell Employment Agreement, we agreed to: (i) make cash payments of an aggregate of $25,000, half of which was paid upon the agreement of the principal terms of the Caldwell Separation Agreement and the other half paid upon the signing of the Caldwell Separation Agreement; (ii) a subsequent cash payment of $20,378.57 upon the earlier to occur of the Company’s closing of a transaction involving the Company’s Mineral Ridge mining property or a financing by a third party involving an infusion of working capital to the Company of at least $250,000 (the “Caldwell Subsequent Payment”); and (iii) issue to Mr. Caldwell an unsecured promissory note (the “Caldwell Note”), in the principal amount of $366,623.32, such Caldwell Note to accrue interest at a rate of 2.0% per annum, with a maturity date 24 months from the date of the Caldwell Separation Agreement.  Further, pursuant to certain events and conditions as set forth in the Caldwell Separation Agreement, Mr. Caldwell can be issued shares of Company common stock in lieu of cash payments for the Caldwell Note and the Caldwell Subsequent Payment.

Robert P. Martin

The Company entered into an Employment Agreement with Robert P. Martin on March 8, 2006, and into an Addendum to the Employment Agreement on January 31, 2007 (the “Martin Employment Agreement”).  Pursuant to the Martin Employment Agreement, Mr. Martin currently serves as the full time President of the Company at an annual salary of $135,000.  Portions of Mr. Martin’s salary were deferred during 2008 and 2009.

On February 13, 2006, Mr. Martin was granted 200,000 options under the 2002 Stock Option Incentive Plan with an exercise price of $0.24 per share.  One fourth of the options vest each 90 day period from the date of the grant date, resulting in 100% vesting on February 13, 2007.  The options have a term of 5 years and are subject to other standard terms and conditions under the applicable stock option plan of the Company.  Mr. Martin has also agreed to a non-competition clause while employed by the Company and a non-solicitation clause for a term of 24 months following termination of his employment.

On May 18, 2009, the Company entered into a Supplemental Compensation Agreement with Mr. Martin, whereby Mr. Martin is to provide specific services to the Company in his roles as an executive officer of the Company, in connection with and in support of the Company’s continued financing and debt conversion efforts.  As compensation for such services Mr. Martin is to receive 1,500,000 shares of Company common stock valued at a 50% discount to the trailing twenty day Company common stock average price from the date of Board approval of such compensation package, totaling $11,835 (“Martin Initial Compensation”).  Such Martin Initial Compensation is to serve to offset the expenses incurred by Mr. Martin in his attempt to help secure the Company future financing.  Pursuant to the Supplemental Compensation Agreement, Mr. Martin was to be obligated to incur expenses or purchase Company debt up to the full value of the Martin Initial Compensation.

In addition, Mr. Martin is eligible to receive 1,500,000 warrants to purchase Company common stock upon the acquisition of $200,000 in financing for the Company or in connection with a property transaction related to the Mineral Ridge mining property, or the retirement of up to $500,000 of the Company’s existing debt, that are a result of Mr. Martin’s efforts (“Martin Subsequent Compensation”).  Pursuant to the Supplemental Compensation Agreement, the warrants associated with the Martin Subsequent Compensation are to vest pro-rata as efforts are made to secure the $200,000 financing, the property transaction or $500,000 debt reduction, respectively, and will have an exercise price of $0.0079.

 
47

 

Furthermore, for all financing obtained by Mr. Martin’s efforts resulting in the Company receiving at least $200,000, the completion of a property transaction or resulting in the retirement of the Company’s existing debt in excess of $500,000, Mr. Martin is eligible for certain additional compensation to be determined by the Company’s Board of Directors, payable in cash or in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of closing.

The Company has agreed that it will use its best efforts to register the stock issued in connection with the Martin Initial Compensation pursuant to an applicable registration statement filed with the SEC.

Donald R. Prahl

On July 28, 2009, the Company entered into an Employment Separation Agreement with Donald R. Prahl (the “Prahl Separation Agreement”).  Pursuant to the Separation Agreement, Mr. Prahl resigned as the COO of the Company and from all other positions held with the Company or on behalf of the Company, effective July 28, 2009.  The Separation Agreement terminates: the Employment Agreement, dated August 14, 2006, between the Company and Mr. Prahl whereby Mr. Prahl assumed the roles of Vice President of Operations of the Company and of Interim General Manager at the Ashdown Mine and the Addendum to the Employment Agreement between the Company and Mr. Prahl dated January 31, 2007, pursuant to which Mr. Prahl became COO of the Company (collectively the “Prahl Employment Agreement”).

Under the terms of the Prahl Separation Agreement, the Company agreed to: (i) pay Mr. Prahl 1 year of his base salary of $125,000 as severance, of which $85,000 will be converted into 4,341,164 restricted shares of the Company’s common stock, and the remaining $40,000 will be paid in cash upon the closing of a joint venture transaction involving the Company’s Mineral Ridge property; (ii) pay Mr. Prahl $655 for expenses incurred in connection with his employment as soon as reasonably practicable out of available funds, with any unpaid balance due upon the closing of a joint venture transaction involving the Company’s Mineral Ridge property; (iii) credit the $18,000 that was previously advanced to Mr. Prahl as payment in full of any and all outstanding consulting fees owed to Mr. Prahl for the period from November 2008 through July 2009; and (iv) immediately vest any unvested portion of Mr. Prahl’s currently outstanding stock options to purchase shares of the Company’s common stock.  Further, Mr. Prahl agreed to a non-solicitation clause with a term of 18 months from the Effective Date and provided the Company with a general release of liability and claims.

Thomas Klein
 
On January 16, 2009, the Company entered into a Consulting Agreement with Thomas Klein, whereby Mr. Klein is to provide consulting services to the Company in connection with the Company’s continued financing and debt conversion efforts (“Klein Consulting Agreement”).

As compensation for his consulting services, and as previously disclosed on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 19, 2008 and now formalized in the Klein Consulting Agreement, Mr. Klein will receive 1,500,000 shares of Company common stock valued at a 50% discount to the trailing twenty day Company common stock average price, totaling $11,835 (“Klein Initial Compensation”).  Such Klein Initial Compensation shall serve to offset the expenses incurred by Mr. Klein in his attempt to help secure the Company future financing.  Pursuant to the Klein Consulting Agreement, Mr. Klein will be obligated to incur expenses or purchase Company debt up to the full value of the Klein Initial Compensation.

 
48

 

In addition, Mr. Klein will be eligible to receive 1,500,000 warrants to purchase Company common stock upon the acquisition of $200,000 in financing for the Company, or the retirement of up to $500,000 of the Company’s existing debt, that are a result of Mr. Klein’s efforts (“Klein Subsequent Compensation”).  Pursuant to the Klein Consulting Agreement, the warrants associated with the Klein Subsequent Compensation will vest pro-rata as efforts are made to secure the $200,000 financing or $500,000 debt reduction, respectively, and will have an exercise price of $0.0079.

Furthermore, for all financing obtained by Mr. Klein’s efforts above $200,000 or resulting in the retirement of the Company’s existing debt in excess of $500,000, Mr. Klein will be eligible for a 10% finder’s fee paid either in cash or, at the discretion of the finder, in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of contracting.

The Company has agreed that it will use its best efforts to register the stock issued in connection with the Klein Initial Compensation, Klein Subsequent Compensation and finder’s fee Compensation pursuant to an applicable registration statement filed with the SEC. Mr. Klein has agreed to a non-competition clause and a non-solicitation clause, both applicable during the course of Mr. Klein’s consulting services to the Company and for a period to end 12 months after termination of the Agreement.

Corby Anderson

On April 16, 2009, the Company entered into a Consulting Agreement with Allihies Engineering, Incorporated, a Montana corporation, and its President, Dr. Corby Anderson, whereby Dr. Anderson is to provide consulting services to the Company in connection with the Company’s continued financing and debt conversion efforts (the “Anderson Consulting Agreement”).  Dr. Anderson currently serves on the Company’s Board of Directors and Governance Committee.

As compensation for his consulting services, Dr. Anderson will receive 1,500,000 shares of Company common stock valued at a 50% discount to the trailing twenty day Company common stock average price from the date of Board approval of such compensation package, totaling $11,835 (“Anderson Initial Compensation”).  Such Anderson Initial Compensation shall serve to offset the expenses incurred by Dr. Anderson in his attempt to help secure the Company future financing.  Pursuant to the Anderson Consulting Agreement, Dr. Anderson will be obligated to incur expenses or purchase Company debt up to the full value of the Anderson Initial Compensation.

In addition, Dr. Anderson will be eligible to receive 1,500,000 warrants to purchase Company common stock upon the acquisition of $200,000 in financing for the Company or in connection with a property transaction related to the Mineral Ridge mining property, or the retirement of up to $500,000 of the Company’s existing debt, that are a result of Dr. Anderson’s efforts (“Anderson Subsequent Compensation”). Pursuant to the Agreement, the warrants associated with the Subsequent Compensation will vest pro-rata as efforts are made to secure the $200,000 financing, the property transaction or $500,000 debt reduction, respectively, and will have an exercise price of $0.0079.

Furthermore, for all financing obtained by Dr. Anderson’s efforts resulting in the Company receiving at least $200,000, the completion of a property transaction or resulting in the retirement of the Company’s existing debt in excess of $500,000, Dr. Anderson will be eligible for a 10% finder’s fee paid either in cash or, at the discretion of the finder, in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of closing.
 
The Company has agreed that it will use its best efforts to register the stock issued in connection with the Anderson Initial Compensation pursuant to an applicable registration statement filed with the SEC.
 
49

 
 
The Compensation Committee

The Compensation Committee of the Board of Directors reviews and approves executive compensation policies and practices, reviews salaries and bonuses for other officers, administers the Company’s stock option plans and other benefit plans, and considers other matters as may, from time to time, be referred to them by the Board of Directors.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table presents certain information regarding the beneficial ownership of all shares of common stock at April 5, 2010 for each executive officer and director of our Company and for each person known to us who owns beneficially more than 5% of the outstanding shares of our common stock.  The percentage ownership shown in such table is based upon the 234,328,762 shares that were issued and outstanding on April 5, 2010, and ownership by these persons of options or warrants exercisable within 60 days of such date.

Name and Address
Common Shares
Owned
Exercisable
Options and
Warrants (1)
Total
Percentage
         
David A. Caldwell (2)
       
1675 E. Prater Way, Suite 102
       
Sparks, NV 89434
2,715,703
1,050,000
3,765,703
1.61%
         
Robert P. Martin (3)
       
1675 E. Prater Way, Suite 102
       
Sparks, NV 89434
3,619,929
550,000
4,169,929
1.78%
         
J. Roland Vetter (4)
       
1675 E. Prater Way, Suite 102
       
Sparks, NV 89434
 
100,000
100,000
*
         
Corby G. Anderson (5)
       
1675 E. Prater Way, Suite 102
       
Sparks, NV 89434
528,500
200,000
728,500
*
         
Kent D. Aveson (6)
       
1675 E. Prater Way, Suite 102
       
Sparks, NV 89434
 
200,000
200,000
*
         
Thomas J. Klein (7)
       
1675 E. Prater Way, Suite 102
       
Sparks, NV 89434
1,500,000
1,600,000
3,100,000
1.32%
         
Clyde C. Harrison
       
1675 E. Prater Way, Suite 102
       
Sparks, NV 89434
100,000
-
100,000
*
         
Total Officers and Directors
8,464,132
3,700,000
12,164,132
5.19%
____________
* Less than 1%

 
50

 
 
(1)
Represents stock options and stock warrants exercisable at April 5, 2010 or within sixty (60) days of April 5, 2010.

(2)
Mr. Caldwell holds options for 600,000 common shares exercisable at $0.24, and 450,000 common shares exercisable at $0.19 per share.

(3)
Mr. Martin holds options for 100,000 common shares exercisable at $0.045 per share, 200,000 common shares exercisable at $0.24 per share and 250,000 common shares exercisable at $0.19.

(4)
Mr. Vetter holds options for 100,000 common shares exercisable at $0.22 per share.

(5)
Mr. Anderson holds options for 100,000 common shares exercisable at $0.36 per share and 100,000 common shares exercisable at $0.19 per share.

(6)
Mr. Aveson holds options for 100,000 common shares exercisable at $0.36 per share and 100,000 common shares exercisable at $0.19 per share.

(7)
Mr. Klein holds options for 100,000 common shares exercisable at $0.02 per share and warrants for 1,500,000 common shares exercisable at $0.0079 per share.

 
Equity Compensation Plan Information

For information regarding our equity compensation plans, please see Item 5, above.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Party Transactions

On September 26, 2005, we entered into a Production Payment Purchase Agreement with Ashdown Milling Co. LLC (“Ashdown Milling”).  Robert Martin, President of the Company, and Kenneth Ripley, a former Chief Executive Officer of the Company, are members, managers, and lead investors in Ashdown Milling.  A total of $1,500,000 was advanced to the Company pursuant to this agreement, $650,000 received in 2006 and $850,000 received in 2005, of which $904,567 had been recorded as a production payment obligation – related parties.  We repaid the $904,567 obligation in 2007 and 2008.  Including the $904,567 obligation, the total amount of the production payment to be paid to Ashdown Milling is equal to a 12% net smelter returns royalty on the minerals produced from the mine until an amount equal to 240% of the total purchase price has been paid.  The Company subsequently bought out the member interests of two members of Ashdown Milling, thereby reducing its production payment obligation.  Amounts paid to Ashdown Milling members in excess of the original obligation recorded of $904,567 will be reported as royalties expense.  No royalties expense to related parties was recorded for the year ended December 31, 2009.  As a consequence of the sale of its interest in the Ashdown LLC, the members of Ashdown Milling will no longer have a net smelter returns royalty on Ashdown LLC production.  We expect to pay the remaining royalty obligation as sales proceeds are received from Win-Eldrich Mines Limited.

Certain officers and former officers of the Company have advanced funds to the Company in the form of interest-bearing promissory notes.  In addition, we have a note payable to a former employee and the former manager of the Ashdown mine resulting from the acquisition of the mill at the Ashdown mine and for rental payments and other amounts owed.  These obligations, including accrued interest payable, as of December 31, 2009 are summarized as follows:

 
51

 

   
Principal
   
Interest
   
Total
 
Note payable to the former manager of the Ashdown mine for the purchase of a mill, equipment rental and other, with interest at 12%
  $ 166,407     $ 11,830     $ 178,237  
Notes payable to David A. Caldwell, a former Chief Executive Officer of the Company, and Julie K. Caldwell, payable on demand, with interest at 18%
    40,866       4,513       45,379  
Notes payable to Robert P. Martin, President of the Company, and the Robert P. Martin Revocable Living Trust, payable on demand, with interest at 18%
    160,524       48,033       208,557  
    $ 367,797     $ 64,376     $ 432,173  
 
Director Independence

Our Board of Directors consists principally of independent directors, as determined by Rule 4200 of the National Association of Securities Dealers’ (NASD) listing standards.  A Director is considered independent if the Board affirmatively determines that the Director (or an immediate family member) does not have any direct or indirect material relationship with us or our affiliates or any member of our senior management or his or her affiliates.  The term “affiliate” means any corporation or other entity that controls, is controlled by, or under common control with us, evidenced by the power to elect a majority of the Board of Directors or comparable governing body of such entity.  The term “immediate family member” means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in law, brothers- and sisters-in-laws and anyone (other than domestic employees) sharing the Director’s home.

In accordance with these guidelines, the Board has determined that Corby G. Anderson, Kent D. Aveson and Clyde C. Harrison are independent directors.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Relationship with Independent Registered Public Accounting Firm

Our Audit Committee has responsibility for the appointment, compensation and oversight of the work of our independent registered public accounting firm, HJ & Associates, LLC.  We retained the firm of HJ & Associates, LLC as our Independent Registered Public Accounting Firm for the fiscal year ending December 31, 2009.  We have appointed HJ & Associates, LLC as our independent registered public accounting firm for our fiscal year 2010.

Audit Fees

For the fiscal years ended 2009 and 2008, the aggregate fees billed for services rendered for the audits of the annual financial statements and the review of the financial statements included in the quarterly reports on Form 10-Q and the services provided in connection with the statutory and regulatory filings or engagements for those fiscal years and registration statements filed with the SEC were $72,113 and $65,716, respectively.

 
52

 

Audit-Related Fees

For the fiscal years ended December 31, 2009 and 2008, there were no fees billed for the audit or review of the financial statements that are not reported above under Audit Fees.

Tax Fees

For the fiscal years ended December 31, 2009 and 2008, there were no fees billed for tax compliance services.  There was no tax-planning advice provided in 2009 or 2008.

All Other Fees

For the fiscal years ended December 31, 2009 and 2008, there were no fees billed for services other than services described above.

Audit Committee Approval of Audit and Non-Audit Services of Independent Accountants

The Audit Committee approves all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. The independent accountants and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent accountants, and the fees for the services performed to date.

PART IV

ITEM 15.  EXHIBITS

(a)(1)(2) 
Financial Statements: See index to consolidated financial statements and supporting schedules.

(a)(3) 
Exhibits:  The information required by this item is set forth in the section of this Annual Report entitled “EXHIBIT INDEX” and is incorporated herein by reference.

 
53

 

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereto duly authorized.

 
GOLDEN PHOENIX MINERALS, INC.
     
Date:  April 9, 2010
By:
/s/ Thomas Klein                                                   
   
Name: Thomas Klein
   
Title: Chief Executive Officer
   
(Principal Executive Officer)
     
     
Date:  April 9, 2010
By:
/s/ J. Roland Vetter                                               
   
Name: J. Roland Vetter
   
Title: Chief Financial Officer
   
 (Principal Accounting and Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE
TITLE
DATE
 
/s/ Thomas Klein                     
Chief Executive Officer and Director
April 9, 2010
Thomas Klein
   
     
/s/ Robert P. Martin                 
President and Secretary and Director
April 9, 2010
Robert P. Martin
   
     
/s/ J. Roland Vetter                  
Chief Financial Officer and Director
April 9, 2010
J. Roland Vetter
   
     
/s/ Corby G. Anderson           
Director
April 9, 2010
Corby G. Anderson
   
     
/s/ Kent D. Aveson                 
Director
April 9, 2010
Kent D. Aveson
   
     
/s/ Clyde Harrison                   
Director
April 9, 2010
Clyde Harrison
   

 
54

 

GOLDEN PHOENIX MINERALS, INC.
Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Balance Sheets
F-3
   
Consolidated Statements of Operations and Comprehensive Loss
F-4
   
Consolidated Statements of Stockholders’ Equity (Deficit)
F-5
   
Consolidated Statements of Cash Flows
F-6
   
Notes to Consolidated Financial Statements
F-7


 
F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Golden Phoenix Minerals, Inc.

We have audited the accompanying consolidated balance sheets of Golden Phoenix Minerals, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Golden Phoenix Minerals, Inc. as of December 31, 2009 and 2008, and the results of their operations and cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management's assessment of the effectiveness of Golden Phoenix Minerals, Inc.'s internal control over financial reporting as of December 31, 2009, and, accordingly, we do not express an opinion thereon.

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, has an accumulated deficit of $47,421,049 and has a total stockholders’ deficit of $6,355,454 at December 31, 2009, which together raises substantial doubt about the Company’s 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.
 
 
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
April 9, 2010

 
F-2

 

GOLDEN PHOENIX MINERALS, INC.
Consolidated Balance Sheets

   
December 31,
 
   
2009
   
2008
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 94,785     $ 454  
Prepaid expenses and other current assets
    15,504       11,544  
Inventories
          30,637  
Total current assets
    110,289       42,635  
                 
Property and equipment, net
    285,006       371,557  
                 
Other assets:
               
Deposits
    106,590       107,046  
Note receivable
           
Assets of discontinued operations
    2,552,400       5,969,060  
Total other assets
    2,658,990       6,076,106  
                 
    $ 3,054,285     $ 6,490,298  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current liabilities:
               
Accounts payable
  $ 1,273,547     $ 1,253,489  
Accrued liabilities
    1,005,433       573,156  
Current portion of severance obligations
    165,201       100,170  
Current portion of long-term debt
    2,535,782       176,549  
Production payment obligation
          1,974,456  
Amounts due to related parties
    432,173       458,531  
Deposits received
    900,000        
Total current liabilities
    6,312,136       4,536,351  
                 
Long-term liabilities:
               
Severance obligations
          86,460  
Long-term debt
    61,173       142,506  
Liabilities of discontinued operations
    3,036,430       6,439,917  
Total long-term liabilities
    3,097,603       6,668,883  
                 
Total liabilities
    9,409,739       11,205,234  
                 
Commitments and contingencies
               
                 
Stockholders’ deficit:
               
Preferred stock, no par value, 50,000,000 shares authorized, none issued
           
Common stock; $0.001 par value, 400,000,000 shares authorized, 223,180,210 and 205,510,457 shares issued and outstanding, respectively
    223,180       205,510  
Additional paid-in capital
    40,842,415       40,127,362  
Common stock subscriptions receivable
          (121,187 )
Accumulated deficit
    (47,421,049 )     (44,622,302 )
Total Company’s stockholders’ deficit
    (6,355,454 )     (4,410,617 )
Noncontrolling interest in discontinued operations
          (304,319 )
Total stockholders’ deficit
    (6,355,454 )     (4,714,936 )
                 
    $ 3,054,285     $ 6,490,298  

See accompanying notes to consolidated financial statements

 
F-3

 

GOLDEN PHOENIX MINERALS, INC.
Consolidated Statements of Operations and Comprehensive Loss

   
Years Ended December 31,
 
   
2009
   
2008
 
             
Rental income
  $ 63,056     $  
                 
Operating costs and expenses:
               
General and administrative expenses
    1,760,363       3,023,051  
Depreciation and amortization expense
    78,438       109,702  
Royalties
    70,090       1,158,337  
                 
Total operating costs and expenses
    1,908,891       4,064,697  
                 
Loss from operations
    (1,845,835 )     (4,291,090 )
                 
Other income (expense):
               
Interest income
    4,541       11,264  
Interest expense
    (760,521 )     (97,089 )
Gain on extinguishment of debt
    1,032,579       46,528  
Loss on sale of marketable securities
          (141,482 )
Gain (loss) on disposal of property and equipment
    127       (4,389 )
                 
Total other income (expense)
    276,726       (185,168 )
                 
Loss from continuing operations before income taxes
    (1,569,109 )     (4,476,258 )
                 
Provision for income taxes
           
                 
Loss from continuing operations attributable to the Company
    (1,569,109 )     (4,476,258 )
                 
Loss from discontinued operations:
               
Loss on sale of interest in joint venture
    (235,303 )      
Loss from discontinued operations
    (1,261,609 )     (3,076,676 )
                 
Loss from discontinued operations
    (1,496,912 )     (3,076,676 )
Loss from discontinued operations attributable to noncontrolling interest
    267,274       496,352  
                 
Loss from discontinued operations attributable to the Company
    (1,229,638 )     (2,580,324 )
                 
Net loss attributable to the Company
  $ (2,798,747 )   $ (7,056,582 )
                 
Other comprehensive loss:
               
Loss from continuing operations
  $ (1,569,109 )   $ (4,476,258 )
Loss from discontinued operations
    (1,496,912 )     (3,076,676 )
Net loss
    (3,066,021 )     (7,552,934 )
Net unrealized loss on marketable securities
          (1,917 )
Other comprehensive loss
    (3,066,021 )     (7,554,851 )
Other comprehensive loss attributed to noncontrolling interest
    267,274       496,352  
                 
Other comprehensive loss attributed to the Company
  $ (2,798,747 )   $ (7,058,499 )
                 
Loss per common share attributable to the Company, basic and diluted:
               
Continuing operations
  $ (0.01 )   $ (0.02 )
Discontinued operations
    (0.00 )     (0.02 )
Total
  $ (0.01 )   $ (0.04 )
                 
Weighted average number of shares outstanding
    211,632,837       189,375,309  

See accompanying notes to consolidated financial statements

 
F-4

 

GOLDEN PHOENIX MINERALS, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
Years Ended December 31, 2009 and 2008

                                 
Noncontrolling
       
         
Additional
   
Common
   
Other
         
Interest in
       
   
Common Stock
   
Paid-in
   
Stock
   
Comprehensive
   
Accumulated
   
Discontinued
       
   
Shares
   
Amount
   
Capital
   
Subscribed
   
Income
   
Deficit
   
Operations
   
Total
 
Balance, December 31, 2007
    180,552,639     $ 180,553     $ 37,509,985     $     $ 1,917     $ (37,565,720 )   $ 34,034     $ 160,769  
Issuance of common stock for cash
    10,422,363       10,422       728,700                               739,122  
Issuance of common stock for services
    1,461,154       1,461       83,239                               84,700  
Issuance of common stock for payment of accounts payable
    3,460,000       3,460       159,691       (1,187 )                       161,964  
Issuance of common stock for payment of accrued liabilities
    3,890,000       3,890       229,510                               233,400  
Issuance of common stock for royalty expense
    3,733,334       3,733       836,267                               840,000  
Issuance of common stock for subscription receivable
    666,667       667       119,333       (120,000 )                        
Issuance of common stock upon exercise of warrants for royalty expense
    300,000       300       59,700                               60,000  
Issuance of common stock upon exercise of options and warrants
    1,024,300       1,024       154,221                               155,245  
Stock-based compensation
                246,716                               246,716  
Net unrealized loss on marketable securities
                            (1,917 )                 (1,917 )
Capital contribution of noncontrolling interest
                                        157,999       157,999  
Net loss attributable to the Company
                                  (7,056,582 )           (7,056,582 )
Net loss attributed to noncontrolling interest
                                        (496,352 )     (496,352 )
                                                                 
Balance, December 31, 2008
    205,510,457       205,510       40,127,362       (121,187 )           (44,622,302 )     (304,319 )     (4,714,936 )
Issuance of common stock for cash
    12,501,253       12,501       236,899                               249,400  
Issuance of common stock upon exercise of options
    100,000       100       2,900                               3,000  
Issuance of common stock for payment of accounts payable
    4,068,500       4,069       35,063       1,187                         40,319  
Issuance of common stock for payment of debt
    1,000,000       1,000       49,000                               50,000  
Issuance of warrants for interest expense
                448,804                               448,804  
Stock-based compensation
                62,387                               62,387  
Write off subscription receivable
                (120,000 )     120,000                          
Elimination of noncontrolling interest due to sale of interest in LLC
                                        571,593       571,593  
Net loss attributable to the Company
                                  (2,798,747 )           (2,798,747 )
Net loss attributed to noncontrolling interest
                                        (267,274 )     (267,274 )
                                                                 
Balance, December 31, 2009
    223,180,210     $ 223,180     $ 40,842,415     $     $     $ (47,421,049 )   $     $ (6,355,454 )

See accompanying notes to consolidated financial statements

 
F-5

 

GOLDEN PHOENIX MINERALS, INC.
Consolidated Statements of Cash Flows

   
Years Ended December 31,
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net loss attributable to the Company
  $ (2,798,747   $ (7,056,582
Adjustments to reconcile net loss to net cash used in operating activities:
               
Loss from discontinued operations attributable to the Company
    1,229,638       2,580,324  
Depreciation and amortization
    78,437       109,702  
Stock-based compensation
    62,387       246,716  
(Gain) loss on disposal of property and equipment
    (127 )     4,389  
Issuance of debt for royalties
    70,090        
Issuance of warrants for interest expense
    448,804        
Gain on extinguishment of debt
    (1,032,579 )     (46,528 )
Issuance of common stock for services
          84,700  
Issuance of common stock for royalties
          840,000  
Loss on sale of marketable securities
          141,482  
Changes in operating assets and liabilities:
               
Decrease in receivables
          1,638  
(Increase) decrease in prepaid expenses and other current assets
    (3,960 )     27,640  
(Increase) decrease in inventories
    30,637       (30,637 )
Decrease in deposits
    456       94  
Increase in accounts payable
    42,458       1,456,738  
Increase in accrued and other liabilities
    652,077       325,421  
                 
Net cash used in operating activities
    (1,220,429     (1,314,903
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (3,825 )     (243,057 )
Proceeds from the sale of property and equipment
    353        
Deposits received
    900,000        
Proceeds from the sale of marketable securities
          20,559  
                 
Net cash provided by (used) in investing activities
    896,528       (222,498 )
                 
Cash flows from financing activities:
               
Net proceeds from the sale of common stock
    249,400       739,122  
Proceeds from the issuance of notes payable
    1,000,000        
Proceeds from the exercise of options and warrants
    3,000       25,658  
Proceeds from amounts due related parties
    6,000       171,370  
Payments of severance obligations
    (21,429 )     (113,247 )
Payments of notes payable and long-term debt
    (72,905 )     (31,172 )
Payments of amounts due to related parties
    (46,069 )     (114,898 )
Payments of production payment obligation – related party
          (40,026 )
                 
Net cash provided by financing activities
    1,117,997       636,807  
                 
Cash flows from discontinued operations:
               
Net cash used in operating activities
    (842,678 )     (442,265 )
Net cash provided by (used in) investing activities
    34,730       (829,018 )
Net cash provided by financing activities
    108,183       43,390  
                 
Net cash used in discontinued operations
    (699,765 )     (1,227,893 )
                 
Net increase (decrease) in cash
    94,331       (2,128,487 )
Cash and cash equivalents, beginning of year
    454       2,128,941  
                 
Cash and cash equivalents, end of year
  $    94,785     $   454  
 
See accompanying notes to consolidated financial statements

 
F-6

 

GOLDEN PHOENIX MINERALS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2009 and 2008

Note 1:  Description of Business and Summary of Significant Accounting Policies

Organization and Description of Business

Golden Phoenix Minerals, Inc. (the “Company” or “Golden Phoenix”) is a mineral exploration, development and production company specializing in acquiring and consolidating mineral properties with potential production and future growth through exploration discoveries.  Acquisition emphasis is focused on properties containing gold, silver, molybdenum and other strategic minerals that present low political and financial risk and exceptional upside potential.  Currently, the Company’s main focus is in Nevada.

The Company was formed in Minnesota on June 2, 1997.  On May 30, 2008, the Company reincorporated in Nevada.

As discussed in Note 3, on May 13, 2009, the Company completed the sale of 100% of its ownership interest in the Ashdown Project LLC (“Ashdown LLC”) and, on March 10, 2010, closed an agreement dated December 31, 2009 for the purpose of selling a 70% interest in its Mineral Ridge mining property and related assets (“Mineral Ridge Mine”) and contributing the remaining 30% interest into a joint venture to place the Mineral Ridge Mine into production.  As a result, the Ashdown LLC and the Mineral Ridge Mine are classified as discontinued operations for all periods presented in the condensed consolidated financial statements.

In February 2007, the Company completed a purchase agreement with four individuals for the Northern Champion molybdenum property located in Ontario, Canada, and plans to take bulk samples for metallurgical and market testing, and to actively explore and delineate molybdenum mineralization on the property as funding is available.

Accounting Method

The Company’s consolidated financial statements are prepared by management in conformity with United States generally accepted accounting principles using the accrual method of accounting.  The Company has elected a December 31 year-end.

Principles of Consolidation

Through May 13, 2009, the consolidated financial statements of the Company included the accounts of Golden Phoenix Minerals, Inc. and the Ashdown LLC, an entity controlled by Golden Phoenix Minerals, Inc. through its 60% member interest.  All significant inter-company balances and transactions have been eliminated.

Noncontrolling Interest

As of December 31, 2008, the noncontrolling interest in discontinued operations is comprised of the portion of the members’ deficit of the Ashdown LLC not owned by the Company.  The loss from discontinued operations of the Ashdown LLC for the year ended December 31, 2008 and the period from January 1, 2009 through May 13, 2009 was allocated 40% to Win-Eldrich Gold, Inc., the noncontrolling interest holder, based on its membership ownership percentage, thereby reducing the loss from discontinued operations included in the Company’s consolidated net loss.

Reclassifications

Certain reclassifications have been made to the 2008 consolidated financial statements in order for them to conform to the classifications used for the current year presentation.

Concentrations

Concentration of Credit Risk — Financial instruments, which could potentially subject the Company to credit risk, consist primarily of cash in bank and receivables.  The Company maintains its cash in bank deposit accounts insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company’s account balances, at times, may exceed federally insured limits.  The Company has not experienced material losses in such accounts, and believes it is not exposed to any significant credit risk with respect to its cash accounts.
 
Concentration of Operations — The Company’s operations are all related to the minerals and mining industry.  A reduction in mineral prices or other disturbances in the minerals market could have an adverse effect on the Company’s operations.
 
 
F-7

 
 
Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period.  Differences in these estimates and actual results could be material to the Company’s consolidated financial position and results of operations.

Cash and Cash Equivalents

The Company considers all investments purchased with original maturities of three or fewer months to be cash equivalents.  The Company had no cash equivalents at December 31, 2009 and 2008.

Inventories

Inventories consist of materials and supplies and are stated at the lower of cost (using the average cost method) or market.  Market is determined on the basis of estimated realizable values.  The Company had no inventories at December 31, 2009.

Property and Equipment

Property and equipment are stated at cost.  Depreciation and amortization are calculated using the straight-line method over estimated useful lives as follows:

Mining and milling equipment
5-7 years
Computer equipment
5 years
Drilling equipment
4-5 years
Vehicles
5 years
Support equipment
5-7 years
Furniture and equipment
5-7 years

Mine development costs are capitalized after proven and probable reserves have been identified.  Amortization of mine development costs will be calculated using the units-of-production method over the expected life of the operation based on the estimated proven and probable reserves.  With the sale of the Company’s interest in the Ashdown LLC and the formation of the Mineral Ridge LLC, as of December 31, 2009, the Company had no proven or probable reserves.  Accordingly, through December 31, 2009, mining and milling equipment are currently being depreciated on a straight-line basis over their estimated economic useful life rather than on a units-of-production method.

Property Acquisition and Deferred Mineral Property Development Costs

Mineral property acquisition and deferred mineral property development costs are recorded at cost and will be capitalized once determination has been made that a mineral property has proven or probable reserves that can be produced profitably.  On the commencement of profitable commercial production, depletion of each mineral property acquisition and associated deferred property development costs will be computed on the units of production basis using estimated proven and probable reserves.

Exploration Properties

Mineral exploration expenditures are expensed as incurred.  Property acquisition costs relating to exploration properties are also expensed until the economic viability of the project is determined and proven and probable reserves quantified.  Costs associated with economically viable projects are depreciated and depleted in accordance with the policies described above.

 
F-8

 

Stripping Costs

Where applicable in its mining operations, the Company accounts for stripping costs incurred during the production phase of a mine as variable costs included in the costs of the inventory produced during the period that the stripping costs are incurred.

Proven and Probable Ore Reserves

On a periodic basis, management reviews the reserves that reflect estimates of the quantities and grades of metals at our mineral properties which management believes can be recovered and sold at prices in excess of the total cost associated with mining and processing the mineralized material. Management’s calculations of proven and probable ore reserves are based on, along with independent consultant evaluations, in-house engineering and geological estimates using current operating costs, metals prices and demand for our products. Periodically, management obtains external determinations of reserves.

Reserve estimates will change as existing reserves are depleted through production, as well as changes in estimates caused by changing production costs and/or metals prices. Reserves may also be revised based on actual production experience once production commences. Declines in the market price of metals, as well as increased production or capital costs or reduced recovery rates, may render ore reserves uneconomic to exploit. Should that occur, restatements or reductions in reserves and asset write-downs in the applicable accounting periods may be required. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. No assurance can be given that the estimate of the amount of metal or the indicated level of recovery of these metals will be realized.

The Company currently has no proven or probable ore reserves.

Closure, Reclamation and Remediation Costs

Current laws and regulations require certain closure, reclamation and remediation work to be done on mineral properties as a result of exploration, development and operating activities.  The Company periodically reviews the activities performed on its mineral properties and makes estimates of closure, reclamation and remediation work that will need to be performed as required by those laws and regulations and makes estimates of amounts that are expected to be incurred when the closure, reclamation and remediation work is expected to be performed. Future closure, reclamation and environmental related expenditures are difficult to estimate in many circumstances due to the early stages of investigation, uncertainties associated with defining the nature and extent of environmental contamination, the uncertainties relating to specific reclamation and remediation methods and costs, application and changing of environmental laws, regulations and interpretation by regulatory authorities and the possible participation of other potentially responsible parties.

The Company has estimated costs associated with closure, reclamation and environmental reclamation of the Mineral Ridge property, which are included in its consolidated financial statements in liabilities of discontinued operations, in accordance with generally accepted accounting principles, in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 410, Asset Retirement and Environment Obligations.  See Note 7.

Property Evaluations and Impairment of Long-Lived Assets

The Company reviews and evaluates the carrying amounts of its mining properties and related buildings and equipment, and other long-lived assets when events or changes in circumstances indicate that the carrying amount may not be recoverable.  Estimated future net cash flows, on an undiscounted basis, from a property or asset are calculated using estimated recoverable minerals (considering current proven and probable reserves and mineralization expected to be classified as reserves where applicable); estimated future mineral price realization (considering historical and current prices, price trends and related factors); and operating, capital and reclamation costs.  Reduction in the carrying value of property, plant and equipment, or other long-lived assets, with a corresponding charge to earnings, are recorded to the extent that the estimated future net cash flows are less than the carrying value.
 
Estimates of future cash flows are subject to risks and uncertainties.  It is reasonably possible that changes in circumstances could occur which may affect the recoverability of the Company’s properties and long-lived assets.
 
F-9

 
 
Deposits

Payments received by the Company in advance of the closing of the sale of its interest in the Mineral Ridge Mine and the formation of a joint venture to operate the Mineral Ridge Mine are recorded as deposits, a current liability.

Revenue Recognition

Revenue from the sale of precious metals is recognized when title and risk of ownership passes to the buyer and the collection of sales proceeds is assured.

Revenue from the occasional rental of drilling equipment is recognized when the agreed upon rental period is completed and the collection of rental proceeds is assured.

Income Taxes

The Company recognizes a liability or asset for deferred tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled.  Deferred tax items mainly relate to net operating loss carry forwards and accrued expenses.  These deferred tax assets or liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  Deferred tax assets are reviewed periodically for recoverability, and valuation allowances are provided when it is more likely than not that some or all of the deferred tax assets may not be realized.  As of December 31, 2009 and 2008, the Company had reduced its deferred tax assets by recording a valuation allowance of approximately $12,880,000 and $11,858,000, respectively (see Note 18).

Stock-Based Compensation and Equity Transactions

The Company has stock-based compensation plans, which are described more fully in Note 15.  In accordance with ASC Topic 718, Compensation – Stock Compensation, the Company measures the compensation cost of stock options and other stock-based awards to employees and directors at fair value at the grant date and recognizes compensation expense over the requisite service period for awards expected to vest.

Except for transactions with employees and directors that are within the scope of ASC Topic 718, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.  Additionally, in accordance with ASC Topic 505-50, Equity-Based Payments to Non-Employees, the Company has determined that the dates used to value the transaction are either: (1) the date at which a commitment for performance by the counter party to earn the equity instruments is established; or (2) the date at which the counter party’s performance is complete.

Earnings Per Common Share

The computation of basic earnings per common share is based on the weighted average number of shares outstanding during the period.  The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the weighted average outstanding common stock equivalents which would arise from the exercise of stock options, warrants, stock purchase rights and convertible debt using the treasury stock method and the average market price per share during the period.

 
F-10

 
 
A reconciliation of the number of shares used in the computation of the Company’s basic and diluted earnings per common share is as follows:

   
Year Ended
December 31,
 
   
2009
   
2008
 
Weighted average number of common shares outstanding
    211,632,837       189,375,309  
                 
Dilutive effect of:
               
      Stock options
    -       -  
      Warrants and stock purchase rights
    -       -  
      Convertible debt
    -       -  
                 
Weighted average number of common shares outstanding, assuming dilution
    211,632,837       189,375,309  

No common shares which would arise from the exercise of stock options, warrants, stock purchase rights or convertible debt are included in the computation of weighted average number of shares because the effect would be anti-dilutive.  At December 31, 2009, the Company had outstanding options, warrants and stock purchase rights to purchase a total of 31,302,258 common shares of the Company that could have a future dilutive effect on the calculation of earnings per share.

Preferred Stock/Common Stock

The Company has authorized 50,000,000 shares of no par value, non-voting convertible preferred stock.  In 1997, the Company’s Board of Directors (the “Board”) authorized the designation of a class of preferred stock convertible into ten shares of common stock for each share of preferred stock at a conversion rate of $0.10 per common share for a period of ten (10) years from June 12, 1997.  The Company did not determine any dividend rights, dividend rates, liquidation preferences, redemption provisions, and other rights, preferences, privileges and restrictions.  At the date of this action and as of December 31, 2009 and 2008, there were no shares of preferred stock outstanding. The Company has authorized 400,000,000 shares of $0.001 par value common stock as of December 31, 2009 and 2008.

Advertising Expense

The Company expenses advertising expenses as incurred in accordance with ASC Topic 720-35, Advertising Costs. The Company had no advertising expense for the years ended December 31, 2009 and 2008, respectively.

Recent Accounting Pronouncements

In June 2009, the FASB issued guidance now codified as ASC Topic 105, Generally Accepted Accounting Principles.  This standard establishes the FASB Accounting Standards Codification™ as the source of authoritative U.S. generally accounting principles (GAAP) recognized by the FASB to be applied to nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this standard, the Codification will supersede all then-existing non-SEC accounting and reporting standards.  All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative.  This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009, or the Company’s quarter ended September 30, 2009.  The Company implemented this standard with no material impact on its consolidated financial statements.

In May 2009, the FASB issued guidance now incorporated into ASC Topic 855, Subsequent Events.  This standard sets forth: (a) the period after the balance sheet during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  The standard is effective for interim and annual periods ending after June 15, 2009, or the Company’s fiscal quarter ended June 30, 2009.  The implementation of this standard did not have a material impact on the Company’s consolidated financial statements.

 
F-11

 

In December 2007, the FASB issued guidance now incorporated into ASC Topic 810, Consolidation, that requires the ownership interests in subsidiaries held by parties other than the parent (minority interests) be clearly identified, labeled, and presented within the equity section of the consolidated balance sheet.  The guidance also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of operations, and that entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  The guidance is effective for fiscal years beginning on or after December 15, 2008, or the Company’s fiscal year beginning January 1, 2009.  Effective January 1, 2009, the Company revised its presentation for the noncontrolling interest in the Ashdown LLC in the accompanying consolidated financial statements for the years ended December 31, 2009 and 2008.

 
Note 2:  Going Concern

The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, the Company has a history of operating losses since its inception in 1997, and has an accumulated deficit of $47,421,049 and a total stockholders’ deficit of $6,355,454 at December 31, 2009, which together raises doubt about the Company’s ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Historically, the Company has obtained working capital from debt and equity financing, the exercise of options and warrants, and from a production payment purchase agreement to fund the Company’s activities.  The deterioration of capital markets has made it difficult for the Company to obtain debt and equity financing.  On January 30, 2009, the Company entered into a Bridge Loan and Debt Restructuring Agreement with Crestview Capital Master, LLC (“Crestview), whereby the Company borrowed $1 million (see Note 12).  Subsequently, the maturity date of this loan was extended from November 6, 2009 to February 6, 2010, and from February 6 to the earlier of the completion of a joint venture with respect to the Mineral Ridge Mine or April 6, 2010.  The loan was repaid in full on March 10, 2010, however, the Company remains obligated to Crestview under that certain Debt Restructuring Secured Promissory Note in the principal amount of $1 million issued pursuant to the Bridge Loan and Debt Restructuring Agreement, which has a maturity date of August 6, 2010.

The operations of the Ashdown LLC have also funded a significant portion of the Company’s operating costs and expenses.   The Company suspended the mining operations of the Ashdown LLC in November 2008 in response to a substantial decline of molybdenum oxide market prices, with only incidental revenues during the period from January 1, 2009 through May 13, 2009.  On May 13, 2009, the Company completed an agreement to sell 100% of its ownership interest in the Ashdown LLC to Win-Eldrich Gold, Inc. (“WEG”) (Note 3).  The $5.3 million purchase price due the Company is payable over a 72 month term, and WEG has assumed substantially all of the liabilities of the Ashdown LLC.  There can be no guarantee or assurance that WEG will be successful in its ability to raise sufficient capital to commence again the operations of the Ashdown LLC, attain a sustained profitable level of operations from the Ashdown LLC, or pay the Company the $5.3 million promissory note.

On March 10, 2010, the Company closed the Exploration, Development and Mining Joint Venture Members’ Agreement (the “Members’ Agreement”) entered into on December 31, 2009 with Scorpio Gold Corporation (“Scorpio Gold”) and its US subsidiary, Scorpio Gold (US) Corporation (“Scorpio US”).  At the closing of the Members’ Agreement, the Company sold Scorpio US an undivided 70% interest in the Mineral Ridge Mine for a purchase price of US $3,750,000 cash (less those amounts previously advanced to the Company by Scorpio Gold) and 7,824,750 common shares of stock of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately following the sale, the Company and Scorpio US each contributed their respective interests in the Mineral Ridge Mine to a joint venture formed to own and operate the Mineral Ridge Mine called Mineral Ridge Gold, LLC, a Nevada limited liability company (the “Mineral Ridge LLC”).  The Company currently owns a 30% membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in and is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into production.  There can be no assurance that Scorpio US will be successful in its ability to raise sufficient capital to fund the development of the Mineral Ridge Mine and attain a successful level of operations.

With the shutdown of Ashdown operations and the ongoing difficulty raising capital, certain vendors and lenders of the Company have initiated actions to collect balances that are past due.  The Company is negotiating mutually beneficial settlements and payment plans with these parties.  With the closing of the Mineral Ridge LLC, the Company did receive additional funds to repay certain obligations, including the repayment of a $1,000,000 bridge loan.  However, the ability to bring all obligations current is dependent on the Company’s ability to raise additional capital.  Further, there can be no assurance that the Company will attain a successful level of operations from its other properties, or to continue to raise capital at favorable rates or at all.  If the Company is unable to obtain profitable operations and positive operating cash flows and raise sufficient capital to meet scheduled and past due debt obligations, it may be forced to scale back its development plans or to significantly reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.  The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 
F-12

 

Note 3:  Discontinued Operations

Ashdown Project LLC

On February 25, 2009, the Company entered into a Binding Memorandum of Understanding as well as two related binding side letter agreements (collectively, the “MOU”) with Win-Eldrich Gold, Inc. (“WEG”) , whereby the Company agreed to sell 100% of its ownership interest in the Ashdown LLC to WEG (the “Ashdown Sale”).  WEG was a co-owner of the Ashdown LLC with the Company since the inception of the Ashdown LLC in September 2006, with the Company owning a 60% membership interest and WEG owning a 40% membership interest.  The Ashdown LLC placed the Ashdown property into commercial operation in December 2006, and had sales of molybdenite concentrates of $10,398,361 for the year ended December 31, 2007 and sales of $10,537,370 during 2008 prior to suspension of operations in November 2008 due to significant declines in the market price of molybdenum.

On May 13, 2009, pursuant to the material terms of the MOU, as further revised, negotiated and mutually agreed to by the Parties, the Company entered into definitive agreements that superseded the MOU, including a Purchase and Sale of LLC Membership Interest Agreement with WEG, to effectuate the Ashdown Sale (the “Purchase Agreement”).  As consideration for the Ashdown Sale and the Parties’ mutual release of certain claims against the other pursuant to the terms of a Settlement and Release Agreement (the “Release”), WEG is to pay $5.3 million (the “Purchase Price”) to the Company, which has been satisfied by the issuance of a Limited Recourse Secured Promissory Note (the “Note”), for the full amount of the Purchase Price.

In particular, WEG is to pay the Company $5.3 million and assume the majority of all obligations and liabilities held by the LLC, all as detailed and more fully set forth in the Purchase Agreement.  Pursuant to the terms and conditions of the Purchase Agreement and the Note, the Company, WEG and the LLC have also entered into a Security Agreement, a Short Form Deed of Trust and Assignment of Rents Agreement (the “Deed of Trust”), and certain other releases and side letter agreements (together with the Purchase Agreement and the Note, collectively, the “Transaction Documents”).

The terms and conditions of the Note, including term, interest rate and description of security interest are as follows: the terms of the Note include the payment of the Purchase Price together with simple interest on the unpaid principal amount of the Note at rate equal to the Wall Street Journal Prime rate plus 2.0%, computed on a quarterly basis beginning April 1, 2009, for a term of 72 months, with the first payment due one year from the date of Closing.  As security for the Note, the Purchase Price shall be secured by the assets and property of the LLC as well as 100% of WEG’s ownership interest in the LLC (the “Collateral”).  The sole recourse of the Company under the Note for the collection of amounts owed and in the event of default shall be foreclosure as to the Collateral, as further detailed in the Security Agreement and Deed of Trust by and between the Parties.

Because of the current uncertainty of collecting the Note or realizing any value from the assets and property of the LLC upon foreclosure, the Note has been reduced 100% by an allowance account and recorded at no value in the accompanying consolidated balance sheet as of December 31, 2009, and no gain on disposition of the Company’s interest in the Ashdown LLC attributed to the $5.3 million Note has been recorded in the accompanying consolidated statements of operations for the year ended December 31, 2009.  The Company did, however, record a loss on sale of interest in joint venture of $235,303 for year ended December 31, 2009 resulting from the assumption by the Company of certain liabilities in the transaction and the elimination of all investment and loan accounts related to the Ashdown LLC.  Further gain, if any, on disposition of the interest in the Ashdown LLC will be recorded as cash payments are received on the Note or, if required, upon disposition of any assets or property of the Ashdown LLC due to foreclosure on the Note.

 
F-13

 

Pursuant to the Release, the Parties agreed to terminate any and all litigation and ongoing disputes existing between the Parties effective at Closing.

Finally, pursuant to the Purchase Agreement, Perry Muller, President of WEG, or his assignee, agreed to pay up to $100,000 of all payments made in settlement of the amounts owed by the Ashdown LLC to Retrievers LLC, and the Company secured a release from Retrievers LLC of any claim or title in or to the Ashdown Mill property, with Mr. Muller becoming the sole owner of the Ashdown Mill property (the “Retriever’s Settlement”).  Upon completion of the Retriever’s Settlement, Mr. Muller agreed to lease the Ashdown Mill property to the Ashdown LLC and convey the Ashdown Mill to the Ashdown LLC upon repayment to Mr. Muller by the Ashdown LLC of $100,000, plus a loan fee amount of $10,000, all as pursuant to that certain Ashdown Mill Binding Side Letter Agreement, dated May 13, 2009.

Mineral Ridge Mine

The Company entered into a letter agreement dated May 19, 2009, as subsequently amended on July 17, 2009, with Scorpio Gold Corporation (“Scorpio Gold”) for the purpose of completing due diligence prior to entering into a possible joint venture to place the Company’s Mineral Ridge Mine into production.  Upon execution of the letter agreement, Scorpio Gold paid the Company $50,000 and commenced a 15 day due diligence period.  On June 18, 2009, Scorpio Gold notified the Company that it had completed preliminary due diligence and intended to proceed with the acquisition of the Mineral Ridge Mine and the formation of a joint venture.

Through December 31, 2009, Scorpio Gold paid the Company an additional $850,000 plus certain expenses, as part of ongoing monthly payments to be credited toward the ultimate purchase price while the parties finalized negotiations and definitive agreements.  The payments to the Company are non-refundable, and the total payments through December 31, 2009 of $900,000 have been recorded as a deposit, a current liability.

On March 10, 2010, the Company closed the Members’ Agreement entered into on December 31, 2009 with Scorpio Gold and Scorpio US.  At the closing of the Members’ Agreement, the Company sold Scorpio US an undivided 70% interest in the Mineral Ridge Mine for a purchase price of US $3,750,000 cash (less those amounts previously advanced to the Company by Scorpio Gold) and 7,824,750 common shares of stock of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately following the sale, the Company and Scorpio US each contributed their respective interests in the Mineral Ridge Mine to a joint venture formed to own and operate the Mineral Ridge Mine called Mineral Ridge Gold, LLC, a Nevada limited liability company (the “Mineral Ridge LLC”).  The Company also contributed to the Mineral Ridge LLC its interest in the reclamation bonds related to the Mineral Ridge Mine and Scorpio US contributed a net smelter royalty encumbering the Mineral Ridge Mine, which Scorpio US had acquired simultaneously with the closing of the Members’ Agreement.  The Company currently owns a 30% membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in and is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into production and, provided it does so within 30 months of the closing of the Members’ Agreement, will then have the right to increase its interest in the Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US qualifies to increase its ownership interest to 80%, it will also have the option to purchase the Company’s then remaining 20% interest for a period of 24 months following the commencement of commercial production.  There can be no assurance that Scorpio US will be successful in its ability to raise sufficient capital to fund the development of the Mineral Ridge Mine and attain a successful level of operations.

The Company has reported the operations of the Ashdown LLC and the Mineral Ridge Mine as discontinued operations in the accompanying consolidated financial statements for all periods presented.

 
F-14

 

The accompanying consolidated statements of operations for the years ended December 31, 2009 and 2008 include the following:
   
2009
   
2008
 
   
Ashdown
LLC
   
Mineral
Ridge
   
 
Total
   
Ashdown
LLC
   
Mineral
Ridge
   
 
Total
 
                                     
Revenues
  $ 321,115     $ -     $ 321,115     $ 10,537,370     $ -     $ 10,537,370  
Loss before income taxes
  $ (668,186 )   $ (593,423 )   $ (1,261,609 )   $ (1,014,488 )   $ (2,062,188 )   $ (3,076,676 )
Provision for income taxes
    -       -       -       -       -       -  
Loss from discontinued operations
    (668,186 )     (593,423 )     (1,261,609 )     (1,014,488 )     (2,062,188 )     (3,076,676 )
Loss on sale of interest in joint venture
    (235,303 )     -       (235,303 )     -       -       -  
Loss from discontinued operations
    (903,489 )     (593,423 )     (1,496,912 )     (1,014,488 )     (2,062,188 )     (3,076,676 )
Loss from discontinued operations attributable to noncontrolling interest
      267,274         -         267,274         496,352         -         496,352  
Loss from discontinued operations attributable to the Company
  $ (636,215 )   $ (593,423 )   $ (1,229,638 )   $ (518,136 )   $ (2,062,188 )   $ (2,580,324 )

No accounts or amounts for the Ashdown LLC are included in the consolidated financial statements of the Company subsequent to May 13, 2009, the date the Company’s sale of its interest in the Ashdown LLC was completed.  The assets and liabilities of the Mineral Ridge Mine are aggregated and disclosed as long-term assets and liabilities of discontinued operations in the consolidated balance sheet as of December 31, 2009 as follows:

Prepaid expenses and other current assets
  $ 48,041  
Inventories
    19,324  
Property and equipment, net
    432,986  
Restricted funds – reclamation obligations
    1,861,146  
Prepaid bond insurance premiums
    190,853  
Deposits
    50  
         
Assets of discontinued operations
  $ 2,552,400  

Accounts payable
  $ 17,332  
Reclamation obligation
    3,019,098  
         
Liabilities of discontinued operations
  $ 3,036,430  

The assets and liabilities of the Ashdown LLC and the Mineral Ridge Mine are aggregated and disclosed as long-term assets and liabilities in the consolidated balance sheet as of December 31, 2008 as follows:
 
   
Ashdown LLC
   
Mineral Ridge
   
Total
 
                   
Cash and cash equivalents
  $ 193     $ -     $ 193  
Prepaid expenses and other current assets
    14,938       47,075       62,013  
Inventories
    224,846       19,102       243,948  
Property and equipment, net
    2,498,502       446,021       2,944,523  
Restricted funds – reclamation obligations
    493,218       1,839,592       2,332,810  
Prepaid bond insurance premiums
    -       234,065       234,065  
Deposits
    151,508       -       151,508  
                         
Assets of discontinued operations
  $ 3,383,205     $ 2,585,855     $ 5,969,060  
 
   
Ashdown LLC
   
Mineral Ridge
   
Total
 
                   
Accounts payable
  $ 1,247,199     $ 14,976     $ 1,262,175  
Accrued liabilities
    749,928       -       749,928  
Long-term debt, including current portion
    631,885       -       631,885  
Amounts due to related parties
    176,705       -       176,705  
Reclamation obligation
    584,910       3,034,314       3,619,224  
                         
Liabilities of discontinued operations
  $ 3,390,627     $ 3,049,290     $ 6,439,917  
 
 
F-15

 
 
Note 4:  Mineral Properties

With the sale of its interest in the Ashdown, LLC, and the formation of the Mineral Ridge LLC, the Company’s primary mining property assets are the Northern Champion molybdenum property located in Ontario, Canada and the Duff claim block, located adjacent to the Ashdown Mine in northwestern Nevada.

Northern Champion Property

The Northern Champion Property is approximately 880 acres in Griffith and Broughham Townships in the Province of Ontario, Canada (“Northern Champion Property”).  On April 18, 2006, the Company executed a Purchase Agreement with four individuals (collectively, the “Vendors”) to purchase five registered claims totaling 22 units on the Northern Champion Property together with a NI 43-101 Technical Report and Feasibility Study describing a molybdenite deposit within the area of the claims.

Pursuant to the terms of the agreement, the Company was obligated to pay $125,000 in four equal quarterly installments of $31,250 commencing on August 15, 2006.  In addition, the agreement provided that the Company would issue 735,000 shares of the Company’s common stock to the Vendors.  The agreement also provided that the Vendors will retain a 3.3% Net Smelter Return (“NSR”) on the sales of minerals taken from the Northern Champion Property.  Additionally, the Company will have the right of first refusal to purchase 1.65% of said Net Smelter Return from the Vendors for $1,650,000.

On February 12, 2007, the parties agreed to convert the remaining cash payments to an equivalent number of restricted shares valued at the market close of $0.295 on that date.  On February 16, 2007, 423,729 restricted shares were issued to the Vendors and the purchase was completed.  The Company now owns 100% of the Northern Champion Property subject to the NSR reserved by the Vendors.

All costs incurred by the Company in connection with the Northern Champion Property, including acquisition costs, have been expensed to exploration and development costs.  With available funding, the Company plans to take bulk samples for metallurgical and market testing, and to actively explore and delineate molybdenum mineralization on the property.

Duff Claims Block

The Company owns the Duff claims block comprised of 211 mineral claims located along the western flank of the Pine Forest Range, 20 miles south of Denio, Humboldt County, Nevada.  The claims block, which was acquired in 2007, abuts the Ashdown Mine to the north and extends south to the boarder of the Blue Lake Wilderness Study Area.  The geology of the region is primarily tertiary cretaceous granites with quartz outcroppings.  Metals historically mined in the general region include gold, molybdenum copper, tungsten and antimony.

The major mine feature of the Duff claims is the Adams Mine, which at one time produced silica.  However, there are historical reports that substantial gold was also extracted from the quartz rock.  Gold has also been mined in the Vicksburg, Ashdown and Cherry Creek canyons to the north, and Leonard Canyon to the south of the Duff claims.
 
With available funding, the Company plans to commence a surface mapping and sampling program covering sections of the 4,400 acres of claims within the Duff claims block.

The Duff claims block has no historical cost basis to the Company for accounting purposes; therefore, no amounts related to this mineral property are included in the accompanying consolidated financial statements.
 
F-16

 
 
Note 5:  Property and Equipment

Property and equipment consist of the following at December 31:

   
2009
   
2008
 
             
Mining and milling equipment
  $ 20,431     $ 247,581  
Computer equipment
    82,370       82,370  
Drilling equipment
    379,220       379,220  
Vehicles
    -       7,469  
Support equipment
    39,933       39,933  
Furniture and equipment
    23,484       19,659  
      545,438       776,232  
Less accumulated depreciation and amortization
    (260,432 )     (404,675 )
                 
    $ 285,006     $ 371,557  

For the years ended December 31, 2008 and 2007, the Company recorded depreciation and amortization expense of $78,438 and $109,702, respectively.

The Company had drilling equipment under capital lease with a cost of $66,395 and accumulated amortization of  $23,238 and $9,959 at December 31, 2009 and 2008, respectively.


Note 6:  Restricted Funds – Reclamation Obligations

During May 2003, the Company entered into an insurance backed financial assurance program for a surety bond to secure the $2,693,000 reclamation bond for the Mineral Ridge Mine. The program structure includes an insurance policy that will pay reclamation expenses as they occur.  During June 2003, the Company transferred to the insurance company approximately $1,800,000 of restricted cash for the reclamation of the Mineral Ridge Mine.  The Company has paid an additional $526,505 of premiums on the reclamation bond policy through December 31, 2007.  The Company is obligated to pay $11,311 annually thereafter which amount will be expensed during the year incurred.

Of the total initial premium of $2,326,505, $1,796,652 represents a Reclamation Experience Account which funds are directly available to the Company to use for closure, reclamation and remediation activities once they commence based on the existing known condition of the Mineral Ridge Mine.  This amount has been included in the balance of the Restricted Funds - Reclamation Obligations asset included in assets of discontinued operations in the accompanying consolidated balance sheets as of December 31, 2009 and 2008.

The prepaid bond insurance premiums of $526,505 are being amortized over the twelve (12) year term of the policy.  The annual insurance premium of $11,311 is amortized over a twelve (12) month period.  At December 31, 2009 and 2008, the total current portion of the prepaid insurance premiums related to this policy totaled $43,212 and is included in prepaid expenses and other current assets in assets of discontinued operations in the accompanying consolidated balance sheets.  The long-term portion of the prepaid insurance premiums totaled $190,853 and $234,065 at December 31, 2009 and 2008, respectively, and is included in assets of discontinued operations in the accompanying consolidated balance sheets.  This program allows the Company flexibility to increase its bond in the future to an aggregate limit of $4,000,000.

A deposit with a balance of $64,494 and $42,940 at December 31, 2009 and 2008, respectively, for the Mineral Ridge Mine is also included in the balance of the Restricted Funds – Reclamation Obligations in assets of discontinued operations in the accompanying consolidated balance sheets.
 
The Company contributed its interest in these restricted funds and the reclamation bond to the Mineral Ridge LLC in March 2010.
 
F-17

 
 
Note 7:  Reclamation Obligations

In accordance with FASB ASC Topic 410, Asset Retirement and Environment Obligations, which establishes a uniform methodology for accounting for estimated reclamation and abandoned costs, the Company has estimated reclamation costs for the Mineral Ridge Mine.  At December 31, 2009 and 2008, the amount recorded for estimated reclamation obligations was $3,019,098 and $3,034,314, respectively, and is included in liabilities of discontinued operations in the accompanying consolidated balance sheets.  Because the Company was unable to operate the Mineral Ridge Mine profitably in accordance with the feasibility study completed in 2003 and subsequently idled the project, no related reclamation asset has been recorded at December 31, 2009 and 2008.

Accretion expense related to the reclamation obligations for the years ended December 31, 2009 and 2008, included in loss from discontinued operations, was $(15,216) and $185,035, respectively.

The following is a summary of the changes to the Company’s reclamation obligations:
 
Balance, December 31, 2007
  $ 2,824,805  
Additional reclamation obligations
    24,474  
Accretion expense
    185,035  
         
Balance, December 31, 2008
    3,034,314  
Accretion expense
    (15,216 )
         
Balance, December 31, 2009
  $ 3,019,098  


Note 8:  Accrued Liabilities

Accrued liabilities consisted of the following as of December 31:

   
2009
   
2008
 
             
Officers deferred compensation
  $ 636,358     $ 356,989  
Accrued payroll and related
    289,240       109,770  
Other
    79,835       106,397  
                 
    $ 1,005,433     $ 573,156  
 
The officers deferred compensation is payable to officers, former officers and employees of the Company as follows at December 31:

   
2009
   
2008
 
             
David Caldwell
  $ 352,873     $ 187,869  
Robert Martin
    268,570       133,570  
Other
    14,915       35,550  
                 
    $ 636,358     $ 356,989  
 
 
F-18

 

Note 9:  Severance Obligations

At a meeting of the Board of Directors on February 18, 2005, the directors unanimously approved a separation agreement for Michael Fitzsimonds, a former Chief Executive Officer of the Company.  The terms of separation were that Mr. Fitzsimonds would be paid his full salary for one year, including medical benefits, followed by 180 hours of vacation.  The Company then would pay him $394,000 in 59 equal monthly payments.  He would be allowed to use a company vehicle for one year at which time he exercised his option to purchase it.  The current portion of the severance obligation to Mr. Fitzsimonds of $165,201 and $100,170 as of December 31, 2009 and 2008, respectively, is included in current liabilities in the accompanying consolidated balance sheets.  The long-term portion of the severance obligation to Mr. Fitzsimonds of $86,460 as of December 31, 2008 is included in long-term liabilities in the accompanying consolidated balance sheets.

On December 23, 2009, the Company entered into a Settlement Agreement and Mutual Release Agreement with Mr. Fitzsimonds (the Fitzsimonds Settlement Agreement”), pursuant to which the Company and Mr. Fitzsimonds agreed to settle the severance obligations and $100,000 promissory note due Mr. Fitzsimonds and cancel all outstanding stock options held by Mr. Fitzsimonds.  The Company paid Mr. Fitzsimonds $25,000 upon execution of the Fitzsimonds Settlement Agreement and agreed to pay Mr. Fitzsimonds $65,201 within two business days of the closing of the Mineral Ridge LLC.  In addition, the Company issued Mr. Fitzsimonds 1,000,000 shares of its common stock on December 30, 2009 in payment of the $100,000 promissory note and 1,428,571 shares of its common stock on March 18, 2010 in payment of other obligations.  Mr. Fitzsimonds agreed to release and discharge the Company from all current or future claims.

During the year ended December 31, 2008, the Company paid all remaining amounts payable to Kenneth S. Ripley, former Chief Executive Officer of the Company, under an employment separation agreement.  This agreement terminated an employment agreement dated as of March 8, 2006 between the Company and Mr. Ripley.


Note 10:  Production Purchase Obligation

On June 13, 2007, the Company entered into a Production Payment Purchase Agreement and Assignment (the “Purchase Agreement”) by and between the Company and Crestview Capital Master, LLC (“Crestview”).  Pursuant to the terms of the Purchase Agreement, Crestview acquired from the Company a production payment equal to $1,974,456.  The production payment was payable in an amount equal to a 5% Net Smelter (Refinery) Returns (“NSR”) paid solely from the Company’s share of production distributed to the Company pursuant to the Ashdown Project LLC Operating Agreement.  On January 30, 2009, the Company entered into a Bridge Loan and Debt Restructuring Agreement with Crestview, whereby the production payment obligation was restructured as secured promissory note of $1,000,000.  See Note 12 for a discussion of this promissory note and a second promissory note payable to Crestview of $1,000,000.

The production payment obligation to Crestview of $1,974,456 was recorded as a current liability in the accompanying consolidated balance sheets at December 31, 2008.  Prior to its restructure in January 2009, the production payment obligation was convertible in whole or in part into shares of the Company’s common stock at the option of Crestview using a defined formula, but in no case less than $0.36 per share nor more than $0.46 per share.


Note 11:  Ashdown Milling Production Payment Purchase Agreement

On September 26, 2005, the Company entered into a Production Payment Purchase Agreement with Ashdown Milling Co LLC (“Ashdown Milling”).  Under the terms of the agreement, Ashdown Milling agreed to purchase a production payment to be paid from the Company’s share of production from the Ashdown mine for a minimum of $800,000.  In addition, Ashdown Milling received one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at $0.20 per share for each dollar paid to the Company.  In addition, the Production Payment Purchase Agreement provided that, upon the request of the Company for additional funds, Ashdown Milling had the right, but not the obligation, to increase its investment in the production payment up to an additional $700,000 for a maximum purchase price of $1,500,000.  The amount of the production payment to be paid to Ashdown Milling is equal to a 12% net smelter returns royalty on the minerals produced from the mine until an amount equal to 240% of the total purchase price has been paid.  Robert P. Martin, President of the Company, and Kenneth S. Ripley, a former Chief Executive Officer of the Company, are co-managers and two of the five members of Ashdown Milling.  The Company’s Board approved the transaction.

 
F-19

 

Because production payments from the Ashdown mine were not assured at the time of the agreement with Ashdown Milling, the transaction was originally accounted for as the sale of an interest in mineral properties with the related gain to be deferred until the Company began making payments according the terms of the agreement.  A total of $1,500,000 was advanced to the Company pursuant to this agreement, with the proceeds allocated as follows.

Common stock
  $ 370,100  
Warrants
    225,333  
Deferred revenue
    904,567  
         
    $ 1,500,000  

The allocation of the proceeds to common stock was based on the quoted market price of the Company’s common stock on the date the shares were issued to the Ashdown Milling members.  The allocation of the proceeds to warrants, also recorded to common stock, was based on the estimated value of the warrants calculated using the Black-Scholes valuation model.

With the commencement of mining operations at the Ashdown mine, the Company reclassified the deferred revenue to a production payment obligation – related party, a current liability, to be repaid from the Company’s share of production distributions received from the Ashdown LLC.  The Company has paid the $904,567 production payment obligation.  Amounts paid to Ashdown Milling members in excess of the original obligation recorded of $904,567 will be reported as royalties expense.

On February 6, 2008 the Company bought out the membership interests of two members of Ashdown Milling, Charles D. Murphy and Acco Investment Inc., in exchange for 1,866,667 shares of the Company’s common stock and $139,092 cash paid to each of them.  As a result, their membership interests in Ashdown Milling were extinguished, and the Company’s remaining production payment to be paid to Ashdown Milling was reduced from a 12% net smelter returns royalty on the minerals produced to 7.2%.

For the year ended December 31, 2008, the Company reported royalties expense of $1,158,337 comprised of the following:

Common stock – 3,733,334 shares at $0.225 per share
  $ 840,000  
Exercise of warrants – 300,000 shares at $0.20 per share
    60,000  
Cash payments
    258,337  
         
    $ 1,158,337  

For the year ended December 31, 2009, the Company reported royalties expense of $70,090 resulting from the issuance of a note payable to a related party (see Note 13).

As a consequence to the sale of its interest in the Ashdown LLC, the members of Ashdown Milling will no longer have a net smelter returns royalty on Ashdown LLC production.  The Company expects to pay the remaining royalty obligation as sales proceeds are received from WEG.
 
 
F-20

 

Note 12:  Debt

The Company’s debt consists of the following at December 31:

   
2009
   
2008
 
Note payable to Crestview Capital Master, LLC payable April 6, 2010, with interest to accrue on a quarterly basis at prime plus 2%
  $  1,000,000     $  -  
Note payable to Crestview Capital Master, LLC resulting from the restructure of a production payment obligation (Note 9) payable August 6, 2010, with interest to accrue on a quarterly basis at prime plus 2%
        1,000,000           -  
Note payable to GE Capital, payable at $1,080 per month through January 2012, including interest at 5.40%, secured by equipment
      26,450         40,363  
Note payable to Daimler Chrysler, payable at $806 per month,  through February 2012, including interest at 13.75%, secured by vehicle
      18,027         25,736  
Note payable to Komatsu Equipment Company, with principal payments of $58,486 on June 30, 2008, $58,486 on June 30, 2009, and $58,485 on June 30, 2010, with interest at 8%, unsecured
      175,457         175,457  
Capital lease payable to Heartland Wisconsin Corp., payable at $1,148 per month through May 2013, secured by equipment
    39,544       50,173  
Short-term note payable to Retrievers, LLC, with interest at 12%, secured by the assets of the Company
    145,468       -  
Other
    15,366       4,300  
Accrued interest payable
    176,643       23,026  
                 
Total
    2,596,955       319,055  
Less current portion
    2,535,782       176,549  
                 
Long-term portion
  $ 61,173     $ 142,506  

On January 30, 2009, the Company entered into a Bridge Loan and Debt Restructuring Agreement (the “Agreement”) with Crestview Capital Master, LLC (the “Lender”), whereby the Company and the Lender entered into a bridge loan and a restructuring of the original debt in the amount of $1,974,456 owed by the Company to the Lender pursuant to the Production Payment Purchase Agreement and Assignment, dated June 12, 2007 (the “Original Debt”).

Pursuant to the Agreement, the Company borrowed from the Lender the principal amount of $1,000,000 (the “Principal Amount”) in exchange for the Company issuing the Lender a Bridge Loan Secured Promissory Note (the “Bridge Note”) for the Principal Amount plus interest to accrue on a quarterly basis at a rate of the Wall Street Journal Prime Rate plus 2%.  On October 26, 2009, the Company and the Lender agreed to restructure the Bridge Note to extend the maturity date from November 6, 2009 to February 6, 2010.  Pursuant to a side letter agreement between the Company and the Lender dated January 13, 2010, the Lender agreed to extend the Maturity Date for successive one week periods for an extension fee of $10,000 per weekly period, prorated for any portion thereof, but in no event beyond April 6, 2010 (see Note 24).  The Lender may, at its option, require repayment of $500,000 of the amount owed on the Bridge Note in consideration for the issuance of warrants to purchase 5,000,000 shares of the Company’s common stock, at an exercise price of $0.05 per share (the “Bridge Warrants”).  On March 10, 2010, the Bridge Note was repaid in full (see Note 24).

Additionally, pursuant to the Agreement, the Company and Lender restructured the Original Debt, which was recorded as a production payment obligation, a current liability in the Company’s consolidated balance sheet as of December 31, 2008.  In consideration of the reduction of the Original Debt from $1,974,456 to $1,000,000, the Company executed a Secured Promissory Note in the principal amount of $1,000,000 (the “Debt Restructuring Note”) together with interest at a rate equal to the Wall Street Journal Prime Rate plus 2%, with a maturity date of August 6, 2010, as well as issue certain warrants to purchase Company common stock as further described below.  As a result, the Company recorded a gain on extinguishment of debt of $974,456 in the accompanying consolidated statement of operations for the year ended December 31, 2009.  Upon formation of a joint venture in relation to the Mineral Ridge Mine, the Company will issue an irrevocable assignment to the Lender of 50% of all distributions to be made to it by the joint venture as prepayment for the amount outstanding on the Debt Restructuring Note.  Upon payment in full of the Debt Restructuring Note and any additional note issued pursuant to Section 3 of the Bridge Note, the Lender will release the joint venture from the assignment.

 
F-21

 

On October 26, 2009, the Company and Crestview also agreed to restructure the terms of the $1 million Debt Restructuring Note to change the maturity date from February 6, 2011 to August 6, 2010.  The Company executed an Amended and Restated Debt Restructuring Promissory Note dated October 29, 2009 to reflect the same.  The terms of the Amended and Restated Debt Restructuring Note were also modified to require the Company to prepay the Amended and Restated Debt Restructuring Note to the extent of 50% of any debt or equity financing received by the Company.  As a result of the change in the maturity date, the Debt Restructuring Loan of $1 million has been recorded as a current liability in the accompanying consolidated balance sheet at December 31, 2009.

The Company paid the Lender $50,000 as part of the consideration for amending each of the Bridge Loan and debt restructuring agreements set forth above.

As of the Closing, and as additional consideration for the restructuring of the Original Debt, the Company issued to the Lender warrants to purchase 23,000,000 shares of the Company’s common stock, at an exercise price of $0.03 per share, for a purchase period of 24 months (the “Debt Restructuring Warrants”). The Debt Restructuring Warrants and the Bridge Warrants (collectively referred to herein as the “Warrants”) are subject to certain registration rights, which the Lender, at present, has agreed to waive in lieu of utilizing Rule 144, as necessary, to remove any restrictive legends on its securities.  The provisions of the Debt Restructuring Warrants were modified pursuant to an Amended and Restated Restructuring Warrant dated October 29, 2009 to provide that in the event there is an issuance of shares or common stock, convertible debt or equity, or warrants or options, at a price per share or convertible or exercisable at a price per share below the Warrant Price (as defined), then the Warrant Price shall be reduced to the price per share of the common stock so issued or issuable, and the number of Warrant Shares (as defined) shall be adjusted to the extent required to enable the Holder to acquire additional shares of common stock representing the same percentage of the shares issued and/or issuable as a result of the transaction as the number of Warrant Shares exercisable immediately prior to the transactions represents of the number of shares of common stock issued and outstanding immediately prior to the transaction.

As security for the Bridge Note and the Debt Restructuring Note, the Parties agreed to amend and restate their Security Agreement, dated June 12, 2007, which secures the Company’s repayment obligations pursuant to the Agreement (the “Amended Security Agreement”).  The secured interest in favor of the Lender has been perfected by the filing of a UCC-1 Financing Statement with the Nevada Secretary of State as well as the filing of a Deed of Trust and Mortgage with Esmeralda County.

Pursuant to the Agreement, in consideration of the Company’s issuance of the Bridge Note, the Debt Restructuring Note, the Debt Restructuring Warrants, and the Amended Security Agreement, the Lender released the Company from all past, present, and future claims relating to the Original Debt provided that the Company pays the interest and principal of the current obligations on the day such interest and principal become payable.

 
F-22

 

Note 13:  Amounts Due to Related Parties

Amounts due to related parties, included in current liabilities, consist of the following at December 31, 2009 and 2008:

2009
   
Principal
   
Interest
   
Total
 
Note payable to the former manager of the Ashdown mine for the purchase of a mill, equipment rental and other, with interest at 12%
  $    166,407     $ 11,830     $    178,237  
Notes payable to David A. Caldwell, a former Chief Executive Officer of the Company, and Julie K. Caldwell, payable on demand, with interest at 18%
        40,866       4,513           45,379  
Notes payable to Robert P. Martin, President of the Company, and the Robert P. Martin Revocable Living Trust, payable on demand, with interest at 18%
        160,524       48,033           208,557  
    $ 367,797     $ 64,376     $ 432,173  
 
2008
   
Principal
   
Interest
   
Total
 
Note payable to Michael Fitzsimonds, a former Chief Executive Officer of the Company, with interest payments of $1,350 per month, due on or before February 18, 2008 (repaid in December 2009)
  $    100,000     $ 4,050     $    104,050  
Note payable to the former manager of the Ashdown mine for the purchase of a mill, equipment rental and other, with interest at 12%
        166,189       9,429           175,618  
Notes payable to David A. Caldwell, a former Chief Executive Officer of the Company, and Julie K. Caldwell, payable on demand, with interest at 18%
        80,935       3,457           84,392  
Notes payable to Robert P. Martin, President of the Company, and the Robert P. Martin Revocable Living Trust, payable on demand, with interest at 18%
        90,435       4,036           94,471  
    $ 437,559     $ 20,972     $ 458,531  


Note 14:  Gain on Extinguishment of Debt

As discussed in Notes 10 and 12, during the year ended December 31, 2009, the Company restructured a production payment obligation of $1,974,456 to a short-term note payable of $1,000,000, resulting in a gain on extinguishment of debt of $974,456.  Other extinguishment of debt transactions in 2009 resulted in additional gain totaling $58,123.

The Company reached agreement with certain parties during the year ended December 31, 2008 pursuant to which a net gain on extinguishment of debt of $46,586 was realized.  This gain is recorded net of a loss on extinguishment of accrued liabilities due to related parties of $105,030 from the issuance of common shares where the market value of the common stock exceeded the recorded amount of the debt paid on the date the shares were issued.

 
F-23

 
 
Note 15:  Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation.  Under the fair value recognition provisions of this pronouncement, stock-based compensation cost is measured at the grant date based on the value of the award granted, using the Black-Scholes option pricing model, and recognized over the period in which the award vests.  The stock-based compensation expense included in general and administrative expenses for the years ended December 31, 2009 and 2008 was $62,387 and $246,716, respectively.  There was no stock compensation expense capitalized during the years ended December 31, 2009 and 2008.

During the year ended December 31, 2009, options to purchase 200,000 shares of the Company’s common stock were issued to directors with exercise prices ranging from $0.02 to $0.03 per share.  The Company estimated the weighted average grant-date fair value of these options at $0.02 per share using the Black-Scholes option pricing model with the following assumptions:
 
Expected dividend yield
0.00%
Expected stock price volatility
114.92%
Risk-free interest rate
2.09%
Expected life of options
5 years
 
The following table summarizes the stock option activity during the year ended December 31, 2009:

   
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contract Term
   
Aggregate
Intrinsic
Value
 
                         
Outstanding at December 31, 2008
    6,827,273     $ 0.21              
Granted
    200,000     $ 0.03              
Exercised
    (100,000 )   $ 0.03              
Expired or cancelled
    (790,000 )   $ 0.24              
                             
Outstanding at December 31, 2009
    6,137,273     $ 0.21       1.81     $ 3,000  
                                 
Options vested and exercisable at December 31, 2009
    5,787,273     $ 0.21       1.71     $ 3,000  
 
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $0.05 as of December 31, 2009 which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.

As of December 31, 2009, the total future compensation cost related to non-vested stock-based awards not yet recognized in the condensed consolidated statements of operations was $13,455.

 
F-24

 

Note 16:  Stock Warrants and Purchase Rights

A summary of the status of the Company’s stock warrants and purchase rights as of December 31, 2009 and changes during the year then ended is presented below:

         
Weighted
 
         
Average
 
   
Shares
   
Exercise Price
 
             
Outstanding, December 31, 2008
    15,898,925     $ 0.34  
                 
Granted
    34,531,380     $ 0.03  
Canceled / Expired
    (24,181,380 )   $ 0.21  
Exercised
    -     $ -  
                 
Outstanding, December 31, 2009
    26,248,925     $ 0.04  


The following summarizes the exercise price per share and expiration date of the Company's outstanding warrants and rights to purchase common stock at December 31, 2009:

Expiration Date
Price
Number
     
2010
$  0.25
1,748,925
2011
$  0.03
23,000,000
2011
$  0.01
1,500,000
     
   
26,248,925

As additional consideration for the restructuring of debt (see Note 12), the Company issued warrants to purchase 23,000,000 shares of the Company’s common stock, at an exercise price of $0.03 per share, exercisable for a period of 24 months.  The Company has estimated the value of the warrants at $437,611 using the Black-Scholes option pricing model, and has included this amount in interest expense for the year ended December 31, 2009.

The Company issued warrants to a Director in connection with a consulting agreement to purchase 1,500,000 common shares of the Company at an exercise price of $0.0079 per share.  The warrants are exercisable through February 6, 2011.  The Company has estimated the value of the warrants at $11,193 using the Black-Scholes option pricing model, and has included this amount in interest expense for the year ended December 31, 2009.


Note 17:  Stockholders’ Equity

Upon reincorporation to the State of Nevada in May 2008, the par value of the Company’s common stock was changed from no par value per share to $0.001 par value per share.  The consolidated financial statements of the Company for all periods presented have been retroactively adjusted to reflect this change in par value per share.

During the year ended December 31, 2009, the Company issued a total of 17,669,753 shares of its common stock, including 3,528,500 shares to officers and directors, for the following consideration:  12,501,253 shares issued for cash of $249,400; 100,000 shares issued for cash of $3,000 upon the exercise of stock options; 4,068,500 shares issued for accounts payable of $40,319 and common stock subscription receivable of $1,187; and 1,000,000 shares issued for debt of $50,000.  The Company also wrote off a stock subscription receivable of $120,000 against additional paid-in capital.

On July 28, 2009, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Alliance International (the “Investor”).  Pursuant to the terms of the Agreement, the Company issued 2,500,000 shares of the Company’s common stock (the “Shares”), with a purchase price of $0.01995 per Share, to the Investor for a total purchase price of $49,875.  Additionally, the Company granted the Investor the following options (the “Options”):  (i) the option to purchase an additional 5,015,690 shares of the Company’s common stock, at $0.01995 per share, for a total purchase price of $100,063 (the “First Option Shares”), with such option expiring August 18, 2009; and (ii) the option to purchase an additional 5,015,690 shares of the Company’s common stock, at $0.01995 per share, for a total purchase price of $100,062 (the “Second Option Shares”), with such option expiring August 31, 2009.  All options expired without being exercised.

 
F-25

 
 
The Shares, the Options, and the First Option Shares and Second Option Shares issuable upon exercise of the Options, are exempt from the registration requirements of the Securities Act of 1933, as amended, (the “Securities Act”) pursuant to Section 4(2) of the Securities Act and from various similar state exemptions.

During the year ended December 31, 2008, the Company issued a total of 24,957,818 shares of its common stock for the following consideration:  10,422,363 shares for cash of $739,122; 1,461,154 shares for services valued at $84,700; 3,460,000 shares in payment of accounts payable of $163,151 and common stock subscription receivable of $1,187; 3,890,000 shares in payment of accrued liabilities to related parties of $233,400; 3,733,334 shares issued for royalties expense of $840,000 (Note 11); 666,667 shares for common stock subscription receivable of $120,000; 1,024,300 shares issued for the exercise of options and warrants, $25,658 for cash and $129,587 reduction in accrued liabilities; and 300,000 shares issued upon the exercise of warrants for royalties expense of $60,000 (Note 11).

The prices per share recorded in non-cash equity transactions approximated the quoted market price of the Company’s common stock on the date the shares were issued.  In those instances where the market price of the Company’s common stock on the date the shares are issued to repay debt or other obligations differs from the market price originally used to determine the number of shares to be issued, a gain or loss on extinguishment of debt is recorded.  Depending on the delay in issuing these shares, the gain or loss may be material.  For the year ended December 31, 2009, a gain of $50,000 on extinguishment of debt repaid through the issuance of the Company’s common stock was recorded.  For the year ended December 31, 2008, a loss on extinguishment of debt of $105,030 through the issuance of the Company’s common stock was recorded.


Note 18:  Income Taxes

The benefit (provision) for income taxes is different than amounts which would be provided by applying the statutory federal income tax rate to (loss) income before income taxes for the following reasons:

   
Years Ended December 31,
 
   
2009
   
2008
 
             
Income tax benefit at statutory rate
  $ 951,574     $ 2,399,238  
Adjustments to net operating loss carry forward
    1,280       259,322  
Stock or warrants issued for services and expenses
    (152,593 )     (334,798 )
Other
    68,947       (18,290 )
Change in valuation allowance
    (869,208 )     (2,305,472 )
                 
    $ -     $ -  

Deferred tax assets (liabilities) are comprised of the following at December 31:

   
2009
   
2008
 
Deferred tax assets:
           
   Net operating loss carry forwards
  $ 10,906,860     $ 10,305,281  
   Reclamation obligation
    1,026,493       1,151,808  
   Accrued expenses
    391,615       203,771  
   Mineral properties
    170,947       170,947  
   Depreciation
    64,008       -  
   Stock-based compensation
    137,542       116,330  
   Allowance for doubtful accounts
    29,580       -  
      12,727,045       11,948,137  
   Less valuation allowance
    (12,727,045 )     (11,857,837 )
   Net deferred tax assets
    -       90,300  

 
F-26

 

   
2009
   
2008
 
Deferred tax liabilities:
           
   Depreciation
    -       (90,300 )
   Unrealized gain on investments
    -       -  
   Net deferred tax liabilities
    -       (90,300 )
                 
Net deferred taxes
  $ -     $ -  

At December 31, 2009, the Company has a net operating loss carry forward available to offset future taxable income of approximately $32,079,000, which will begin to expire in 2010.  If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the net operating loss carry forward which could be utilized.

FASB ASC Topic 718-740, Income Taxes, requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.  If the more-likely-than-non threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.  During the years ended December 31, 2009 and 2008, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by ASC Topic 718-740.  The Company has no unrecognized tax benefit which would affect the effective tax rate if recognized.

The Company classifies interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations under general and administrative expenses.  As of December 31, 2009 and 2008, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company files income tax returns in the U.S. federal jurisdiction, but in no state or local jurisdictions since all operations are currently conducted in the State of Nevada, which does not have a corporate income tax.  The Company also has immaterial operations in Canada.  All U.S. federal net operating loss carry forwards through the year ended December 31, 2009 are subject to examination.


Note 19: Consulting Agreements

In December 2008, the Company’s Board of Directors approved a compensation package to be offered to all executive officers and board members to provide the Company with consulting services related to its ongoing financing and debt conversion efforts.  Certain of the Company’s officers and directors have entered into consulting or other compensation arrangements on substantially similar terms based on this board approved package, as further detailed below.

Thomas Klein

On January 16, 2009, the Company entered into a Consulting Agreement (the “Klein Agreement”) with Thomas Klein, whereby Mr. Klein is to provide consulting services to the Company in connection with the Company’s continued financing and debt conversion efforts.  Mr. Klein currently serves on the Company’s Board of Directors and Governance Committee and was appointed Chief Executive Officer of the Company in January 2010.

As compensation for his consulting services, Mr. Klein received 1,500,000 shares of Company common stock in May 2009 valued at a 50% discount to the trailing twenty day Company common stock average price from the date of Board approval of such compensation package, totaling $11,835 (“Initial Compensation”).  Such Initial Compensation serves to offset the expenses incurred by Mr. Klein in his attempt to help secure the Company future financing.  Pursuant to the Klein Agreement, Mr. Klein will be obligated to incur expenses or purchase Company debt up to the full value of the Initial Compensation.

In addition, in May 2009, Mr. Klein received 1,500,000 warrants to purchase Company common stock based upon the acquisition of $200,000 in financing for the Company, or the retirement of up to $500,000 of the Company’s existing debt, as a result of Mr. Klein’s efforts (“Subsequent Compensation”).  Pursuant to the Klein Agreement, the warrants associated with the Subsequent Compensation are fully vested, have an exercise price of $0.0079 per share, and are exercisable through February 6, 2011.

 
F-27

 

Furthermore, for all financing obtained by Mr. Klein’s efforts above $200,000 or resulting in the retirement of the Company’s existing debt in excess of $500,000, Mr. Klein will be eligible for a 10% finder’s fee paid either in cash or, at the discretion of the finder, in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of contracting (“Finder’s Fee Compensation”).

The Company has agreed that it will use its best efforts to register the stock issued in connection with the Initial Compensation, Subsequent Compensation and Finder’s Fee Compensation pursuant to an applicable registration statement filed with the SEC.  Mr. Klein has agreed to a non-competition clause and a non-solicitation clause, both applicable during the course of Mr. Klein’s consulting services to the Company and for a period to end 12 months after termination of the Klein Agreement.

Corby Anderson

On April 16, 2009, the Company entered into a Consulting Agreement (the “Allihies Agreement”) with Allihies Engineering, Incorporated, a Montana corporation, and its President, Dr. Corby Anderson, whereby Dr. Anderson is to provide consulting services to the Company in connection with the Company’s continued financing and debt conversion efforts.  Dr. Anderson currently serves on the Company’s Board of Directors and Governance Committee.

As compensation for his consulting services, Dr. Anderson will receive 1,500,000 shares of Company common stock valued at a 50% discount to the trailing twenty day Company common stock average price from the date of Board approval of such compensation package, totaling $11,835 (“Initial Compensation”).  In May 2009, 528,500 of the common shares were issued.  Such Initial Compensation shall serve to offset the expenses incurred by Dr. Anderson in his attempt to help secure the Company future financing. Pursuant to the Allihies Agreement, Dr. Anderson will be obligated to incur expenses or purchase Company debt up to the full value of the Initial Compensation.

In addition, Dr. Anderson will be eligible to receive 1,500,000 warrants to purchase Company common stock upon the acquisition of $200,000 in financing for the Company or in connection with a property transaction related to the Mineral Ridge mining property, or the retirement of up to $500,000 of the Company’s existing debt, that are a result of Dr. Anderson’s efforts (“Subsequent Compensation”).  Pursuant to the Allihies Agreement, the warrants associated with the Subsequent Compensation will vest pro-rata as efforts are made to secure the $200,000 financing, the property transaction or $500,000 debt reduction, respectively, and will have an exercise price of $0.0079.

Furthermore, for all financing obtained by Dr. Anderson’s efforts resulting in the Company receiving at least $200,000, the completion of a property transaction or resulting in the retirement of the Company’s existing debt in excess of $500,000, Dr. Anderson will be eligible for a 10% finder’s fee paid either in cash or, at the discretion of the finder, in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of closing.

The Company has agreed that it will use its best efforts to register the stock issued in connection with the Initial Compensation pursuant to an applicable registration statement filed with the SEC.

Jeffrey Dahl

On April 24, 2009, the Company entered into a Consulting Agreement (the “Dahl Agreement”) with Jeffrey Dahl to provide consulting services to the Company in connection with the Company’s continued financing and debt conversion efforts.  Mr. Dahl currently serves on the Company’s Board of Directors.

As compensation for his consulting services, Mr. Dahl will receive 1,500,000 shares of Company common stock valued at a 50% discount to the trailing twenty day Company common stock average price from the date of Board approval of such compensation package, totaling $11,835 (“Initial Compensation”).  Pursuant to the Dahl Agreement, Mr. Dahl will be obligated to incur expenses or purchase Company debt up to the full value of the Initial Compensation.

In addition, Mr. Dahl will be eligible to receive 1,500,000 warrants to purchase Company common stock upon the acquisition of $200,000 in financing for the Company or in connection with a property transaction related to the Mineral Ridge mining property, or the retirement of up to $500,000 of the Company’s existing debt, that are a result of Mr. Dahl’s efforts (“Subsequent Compensation”).  Pursuant to the Dahl Agreement, the warrants associated with the Subsequent Compensation will vest pro-rata as efforts are made to secure the $200,000 financing, the property transaction or $500,000 debt reduction, respectively, and will have an exercise price of $0.0079.

 
F-28

 

Furthermore, for all financing obtained by Mr. Dahl’s efforts resulting in the Company receiving at least $200,000, the completion of a property transaction or resulting in the retirement of the Company’s existing debt in excess of $500,000, Mr. Dahl will be eligible for a 10% finder’s fee paid either in cash or, at the discretion of the finder, in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of closing.

The Company has agreed that it will use its best efforts to register the stock issued in connection with the Initial Compensation pursuant to an applicable registration statement filed with the SEC.

Mr. Dahl’s consulting agreement was amended on February 25, 2010, establishing the amount owed by the Company to Mr. Dahl for fund raising efforts as $11,835 which will be paid through the issuance of 1,500,000 shares of the Company’s common stock.  The shares were issued to Mr. Dahl in March 2010.  Mr. Dahl also agreed to waive his rights to the pro-rata award of warrants.

On February 25, 2010, the Company and Mr. Dahl entered into a new Consulting Agreement with a term of 12 months pursuant to which the Company agreed to pay Mr. Dahl a cash finder’s fee equal to 10% of total defined Financing or Property Transactions.

David Caldwell

On May 7, 2009, the Company entered into a Supplemental Compensation Agreement (the “Caldwell Agreement”) with David A. Caldwell, whereby Mr. Caldwell is to provide specific services to the Company in his role as an executive officer of the Company, in connection with and in support of the Company’s continued financing and debt conversion efforts.  Mr. Caldwell is the former Chief Executive Officer and Chief Financial Officer of the Company and a former member of the Company’s Board of Directors (see Note 20).

As compensation for his services, Mr. Caldwell will receive 1,500,000 shares of Company common stock valued at a 50% discount to the trailing twenty day Company common stock average price from the date of Board approval of such compensation package, totaling $11,835 (“Initial Compensation”).  Such Initial Compensation shall serve to offset the expenses incurred by Mr. Caldwell in his attempt to help secure the Company future financing.  Pursuant to the Caldwell Agreement, Mr. Caldwell will be obligated to incur expenses or purchase Company debt up to the full value of the Initial Compensation.

In addition, Mr. Caldwell will be eligible to receive 1,500,000 warrants to purchase Company common stock upon the acquisition of $200,000 in financing for the Company or in connection with a property transaction related to the Mineral Ridge mining property, or the retirement of up to $500,000 of the Company’s existing debt, that are a result of Mr. Caldwell’s efforts (“Subsequent Compensation”).  Pursuant to the Caldwell Agreement, the warrants associated with the Subsequent Compensation will vest pro-rata as efforts are made to secure the $200,000 financing, the property transaction or $500,000 debt reduction, respectively, and will have an exercise price of $0.0079.

Furthermore, for all financing obtained by Mr. Caldwell’s efforts resulting in the Company receiving at least $200,000, the completion of a property transaction or resulting in the retirement of the Company’s existing debt in excess of $500,000, Mr. Caldwell will be eligible for certain additional compensation to be determined by the Company’s Board of Directors, payable in cash or in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of closing.

The Company has agreed that it will use its best efforts to register the stock issued in connection with the Initial Compensation pursuant to an applicable registration statement filed with the SEC.

 

 
F-29

 
 
Robert Martin
 
On May 18, 2009, the Company entered into a Supplemental Compensation Agreement (the “Martin Agreement”) with Robert P. Martin, President of the Company and Chairman of the Board of Directors, whereby Mr. Martin is to provide specific services to the Company in his role as an executive officer of the Company, in connection with and in support of the Company’s continued financing and debt conversion efforts.

As compensation for his services, Mr. Martin received 1,500,000 shares of Company common stock valued at a 50% discount to the trailing twenty day Company common stock average price from the date of Board approval of such compensation package, totaling $11,835 (“Initial Compensation”).  Such Initial Compensation shall serve to offset the expenses incurred by Mr. Martin in his attempt to help secure the Company future financing. Pursuant to the Martin Agreement, Mr. Martin will be obligated to incur expenses or purchase Company debt up to the full value of the Initial Compensation.

In addition, Mr. Martin will be eligible to receive 1,500,000 warrants to purchase Company common stock upon the acquisition of $200,000 in financing for the Company or in connection with a property transaction related to the Mineral Ridge mining property, or the retirement of up to $500,000 of the Company’s existing debt, that are a result of Mr. Martin’s efforts (“Subsequent Compensation”).  Pursuant to the Martin Agreement, the warrants associated with the Subsequent Compensation will vest pro-rata as efforts are made to secure the $200,000 financing, the property transaction or $500,000 debt reduction, respectively, and will have an exercise price of $0.0079.

Furthermore, for all financing obtained by Mr. Martin’s efforts resulting in the Company receiving at least $200,000, the completion of a property transaction or resulting in the retirement of the Company’s existing debt in excess of $500,000, Mr. Martin will be eligible for certain additional compensation to be determined by the Company’s Board of Directors, payable in cash or in restricted Company common stock at a 20% discount to the closing market price of the Company’s common stock at the time of closing.

The Company has agreed that it will use its best efforts to register the stock issued in connection with the Initial Compensation pursuant to an applicable registration statement filed with the SEC.

In February 2010, the Board of Directors of the Company ratified the compensation paid to officers and directors pursuant to the above agreements and agreed to terminate the agreements going forward.


Note 20:  Employment Separation Agreements

David A. Caldwell

On January 25, 2010, the Company entered into an Employment Separation and Severance Agreement dated as of January 19, 2010 (the “Caldwell Separation Agreement”) with David A. Caldwell, the Company’s then Chief Executive Officer (“CEO”), interim Chief Financial Officer (“CFO”) and a member of the Company’s board of directors (“Board”).  Pursuant to the terms of the Caldwell Separation Agreement, Mr. Caldwell resigned from his positions as CEO, CFO and as a member of the Board effective as of February 1, 2010 (the “Termination Date”).  The Caldwell Separation Agreement terminated that certain Employment Agreement between the Company and Mr. Caldwell dated February 27, 2006, as amended by that certain Addendum to Employment Agreement dated January 31, 2007, pursuant to which the Company has employed Mr. Caldwell as its CEO since January 31, 2007 (collectively, the “Caldwell Employment Agreement”).

Under the terms of the Caldwell Separation Agreement, in settlement of all outstanding amounts owed to Mr. Caldwell, including, but not limited to, those amounts due in accrued and unpaid salary, expenses, director’s fees and repayment of certain loans made to the Company, as well as all amounts owed as severance pursuant to the terms of the Caldwell Employment Agreement, the Company shall: (i) make cash payments of an aggregate of $25,000, half of which was paid upon the agreement of the principal terms of the Caldwell Separation Agreement and the other half paid upon the signing of the Caldwell Separation Agreement; (ii) a subsequent cash payment of $20,379 upon the earlier to occur of the Company’s closing of a transaction involving the Company’s Mineral Ridge mining property or a financing by a third party involving an infusion of working capital to the Company of at least $250,000 (the “Subsequent Payment”); and (iii) issue to Mr. Caldwell an unsecured promissory note (the “Note”), in the principal amount of $366,623, such Note to accrue interest at a rate of 2.0% per annum, with a maturity date twenty-four (24) months from the date of the Separation Agreement.  Further, pursuant to certain events and conditions as set forth in the Caldwell Separation Agreement, Mr. Caldwell can be issued shares of Company common stock in lieu of cash payments for the Note and the Subsequent Payment.

 
F-30

 

The Caldwell Separation Agreement further provides that Mr. Caldwell will form a new company, Phoenix Development Group, LLC, a Nevada limited liability company (“PDG”), to operate as a mine exploration and evaluation enterprise. It is contemplated that Mr. Caldwell will serve as CEO and Exploration Geologist of PDG and that the Company will own a 25% ownership in PDG in exchange for ongoing monthly cash payments of $7,500 (“PDG Payments”), such payments to commence 30 days after the formation of PDG and continue on a monthly basis for a period of 24 months, to be further detailed in a contribution agreement by and between PDG and the Company at a later time.  Further, pursuant to the Caldwell Separation Agreement, the Company will have a right of first refusal to negotiate with PDG for the purchase of any mining, mineral or exploration property rights identified and acquired by PDG.  In addition, as set forth in the Caldwell Separation Agreement, PDG can be issued shares of Company common stock in lieu of the PDG Payments.

Donald R. Prahl

On July 28, 2009, the Company entered into an Employment Separation Agreement (the “Prahl Separation Agreement”) with Donald R. Prahl.  Pursuant to the Prahl Separation Agreement, Mr. Prahl resigned as the Chief Operating Officer of the Company and from all other positions held with the Company or on behalf of the Company, effective July 28, 2009 (the “Effective Date”).  The Prahl Separation Agreement terminates: (i) that certain Employment Agreement, dated August 14, 2006, between the Company and Mr. Prahl whereby Mr. Prahl assumed the roles of Vice President of Operations of the Company and of Interim General Manager at the Ashdown Mine (the “Prahl Employment Agreement”), and (ii) that certain Addendum to the Employment Agreement between the Company and Mr. Prahl dated January 31, 2007, pursuant to which Mr. Prahl became Chief Operating Officer of the Company (the “Addendum”).

Under the terms of the Prahl Separation Agreement, the Company agreed to: (i) pay Mr. Prahl one year of his base salary of $125,000 as severance, of which $85,000 will be converted into 4,341,164 restricted shares of the Company’s common stock, and the remaining $40,000 will be paid in cash upon the closing of a joint venture transaction involving the Company’s Mineral Ridge property; (ii) pay Mr. Prahl $655 for expenses incurred in connection with his employment as soon as reasonably practicable out of available funds, with any unpaid balance due upon the closing of a joint venture transaction involving the Company’s Mineral Ridge Mine; (iii) credit the $18,000 that was previously advanced to Mr. Prahl as payment in full of any and all outstanding consulting fees owed to Mr. Prahl for the period from November 2008 through July 2009; and (iv) immediately vest any unvested portion of Mr. Prahl’s currently outstanding stock options to purchase shares of the Company’s common stock.  Further, Mr. Prahl agreed to a non-solicitation clause with a term of eighteen months from the Effective Date and provided the Company with a general release of liability and claims.

 
Note 21:  Commitments and Contingencies

Operating Leases

The Company leases its office facilities under a non-cancelable operating lease that expires July 31, 2011. The monthly rent is based on an escalating scale based on an average increase of three cents ($0.03) per square foot on each anniversary date.  In addition, the Company leases office equipment and drilling equipment.

The following is a schedule, by years, of the future minimum lease payments under operating leases, as of December 31, 2009.

2010
  $ 268,496  
2011
    255,056  
2012
    175,828  
2013
    14,525  
         
Total
  $ 713,905  

Rental expense for all operating leases was $288,028 and $322,930 for the years ended December 31, 2009 and 2008, respectively.

 
F-31

 

Employment Agreements

Robert P. Martin

The Company entered into an Employment Agreement with Robert P. Martin on March 8, 2006, and into an Addendum to the Employment Agreement on January 31, 2007.  Pursuant to these agreements, Mr. Martin currently serves as the full time President of the Company at an annual salary of $135,000.  Portions of Mr. Martin’s salary were deferred during 2009 and 2008.  The deferred salary payable is included in accrued liabilities in the accompanying consolidated balance sheets at December 31, 2009 and 2008 (see Note 8).

On February 13, 2006, Mr. Martin was granted 200,000 options under the 2002 Stock Option Incentive Plan with an exercise price of $0.24 per share.  One fourth of the options vest each 90 day period from the date of the grant date, resulting in one hundred percent (100%) vesting on February 13, 2007.  The options have a term of 5 years and are subject to other standard terms and conditions under the applicable stock option plan of the Company.  Mr. Martin has also agreed to a non-competition clause while employed by the Company and a non-solicitation clause for a term of 24 months following termination of his employment.

See also the discussion of a current Supplemental Compensation Agreement with Mr. Martin in Note 19.

Thomas Klein

In connection with the resignation of David A. Caldwell as CEO of the Company, the Company’s Board of Directors approved the appointment of Thomas Klein, a member of the Company’s Board of Directors, as the Company’s new CEO.  It is anticipated that Mr. Klein will enter into an arrangement related to his employment as the Company’s CEO.  See, however, the discussion of a current Consulting Agreement with Mr. Klein in Note 19.

J. Roland Vetter

In connection with the resignation of David A. Caldwell as CFO of the Company, the Company’s Board of Directors approved the appointment of J. Roland Vetter, a member of the Company’s Board of Directors, as the Company’s new CFO.  It is anticipated that Mr. Vetter will enter into an arrangement related to his employment as the Company’s CFO.

Legal Matters

With the shutdown of Ashdown operations, the sale of the Company’s interest in the Ashdown LLC and the ongoing difficulty raising capital, certain of the Company’s vendors and lenders have initiated actions to collect balances that are past due.  The Company is negotiating mutually beneficial settlements and payment plans with these parties.  However, the Company’s ability to bring such obligations current is dependent on its ability to raise additional capital.  There can be no assurance that the Company will be successful in these efforts.

Tetra Financial Group, LLC – On January 29, 2009, Tetra Financial Group, LLC (“Tetra”) filed a complaint in the Third District Court of Utah in Salt Lake County against the Ashdown Project, LLC, the Company, Win-Eldrich Mines Limited and certain principals of each company, claiming the breach of a lease agreement for the lease of two (2) ten-ton hauler trucks.  In February 2010, a settlement agreement was reached with Tetra resulting in no material financial impact to the Company.

Earl Harrison – The Company received a default judgment dated February 2, 2009 from the Second District Court of the State of Nevada in Washoe County entered in favor of Mr. Earl Harrison, awarding Mr. Harrison $165,197 plus accrued interest through December 31, 2008 of $5,094 and additional interest that accrues at a daily rate of $18.66 until the obligation is paid in full.  The judgment relates to a promissory note and accrued interest stemming from the lease of Mr. Harrison’s mining equipment and other amounts due him prior to the formation of the Ashdown LLC.  Additionally, on May 1, 2009, we received an Execution Order providing for attachment of personal property and/or certain specified amounts of earnings of the Company.  The Company has been in discussions with Mr. Harrison, and expects to reach an amicable resolution to this outstanding obligation and to extinguish this debt as funding allows.

 
F-32

 

Ed Staub & Sons Petroleum, Inc. - On April 16, 2009, a complaint was filed in the Sixth District Court of the State of Nevada in Humboldt County against Ashdown LLC, the Company and WEG, requesting payment of $107,992 owed to them by the Ashdown LLC under an Application for Credit for the provision of fuel by the plaintiff, as well as seeking certain other relief, including a temporary restraining order on the proposed sale of the Company’s interest in Ashdown LLC.  The parties have been in discussions and expect to reach an amicable resolution to this outstanding obligation and to extinguish this debt as funding allows.

DMC-Dynatec Mining Services Corporation - On February 13, 2009, DMC Mining Services Corporation filed a complaint against the Company and the Ashdown Project, LLC in the U.S. District Court, District of Nevada (Reno), claiming approximately $108,448 due for mechanic’s labor based on a service contract.  A default judgment as to both the Company and the Ashdown LLC was entered on July 26, 2009, which obligation was expressly assumed by WEG in connection with the closing of the sale of the Company’s interest in the Ashdown Project LLC on May 13, 2009.  As of the date of this Report, it is the Company’s understanding that WEG has negotiated a settlement with DMC Mining with respect to such obligation and that the Company will be indemnified and held harmless for any liability or obligation to DMC Mining in connection with the sale of the Company’s interest in Ashdown.


Note 22:  Related Party Transactions

As more fully discussed in Note 11, on September 26, 2005, the Company entered into a Production Payment Purchase Agreement with Ashdown Milling.  Robert Martin, President of the Company, and Kenneth Ripley, a former Chief Executive Officer of the Company, are members, managers, and lead investors in Ashdown Milling.  A total of $1,500,000 was advanced to the Company pursuant to this agreement, $650,000 received in 2006 and $850,000 received in 2005, of which $904,567 has been recorded as a production payment obligation – related parties.  The Company repaid the $904,567 obligation in 2007 and 2008.  Including the $904,567 obligation, the total amount of the production payment to be paid to Ashdown Milling is equal to a 12% net smelter returns royalty on the minerals produced from the mine until an amount equal to 240% of the total purchase price has been paid.  The Company subsequently bought out the member interests of two members of Ashdown Milling, thereby reducing its production payment obligation.  Amounts paid to Ashdown Milling members in excess of the original obligation recorded of $904,567 will be reported as royalties expense.  Royalties expense to related parties for the year ended December 31, 2008, totaled $1,158,337 comprised of payments of shares of common stock of the Company and cash.  As a consequence to the sale of its interest in the Ashdown LLC, the members of Ashdown Milling will no longer have a net smelter returns royalty on Ashdown LLC production.  The Company expects to pay the remaining royalty obligation as sales proceeds are received from WEG.

As more fully discussed in Note 13, certain officers and former officers of the Company have advanced funds to the Company in the form of interest-bearing promissory notes.  In addition, the Company has a note payable to a former employee and the former manager of the Ashdown mine resulting from the acquisition of the mill at the Ashdown mine and for rental payments and other amounts owed.  These obligations, including accrued interest payable, totaled $432,173 and $458,531 at December 31, 2009 and 2008, respectively.

As discussed in Notes 19 and 21, the Company has entered into certain consulting and employment agreements with its officers and directors.

As detailed in Note 8, the Company also has deferred compensation payable to officers or former officers totaling $636,358 and $356,989 at December 31, 2009 and 2008, respectively.

 
F-33

 
 
Note 23:  Supplemental Statement of Cash Flows Information

 
During the years ended December 31, 2009 and 2008, the Company made no cash payments for income taxes.
 
During the years ended December 3, 2009 and 2008, the Company made cash payments for interest of $57,852 and $189,714, respectively.

During 2009, the Company had the following non-cash financing and investing activities:

 
·
Decreased production payment obligation and increased long-term debt by $1,000,000.

 
·
Decreased accounts payable and increased property and equipment by $147.

 
·
Decreased current portion of long-term debt and increased amounts due to related parties by $4,300.

 
·
Decreased accounts payable and increased debt by $22,050.

 
·
Decreased accounts payable by $40,319, increased common stock by $4,069, increased additional paid-in capital by $35,063 and decreased common stock subscribed by $1,187.

 
·
Decreased amounts due related parties by $50,000, increased common stock by $1,000 and increased additional paid-in capital by $49,000.

 
·
Decreased additional paid-in capital and common stock subscriptions receivable by $120,000.

During 2008, the Company had the following non-cash financing and investing activities:

 
·
Decreased accrued liabilities by $129,587, increased common stock by $394 and increased additional paid-in capital by $129,193.

 
·
Increased property and equipment and debt by $142,392.

 
·
Increased common stock by $667, increased additional paid-in capital by $119,333 and decreased common stock subscribed by $120,000.

 
·
Increased common stock by $3,460, increased additional paid-in capital by $159,691, increased common stock subscription receivable by $1,187 and decreased accounts payable by $161,964.

 
·
Increased common stock by $3,890, increased additional paid-in capital by $124,480 and decreased accrued liabilities by $128,370.

 
·
Increased common stock by $3,460, increased additional paid-in capital by $159,691, increased common stock subscription receivable by $1,187 and decreased accounts payable by $161,964.

 
·
Increased common stock by $300, increased additional paid-in capital by $59,700 and decreased production payment obligation – related party by $60,000.

 
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Note 24:  Subsequent Events

Employment Separation and Severance Agreement

As further described in Note 20, on January 25, 2010, the Company entered into an Employment Separation and Severance Agreement dated January 19, 2010 with David A. Caldwell, the Company’s former Chief Executive Officer and interim Chief Financial Officer and former member of the Company’s Board of Directors.  Pursuant to this agreement, Mr. Caldwell resigned from his positions as officer and director and all employment agreements between Mr. Caldwell and the Company were terminated.  The agreement also established settlement and repayment terms for all outstanding amounts owed by the Company to Mr. Caldwell.

Bridge Loan Side Letter Agreement

On January 13, 2010, the Company entered into a side letter agreement (the “Side Letter”) with Crestview Capital Master, LLC (the “Lender”) for the purpose of amending the Bridge Loan Secured Promissory Note, as amended (the “Bridge Note”) that was issued in connection with the Bridge Loan and Debt Restructuring Agreement between the Company and the Lender, dated January 30, 2009 (the “Agreement”) (see Note 12).

Pursuant to the Side Letter, the parties have agreed to further amend the Bride Note to provide that if the Company does not complete a joint venture with respect to its Mineral Ridge Mine on or before the Maturity Date of the Bridge Note due to circumstances beyond the Company’s reasonable control, the Lender will agree to extend the Maturity Date for successive one (1) week periods for an extension fee of ten thousand dollars ($10,000) per weekly period, prorated for any portion thereof, but in no event beyond April 6, 2010.  Any extension fees incurred will be added to the principal amount of the Bridge Note.  The parties further agreed that all other Transaction Documents, as defined in the Agreement, remain unchanged and in full force and effect and that the Second Amended Bridge Note remains subject to such Transaction Documents, including the Side Letter.

Termination of Consulting Agreements

In February 2010, the Board of Directors of the Company ratified the compensation paid to officers and directors pursuant to the Consulting Agreements discussed in Note 19 and agreed to terminate the agreements going forward.  In place of the agreements, the Board of Directors authorized a finance fee of up to 10% cash for successful financing efforts.

Dahl Consulting Agreement

The Consulting Agreement of Jeffrey Dahl (Note 19) was amended on February 25, 2010, establishing the amount owed by the Company to Mr. Dahl for fund raising efforts as $11,835, which will be paid through the issuance of 1,500,000 shares of the Company’s common stock.  Mr. Dahl also agreed to waive his rights to the pro-rata award of warrants.

On February 25, 2010, the Company and Mr. Dahl entered into a new Consulting Agreement with a term of 12 months pursuant to which the Company agreed to pay Mr. Dahl a cash finder’s fee equal to 10% of total defined Financing or Property Transactions.

Private Placement Offering of Units

In February 2010, the Board of Directors of the Company authorized a private placement offering of units of up to $500,000.  The offering of units will be made to accredited investors at a purchase price of $0.03 per unit, consisting of one share of common stock of the Company and a warrant to purchase one share of common stock of the Company at an exercise price of $0.06.

 
F-35

 

Mineral Ridge LLC

On March 10, 2010, the Company closed the Members’ Agreement entered into on December 31, 2009 with Scorpio Gold and Scorpio US.  At the closing the Company sold Scorpio US an undivided 70% interest in the Mineral Ridge mineral properties and various related assets (the “Mineral Ridge Mine”) for a purchase price of $3,750,000 cash (less those amounts previously advanced to us by Scorpio Gold) and 7,824,750 common shares of stock of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately following the sale, the Company and Scorpio US each contributed  their respective interests in the Mineral Ridge Mine to a joint venture formed to own and operate the Mineral Ridge Mine called Mineral Ridge Gold, LLC, a Nevada limited liability company (the “Mineral Ridge LLC”).  The Company also contributed to the Mineral Ridge LLC our interest in the reclamation bonds related to the Mineral Ridge Mine and Scorpio US contributed a net smelter royalty encumbering the Mineral Ridge Mine, which Scorpio US had acquired simultaneously with the closing of the Members’ Agreement.  The Company currently owns a 30% membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in and is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into production and, provided it does so within 30 months of the closing of the Members’ Agreement, will then have the right to increase its interest in the Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US qualifies to increase its ownership interest to 80%, it will also have the option to purchase the Company’s then remaining 20% interest for a period of 24 months following the commencement of commercial production.
 
Repayment of Bridge Loan

In connection with the closing of the Members’ Agreement and the formation of the Mineral Ridge LLC on March 10, 2010, the Company repaid the $1,000,000 Bridge Loan and Crestview released its security interest in the Mineral Ridge Mine.

Issuance of Common Shares, Warrants and Options

Subsequent to December 31, 2009, a total of 11,148,552 shares of the Company’s common stock were issued, 6,333,333 shares for $250,000 cash, 1,500,000 shares in payment of accrued liabilities of $11,835 and a total of 3,315,219 shares pursuant to separation and settlement agreements.  In connection with the issuance of common stock for cash, the Company issued a warrant for the purchase of 3,333,333 shares of common stock at an exercise price of $0.06 per share, exercisable for a period of one year.  The Company also issued an option to a director for the purchase of 100,000 shares of common stock at an exercise price of  $0.045 per share, exercisable for a period of five years.

 
F-36

 

Exhibit Index

Exhibit No.
 
Description
3.1
 
Articles of Incorporation of Golden Phoenix Minerals, Inc.(1)
3.2
 
Bylaws of Golden Phoenix Minerals, Inc.(1)
3.3
 
Amended and Restated Articles of Incorporation of Golden Phoenix Minerals, Inc.(9)
3.4
 
Amended and Restated Articles of Incorporation of Golden Phoenix Minerals, Inc.(11)
3.5
 
Amended and Restated Bylaws of Golden Phoenix Minerals, Inc.(11)
4.1
 
Specimen Common Stock Certificate of Golden Phoenix Minerals, Inc.(11)
4.2
 
Form of Warrant of Golden Phoenix Minerals, Inc.(15)
10.1
 
Year 2002 Supplemental Employee/Consultant Stock Compensation Plan(16)
10.2
 
Payment Production Purchase Agreement dated September 2005, by and between Golden Phoenix Minerals, Inc. and Ashdown Milling Company, LLC(2)
10.3
 
Employment Agreement dated February 22, 2006, by and between Golden Phoenix Minerals, Inc. and David A. Caldwell(2)
10.4
 
Employment Agreement dated March 8, 2006, by and between Golden Phoenix Minerals, Inc. and Robert P. Martin(2)
10.5
 
Employment Agreement dated August 14, 2006, by and between Golden Phoenix Minerals, Inc. and Donald R. Prahl(3)
10.6
 
Addendum to Employment Agreement dated January 31, 2007, by and between Golden Phoenix Minerals, Inc. and David A. Caldwell(25)
10.7
 
Addendum to Employment Agreement dated January 31, 2007, by and between Golden Phoenix Minerals, Inc. and Robert P. Martin(25)
10.8
 
Addendum to Employment Agreement dated January 31, 2007, by and between Golden Phoenix Minerals, Inc. and Donald R. Prahl(25)
10.9
 
Share and Warrant Purchase Agreement dated April 23, 2007, by and between Golden Phoenix Minerals, Inc. and certain Investors(4)
10.10
 
Registration Rights Agreement dated April 23, 2007, by and between Golden Phoenix Minerals, Inc. and certain Investors(4)
10.11
 
Advance Sales Restructuring Agreement dated April 23, 2007, by and between Golden Phoenix Minerals, Inc. and William Schnack or Candida Schnack(5)
10.12
 
Mutual Termination Agreement dated April 23, 2007, by and between Golden Phoenix Minerals, Inc. and Fusion Capital Fund II, LLC(5)
10.13
 
2006 Non-Employee Director Stock Option Plan(6)
10.14
 
2007 Equity Incentive Plan(6)
10.15
 
Production Payment Purchase Agreement and Assignment dated June 12, 2007, by and between Golden Phoenix Minerals, Inc. and Crestview Capital Master, LLC(7)
10.16
 
Registration Rights Agreement dated June 12, 2007, by and between Golden Phoenix Minerals, Inc. and Crestview Capital Master, LLC(7)
10.17
 
Security Agreement dated June 12, 2007, by and between Golden Phoenix Minerals, Inc. and Crestview Capital Master, LLC(8)
10.18
 
Notice of Assignment dated June 13, 2007, by and between Golden Phoenix Minerals, Inc. and Crestview Capital Master, LLC(8)
10.19
 
Settlement Agreement and Release dated September 14, 2007, by and among Steven D. Craig, Estate of Collette Crater Craig and Golden Phoenix Minerals, Inc.( 10)
10.20
 
Addendum to Production Payment Purchase Agreement between Golden Phoenix Minerals, Inc. and Ashdown Milling Company LLC dated February 6, 2008(10)
10.21
 
Amended Settlement Agreement and Release dated March 21, 2008, by and among Steven D. Craig, Estate of Collette Crater-Craig and Golden Phoenix Minerals, Inc.( 10)
10.22
 
Agreement and Plan of Merger dated May 21, 2008(11)
10.23
 
2007 Equity Incentive Stock Option Plan(12)
10.24
 
2008 Executive Stock Compensation Plan(13)
10.25
 
Consulting Agreement dated January 16, 2009, by and between Golden Phoenix Minerals, Inc. and Thomas Klein(14)
10.26
 
Consulting Agreement dated April 16, 2009, by and between Golden Phoenix Minerals, Inc. and Allihies Engineering Incorporated and its President, Corby G. Anderson(17)
10.27
 
Supplemental Compensation Agreement dated May 7, 2009, by and between Golden Phoenix Minerals, Inc. and David Caldwell(18)
10.28
 
Bridge Loan and Debt Restructuring Agreement dated January 30, 2009, by and between Golden Phoenix Minerals, Inc. and Crestview Capital Master, LLC(19)
10.29
 
Binding Memorandum of Understanding dated February 28, 2009, by and between Golden Phoenix Minerals, Inc. and Win-Eldrich Gold, Inc.(19)
10.30
 
Supplemental Compensation Agreement dated May 18, 2009, by and between Golden Phoenix Minerals, Inc. and Robert P. Martin(20)
10.31
 
Employment Separation Agreement dated July 28, 2009, by and between Golden Phoenix Minerals, Inc. and Donald R. Prahl(21)
10.32
 
Purchase and Sale of LLC Membership Interest Agreement dated May 11, 2009, by and between Golden Phoenix Minerals, Inc. and Win-Eldrich Gold, Inc.(22)
10.33
 
Global Settlement and Mutual Release of All Claims by All Parties dated May 13, 2009, by and between Golden Phoenix Minerals, Inc., Retrievers, LLC, John Tingue, Kris Tingue, Ashdown Project, LLC, Win-Eldrich Gold, Inc. and Perry Muller(22)
10.34
 
Employment Separation and Severance Agreement dated January 19, 2010, by and between Golden Phoenix Minerals, Inc. and David Caldwell(23)
14
 
Code of Ethics*
21
 
Subsidiaries of Golden Phoenix Minerals, Inc. (24)
31.1
 
Certification of Chief Executive Officer Pursuant to Section 302*
31.2
 
Certification of Chief Financial Officer Pursuant to Section 302*
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350*
 

 
*
 
Filed herewith.
(1)
 
Incorporated by reference from Form 10SB12G filed with the SEC on July 30, 1997.
(2)
 
Incorporated by reference from Form 10-KSB filed with the SEC on April 17, 2006.
(3)
 
Incorporated by reference from Form 8-K filed with the SEC on August 17, 2006.
(4)
 
Incorporated by reference from Form 8-K filed with the SEC on April 25, 2007.
(5)
 
Incorporated by reference from Form 8-K filed with the SEC on April 27, 2007.
(6)
 
Incorporated by reference from Form SB-2 filed with the SEC on May 25, 2007.
(7)
 
Incorporated by reference from Form 8-K filed with the SEC on June 19, 2007.
(8)
 
Incorporated by reference from Form SB-2 filed with the SEC on June 29, 2007.
(9)
 
Incorporated by reference from Form SB-2/A filed with the SEC on December 21, 2007.
(10)
 
Incorporated by reference from Form 10-KSB filed with the SEC on March 31, 2008.
(11)
 
Incorporated by reference from Form 8-K filed with the SEC on June 5, 2008.
(12)
 
Incorporated by reference from Form S-8 filed with the SEC on July 15, 2008.
(13)
 
Incorporated by reference from Form S-8 filed with the SEC on October 8, 2008.
(14)
 
Incorporated by reference from Form 8-K filed with the SEC on January 23, 2009.
(15)
 
Incorporated by reference from Exhibit A to Exhibit 10.1 of Form 8-K filed with the SEC on April 25, 2007.
(16)
 
Incorporated by reference from Form S-8 filed with the SEC on February 12, 2002.
(17)
 
Incorporated by reference from Form 8-K filed with the SEC on April 22, 2009.
(18)
 
Incorporated by reference from Form 8-K filed with the SEC on May 13, 2009.
(19)
 
Incorporated by reference from Form 10-Q filed with the SEC on May 15, 2009.
(20)
 
Incorporated by reference from Form 8-K filed with the SEC on May 22, 2009.
(21)
 
Incorporated by reference from Form 8-K filed with the SEC on July 31, 2009.
(22)
 
Incorporated by reference from Form 10-Q filed with the SEC on August 19, 2009.
(23)
 
Incorporated by reference from Form 8-K filed with the SEC on January 29, 2010.
(24)
 
Incorporated by reference from Form 10-K filed with the SEC on April 15, 2009.