Attached files
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
Quarterly Period Ended March 31, 2010
¨ TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _____ to _____.
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
Of
Incorporation or Organization)
|
(I.R.S.
Employer Identification
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
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports); and (2) has been subject to such filing requirements for
the past 90 days.
Yes x
No ¨
Indicate
by checkmark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No
¨
Indicate
by checkmark 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-3 of the Exchange Act. (Check
one):
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.
Yes ¨
No x
As of May
24, 2010 there were 234,328,762 outstanding shares of the registrant’s common
stock.
1
GOLDEN
PHOENIX MINERALS, INC.
FORM
10-Q INDEX
Page
Number
|
|
PART
I – FINANCIAL INFORMATION
|
|
Item
1. Financial Statements
|
|
Condensed
Balance Sheets as of March 31, 2010 (Unaudited) and December 31,
2009
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3
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Condensed
Statements of Operations for the Three Months Ended March 31, 2010 and 2009
(Unaudited)
|
4
|
Condensed
Statements of Cash Flows for the Three Months Ended March 31,
2010and
2009 (Unaudited)
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5
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Notes
to Condensed Financial Statements (Unaudited)
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6
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Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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26
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Item
3. Quantitative and Qualitative Disclosures About Market
Risk
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40
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Item
4T. Controls and Procedures
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40
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PART
II – OTHER INFORMATION
|
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Item
1. Legal Proceedings
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42
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Item
1A. Risk Factors
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42
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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42
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Item
3. Defaults Upon Senior Securities
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43
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Item
5. Other Information
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43
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Item
6. Exhibits
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43
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Signature
Page
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44
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2
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
GOLDEN
PHOENIX MINERALS, INC.
Condensed
Balance Sheets
March
31, 2010
|
||||||||
(Unaudited)
|
December
31, 2009
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 908,427 | $ | 94,785 | ||||
Receivables,
net
|
22,743 | — | ||||||
Prepaid
expenses and other current assets
|
11,877 | 15,504 | ||||||
Marketable
securities
|
6,166,685 | — | ||||||
Total
current assets
|
7,109,732 | 110,289 | ||||||
Property
and equipment, net
|
241,745 | 285,006 | ||||||
Other
assets:
|
||||||||
Deposits
|
92,065 | 106,590 | ||||||
Note
receivable
|
— | — | ||||||
Assets
of discontinued operations
|
— | 2,552,400 | ||||||
Total
other assets
|
92,065 | 2,658,990 | ||||||
$ | 7,443,542 | $ | 3,054,285 | |||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,000,642 | $ | 1,273,547 | ||||
Accrued
liabilities
|
998,696 | 1,005,433 | ||||||
Current
portion of severance obligations
|
— | 165,201 | ||||||
Current
portion of long-term debt
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1,369,143 | 2,535,782 | ||||||
Amounts
due to related parties
|
397,868 | 432,173 | ||||||
Deposits
received
|
— | 900,000 | ||||||
Total
current liabilities
|
3,766,349 | 6,312,136 | ||||||
Long-term
liabilities:
|
||||||||
Long-term
debt
|
51,084 | 61,173 | ||||||
Amounts
due to related parties
|
368,051 | — | ||||||
Liabilities
of discontinued operations
|
— | 3,036,430 | ||||||
Total
long-term liabilities
|
419,135 | 3,097,603 | ||||||
Total
liabilities
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4,185,484 | 9,409,739 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity (deficit):
|
||||||||
Preferred
stock, no par value, 50,000,000 shares authorized, none
issued
|
— | — | ||||||
Common
stock; $0.001 par value, 400,000,000 shares authorized,
234,328,762 and 223,180,210 shares issued and outstanding,
respectively
|
234,329 | 223,180 | ||||||
Additional
paid-in capital
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41,384,397 | 40,842,415 | ||||||
Other
comprehensive income
|
611,207 | — | ||||||
Accumulated
deficit
|
(38,971,875 | ) | (47,421,049 | ) | ||||
Total
stockholders’ equity (deficit)
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3,258,058 | (6,355,454 | ) | |||||
$ | 7,443,542 | $ | 3,054,285 |
See
accompanying notes to condensed financial statements
3
GOLDEN
PHOENIX MINERALS, INC.
(Unaudited)
Three
Months Ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Sales
|
$ | — | $ | — | ||||
Operating
costs and expenses:
|
||||||||
Drilling
operations
|
50,709 | — | ||||||
General
and administrative expenses
|
399,959 | 445,260 | ||||||
Depreciation
and amortization expense
|
18,058 | 22,907 | ||||||
Total
operating costs and expenses
|
468,726 | 468,167 | ||||||
Loss
from operations
|
(468,726 | ) | (468,167 | ) | ||||
Other
income (expense):
|
||||||||
Interest
and other income
|
— | 184 | ||||||
Interest
expense
|
(78,239 | ) | (485,707 | ) | ||||
Gain
on extinguishment of debt
|
36,901 | 974,456 | ||||||
Foreign
currency gain
|
53,896 | — | ||||||
Gain
(loss) on disposal of property and equipment
|
(6,322 | ) | 127 | |||||
Total
other income (expense)
|
6,236 | 489,060 | ||||||
Income
(loss) from continuing operations before income taxes
|
(462,490 | ) | 20,893 | |||||
Provision
for income taxes
|
— | — | ||||||
Income
(loss) from continuing operations attributable to the
Company
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(462,490 | ) | 20,893 | |||||
Income
(loss) from discontinued operations:
|
||||||||
Gain
on sale of Mineral Ridge net assets
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8,986,279 | — | ||||||
Loss
from discontinued operations
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(74,615 | ) | (707,246 | ) | ||||
Income
(loss) from discontinued operations
|
8,911,664 | (707,246 | ) | |||||
Loss
from discontinued operations attributable to noncontrolling
interest
|
— | 204,647 | ||||||
Net
income (loss) from discontinued operations attributable to the
Company
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8,911,664 | (502,599 | ) | |||||
Net
income (loss) attributable to the Company
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$ | 8,449,174 | $ | (481,706 | ) | |||
Other
comprehensive income (loss):
|
||||||||
Income
(loss) from continuing operations
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$ | (462,490 | ) | $ | 20,893 | |||
Income
(loss) from discontinued operations
|
8,911,664 | (707,246 | ) | |||||
Net
income (loss)
|
8,449,174 | (686,353 | ) | |||||
Unrealized
gain on marketable securities
|
611,207 | — | ||||||
Other
comprehensive income (loss)
|
9,060,381 | (686,353 | ) | |||||
Other
comprehensive loss attributable to noncontrolling interest
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— | 204,647 | ||||||
Other
comprehensive income (loss) attributable to the Company
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$ | 9,060,381 | $ | (481,706 | ) | |||
Income
(loss) per common share, basic and diluted:
|
||||||||
Continuing
operations
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$ | (0.00 | ) | $ | 0.00 | |||
Discontinued
operations
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0.04 | (0.00 | ) | |||||
Total
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$ | 0.04 | $ | (0.00 | ) | |||
Weighted
average number of shares outstanding:
|
||||||||
Basic
|
225,606,149 | 205,814,679 | ||||||
Diluted
|
236,596,149 | 205,814,679 |
See
accompanying notes to condensed financial statements
4
GOLDEN
PHOENIX MINERALS, INC.
(Unaudited)
Three
Months Ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss) attributable to the Company
|
$ | 8,449,174 | $ | (481,706 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by
(used in) operating activities:
|
||||||||
(Income)
loss from discontinued operations attributable to the
Company
|
(8,911,664 | ) | 502,599 | |||||
Depreciation
and amortization
|
18,058 | 22,907 | ||||||
Stock-based
compensation
|
14,058 | 16,593 | ||||||
(Gain)
loss on disposal of property and equipment
|
6,322 | (127 | ) | |||||
Issuance
of warrants for interest expense
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— | 437,611 | ||||||
Gain
on extinguishment of debt
|
(36,901 | ) | (974,456 | ) | ||||
Foreign
currency gain
|
(53,896 | ) | — | |||||
Changes
in operating assets and liabilities:
|
||||||||
Increase
in receivables
|
(3,863 | ) | — | |||||
(Increase)
decrease in prepaid expenses and other current assets
|
(3,627 | ) | 14,441 | |||||
Decrease
in inventories
|
— | 19,103 | ||||||
Decrease
in deposits
|
14,525 | — | ||||||
Increase
(decrease) in accounts payable
|
(129,307 | ) | 532,114 | |||||
Increase
in accrued and other liabilities
|
49,969 | 32,089 | ||||||
Net
cash provided by (used in) operating activities
|
(587,152 | ) | 121,168 | |||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
— | (1,500 | ) | |||||
Proceeds
from the sale of property and equipment
|
— | 353 | ||||||
Net
cash used in investing activities
|
— | (1,147 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from the issuance of common stock
|
240,000 | — | ||||||
Proceeds
from the issuance of debt
|
— | 1,000,000 | ||||||
Payments
of severance obligations
|
(65,201 | ) | — | |||||
Payments
of notes payable and long-term debt
|
(1,289,173 | ) | (10,855 | ) | ||||
Payments
of amounts due to related parties
|
(40,866 | ) | — | |||||
Net
cash provided by (used in) financing activities
|
(1,155,240 | ) | 989,145 | |||||
Cash
flows from discontinued operations:
|
||||||||
Net
cash used in operating activities
|
(58,966 | ) | (992,902 | ) | ||||
Net
cash provided by investing activities
|
2,615,000 | 40,000 | ||||||
Net
cash provided by financing activities
|
— | 69,587 | ||||||
Net
cash provided by (used in) discontinued operations
|
2,556,034 | (883,315 | ) | |||||
Net
increase in cash
|
813,642 | 225,851 | ||||||
Cash
and cash equivalents, beginning of period
|
94,785 | 454 | ||||||
Cash
and cash equivalents, end of period
|
$ | 908,427 | $ | 226,305 |
See
accompanying notes to condensed financial statements
5
GOLDEN
PHOENIX MINERALS, INC.
Notes
to Condensed Financial Statements
|
March
31, 2010
|
(Unaudited)
|
NOTE
1 - DESCRIPTION
OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
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.
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 March 10, 2010, the Company 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. Previously, on May 13, 2009, the Company completed the
sale of 100% of its ownership interest in the Ashdown Project LLC (“Ashdown
LLC”). As a result, the Mineral Ridge Mine and the Ashdown LLC are
classified as discontinued operations for all periods presented in the
accompanying condensed financial statements.
The interim financial information of
the Company as of March 31, 2010 and for the three month periods ended March 31,
2010 and 2009 is unaudited, and the balance sheet as of December 31, 2009 is
derived from audited financial statements. The accompanying condensed
financial statements have been prepared in accordance with U. S. generally
accepted accounting principles for interim financial
statements. Accordingly, they omit or condense footnotes and certain
other information normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles. The
accounting policies followed for quarterly financial reporting conform with the
accounting policies disclosed in Note 1 to the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2009. In the opinion of management, all
adjustments that are necessary for a fair presentation of the financial
information for the interim periods reported have been made. All such
adjustments are of a normal recurring nature. The results of
operations for the three months ended March 31, 2010 are not necessarily
indicative of the results that can be expected for the fiscal year ending
December 31, 2010. The unaudited condensed financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2009.
NOTE
2 - GOING CONCERN
The Company’s condensed 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 $38,971,875 at
March 31, 2010. The Company currently has no sources of operating
revenues. In addition, a significant portion of the Company’s current
assets at March 31, 2010 is comprised of an investment in marketable securities
of $6,166,685, which may be difficult to liquidate in sufficient quantities and
in a timely fashion to meet the Company’s current obligations. The
Company will require additional capital to fund its operations and to pursue
other mineral property development opportunities with its existing properties
and other prospects. The
Company will seek funding primarily from equity financing, and anticipates it
will also receive proceeds from the secured promissory note received in the sale
of the Ashdown LLC. There can be no assurance that the Company will
be successful in its efforts to continue to raise capital at favorable rates or
at all or that funds will be received from the promissory note. 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. These factors together raise
doubt about the Company’s ability to continue as a going concern. The
accompanying condensed financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
6
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. 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.
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 $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 market value of $5,501,582. 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.
The operations of the Ashdown LLC
historically funded a portion of the Company’s operating costs and
expenses. 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”). The $5.3 million purchase price due the Company in the form
of a secured promissory note was initially payable over a 72 month term, and WEG
assumed substantially all of the liabilities of the Ashdown LLC. The
terms of the promissory note were subsequently modified in connection with
certain debt reduction agreements entered into in April 2010 (see Note
18). 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, or pay the
Company the amounts due in accordance with the terms of the promissory
note.
7
NOTE
3 - DISCONTINUED OPERATIONS AND NOTE RECEIVABLE
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
initial terms and conditions of the Note, including term, interest rate and
description of security interest were 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
balance sheets as of March 31, 2010 and December 31, 2009, and no gain on
disposition of the Company’s interest in the Ashdown LLC attributed to the $5.3
million Note was recorded in the Company’s 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.
8
As further discussed in Note 18, the
Company entered into certain debt reduction agreements in April 2010 whereby it
extinguished debt and royalty obligations totaling $1,068,075 through the
assignment of portions of the $5.3 million note receivable.
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 (as previously defined,
“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. These payments to the Company were non-refundable, and the total
payments through December 31, 2009 of $900,000 were recorded as a deposit, a
current liability in the accompanying condensed balance sheet as of December 31,
2009.
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 market value of $5,501,582. 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 (as previously defined, 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 recorded the common shares of Scorpio Gold at
their market value on March 10, 2010 of $5,501,582 and recognized a gain on sale
of the 70% interest in the net assets of the Mineral Ridge Mine of $8,986,279
during the three month period ended March 31, 2010, comprised of the
following:
9
Cash
received, including amounts previously advanced
|
$ | 3,750,000 | ||
Marketable
securities received, shares of Scorpio Gold
recorded at their market value
|
5,501,582 | |||
Total
proceeds
|
9,251,582 | |||
Reclamation
liability transferred
|
2,129,349 | |||
Book
value of assets sold
|
(1,784,652 | ) | ||
Fees
to related party
|
(610,000 | ) | ||
Gain
on sale
|
$ | 8,986,279 |
The fees
on the transaction were incurred to Thomas Klein, Chief Executive Officer of the
Company, with $375,000 payable to Mr. Klein and included in accrued expenses, a
current liability in the accompanying condensed balance sheet as of March 31,
2010.
The
contribution of the Company’s 30% interest in the net assets of Mineral Ridge,
which was comprised of a net liability of $147,727, was recorded as a transfer
to a related party and recorded as an increase to additional paid-in capital as
follows:
Reclamation
liability transferred
|
$ | 912,578 | ||
Book
value of assets transferred
|
(764,851 | ) | ||
Increase
in additional paid-in capital
|
$ | 147,997 |
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.
As of the
date of this report, the Company and Scorpio Gold are working with regulatory
authorities, insurance carriers and others to complete the transfer to the
Mineral Ridge LLC of the reclamation obligation and related bonds, permits and
deposits that are established to fund the obligation. As of March 10,
2010, the date of the transfer, the reclamation obligation was estimated at
$3,041,927. Until the transfer of the reclamation obligation and
related assets is approved and completed, the Company is contingently liable for
any unfunded reclamation obligation. However, the Company believes
the reclamation bonds and deposits transferred are currently sufficient to fund
the reclamation obligation.
The
Company has reported the operations of the Ashdown LLC and the Mineral Ridge
Mine as discontinued operations in the accompanying condensed financial
statements for all periods presented.
10
The
accompanying condensed statements of operations for the three months ended March
31, 2010 and 2009 include the following:
2010
|
2009
|
|||||||||||||||||||||||
Ashdown
LLC
|
Mineral
Ridge
|
Total
|
Ashdown
LLC
|
Mineral
Ridge
|
Total
|
|||||||||||||||||||
Revenues
|
$ | - | $ | - | $ | - | $ | 153,797 | $ | - | $ | 153,797 | ||||||||||||
Loss
before income taxes
|
- | (74,615 | ) | (74,615 | ) | (511,617 | ) | (195,629 | ) | (707,246 | ) | |||||||||||||
Provision
for income taxes
|
- | - | - | - | - | - | ||||||||||||||||||
Loss
from discontinued operations
|
- | (74,615 | ) | (74,615 | ) | (511,617 | ) | (195,629 | ) | (707,246 | ) | |||||||||||||
Gain
on sale of Mineral Ridge
assets
|
- | 8,986,279 | 8,986,279 | - | - | - | ||||||||||||||||||
Income
(loss) from
discontinued operations
|
- | 8,911,664 | 8,911,664 | (511,617 | ) | (195,629 | ) | (707,246 | ) | |||||||||||||||
Loss
from discontinued operations
attributable to
noncontrolling
interest
|
- | - | - | 204,647 | - | 204,647 | ||||||||||||||||||
Income
(loss) from discontinued
operations attributable
to the
Company
|
$ | - | $ | 8,911,664 | $ | 8,911,664 | $ | (306,970 | ) | $ | (195,629 | ) | $ | (502,599 | ) |
No
accounts or amounts for the Ashdown LLC are included in the condensed 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 were aggregated and disclosed as long-term
assets and liabilities in the condensed 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 |
NOTE
4 – MARKETABLE SECURITIES
Marketable securities at March 31, 2010
consisted of 7,824,750 shares of Scorpio Gold common stock received in the sale
of the net assets of the Mineral Ridge Mine. The Company classifies
these marketable
securities as securities held-for-sale in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification™ (ASC) Topic 320, Investments – Debt and Equity
Securities. The marketable securities were originally recorded
on March 10, 2010 at their market value of $5,501,582 and subsequently stated at
market value, with market value based on market quotes. Unrealized
gains and losses resulting from changes in market value are recorded as other
comprehensive income, a component of stockholders’ equity in the Company’s
balance sheet. The total net unrealized gain on this investment for
the three months ended March 31, 2010 was $611,207.
11
In accordance with ASC Topic 820, Fair Value Measurements and
Disclosure, the Company categorizes its financial assets and liabilities
that it measures on a recurring basis into a three-level fair value hierarchy as
defined in the standard. Marketable securities held at March 31, 2010
are the only financials instruments that the Company currently measures on a
recurring basis. The following table summarizes the Company’s
financial assets measured on a recurring basis as of March 31,
2010:
Description
|
Quoted
Prices in
Active
Markets for
Identical
Assets (Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||
Marketable
Securities
|
$ | 6,166,685 | $ | - | $ | - |
In accordance with ASC Topic 830, Foreign Currency Matters, the
increase or decrease in the recorded value of the marketable securities
resulting from changes in foreign exchange rates between the Company’s
functional currency, the US dollar, and the currency in which the marketable
securities are denominated, the Canadian dollar, is recorded as a foreign
currency transaction gain or loss in the Company’s statements of
operations. The foreign currency gain for the period ended March 31,
2010 was $53,896.
NOTE
5 – INVESTMENT IN MINERAL RIDGE LLC
At March 31, 2010, the Company’s 30%
membership interest in the Mineral Ridge LLC is accounted for using the equity
method of accounting in accordance with ASC Topic 323 – Investments – Equity Method and
Joint Ventures. The investment is recorded at cost, with the
carrying value subsequently increased for the investor’s share of the investee’s
net income or additional contributions to capital, and decreased for the
investor’s share of the investee’s net loss or equity
distributions.
Because the Company’s book value of its
initial investment in the Mineral Ridge LLC, which was comprised of liabilities
in excess of assets, was recorded as a transfer to a related party and recorded
as an increase to additional paid-in capital, and because the Company has no
obligation to contribute capital to fund the operations of the Mineral Ridge
LLC, the carrying value of the investment is recorded at zero. In
accordance with ASC Topic 323, the Company has not recorded its share of the
Mineral Ridge LLC net loss for the period ended March 31, 2010 because its
investment has been reduced to zero and the Company has neither guaranteed
obligations of or otherwise committed to provide further financial support for
the Mineral Ridge LLC.
Because the Mineral Ridge LLC was
recently formed, no summarized financial information for the period ended March
31, 2010 is available.
12
NOTE
6 – 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 standard, 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 three-month periods ended March 31, 2010 and 2009 was $14,058 and
$16,593, respectively. There was no stock compensation expense
capitalized during the three-month periods ended March 31, 2010 and
2009.
During
the three months ended March 31, 2010, options to purchase 100,000 shares of the
Company’s common stock were issued to a director with an exercise price of
$0.045 per share. The Company estimated the weighted average
grant-date fair value of these options at $0.04 per share using the
Black-Scholes option pricing model with the following assumptions:
Expected
dividend yield
|
0.00%
|
Expected
stock price volatility
|
136.86%
|
Risk-free
interest rate
|
2.38%
|
Expected
life of options
|
5
years
|
The
following table summarizes the stock option activity during the three months
ended March 31, 2010:
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contract
Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
at December 31, 2009
|
6,137,273 | $ | 0.21 | |||||||||||||
Granted
|
100,000 | $ | 0.05 | |||||||||||||
Exercised
|
- | $ | - | |||||||||||||
Expired
or cancelled
|
(1,922,273 | ) | $ | 0.15 | ||||||||||||
Outstanding
at March 31, 2010
|
4,315,000 | $ | 0.23 | 2.08 | $ | 3,000 | ||||||||||
Options
vested and exercisable at
March 31, 2010
|
3,981,667 | $ | 0.23 | 2.08 | $ | 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 March 31, 2010 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
March 31, 2010, the total future compensation cost related to non-vested
stock-based awards not yet recognized in the condensed statements of operations
was $3,364.
NOTE
7 - STOCK
WARRANTS AND PURCHASE RIGHTS
A summary
of the status of the Company’s stock warrants and purchase rights as of March
31, 2010 and changes during the three months then ended is presented
below:
13
Weighted
|
||||||||
Average
|
||||||||
Shares
|
Exercise
Price
|
|||||||
Outstanding,
December 31, 2009
|
26,248,925 | $ | 0.04 | |||||
Granted
|
3,333,333 | $ | 0.06 | |||||
Canceled
/ Expired
|
- | $ | - | |||||
Exercised
|
- | $ | - | |||||
Outstanding,
March 31, 2010
|
29,582,258 | $ | 0.05 |
The
following summarizes the exercise price per share and expiration date of the
Company's outstanding warrants and rights to purchase common stock at March 31,
2010:
Expiration
Date
|
Price
|
Number
|
2010
|
$ 0.25
|
1,748,925
|
2011
|
$ 0.03
|
23,000,000
|
2011
|
$ 0.01
|
1,500,000
|
2011
|
$ 0.06
|
3,333,333
|
29,582,258
|
In
connection with the purchase of shares of the Company’s common stock, the
Company issued warrants to an investor to purchase 3,333,333 common shares of
the Company at an exercise price of $0.06 per share. The warrants are
exercisable through February 24, 2011.
NOTE
8 – EARNINGS (LOSS) PER 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 common stock
equivalents which would arise from the exercise of stock options, warrants and
rights outstanding using the treasury stock method and the average market price
per share during the period.
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:
Three
Months Ended
March
31,
|
||||||||
2010
|
2009
|
|||||||
Weighted
average number of common shares
|
||||||||
outstanding
|
225,606,149 | 205,814,679 | ||||||
Dilutive
effect of:
|
||||||||
Stock
options
|
74,194 | - | ||||||
Warrants
and stock purchase rights
|
10,915,806 | - | ||||||
Weighted
average number of common shares
|
||||||||
outstanding,
assuming dilution
|
236,596,149 | 205,814,679 |
No stock
options and warrants are included in the computation of weighted average number
of shares for the three months ended March 31, 2009 because the effect would be
anti-dilutive. At March 31, 2010, the
Company had outstanding options, warrants and stock purchase rights to purchase
a total of 33,897,258 common shares of the Company that could have a future
dilutive effect on the calculation of earnings per
share.
14
NOTE
9 – PROPERTY AND EQUIPMENT
Property and equipment consist of the
following at March 31, 2010:
Mining
and milling equipment
|
$ | 20,431 | ||
Computer
equipment
|
82,370 | |||
Drilling
equipment
|
346,205 | |||
Support
equipment
|
39,932 | |||
Office
furniture and equipment
|
23,484 | |||
512,422 | ||||
Less
accumulated depreciation and amortization
|
(270,677 | ) | ||
$ | 241,745 |
NOTE
10 – 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 as of December 31, 2009 is included in
current liabilities in the accompanying condensed balance sheet as of December
31, 2009.
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, which payments were made in March
2010. 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. Upon final payment of all amounts due,
Mr. Fitzsimonds agreed to release and discharge the Company from all current or
future claims.
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, and officer and director 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.
15
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%.
As a consequence to the sale of its
interest in the Ashdown LLC, the members of Ashdown Milling no longer had a net
smelter returns royalty on Ashdown LLC production. The Company
intended to pay the remaining royalty obligation as sales proceeds are received
from WEG.
As discussed in Note 18, in April 2010,
the Company bought out the membership interests of two additional members of
Ashdown Milling, Kenneth Ripley and David Pearl, in exchange for an assignment
of an aggregate $978,005 of the $5.3 million promissory note due the Company
from the sale of its membership interest in the Ashdown LLC.
As further discussed in Note 18, a debt
settlement agreement was reached with Robert P. Martin to include $489,002,
which at Mr. Martin’s election, will be structured as a purchase of Mr. Martin’s
membership interest in Ashdown Milling.
As a result of these April 2010
transactions with Messrs. Ripley, Pearl and Martin, the Company will no longer
have any obligations to Ashdown Milling pursuant to the Production Payment
Purchase Agreement.
NOTE
12 – DEBT
The Company’s debt consists of the
following at March 31, 2010:
Note
payable to Crestview Capital Master, LLC resulting from the
restructure of a production payment obligation 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
|
23,554 | |||
Note
payable to Daimler Chrysler, payable at $806 per month,
through February 2012, including interest at 13.75%, secured by
vehicle
|
16,201 | |||
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 | |||
Capital
lease payable to Heartland Wisconsin Corp., payable at $1,148
per month through May 2013, secured by equipment
|
37,096 | |||
Note
payable to West Coast Environmental & Engineering,
unsecured,
non-interest bearing, payable in monthly installments of
$4,612
through March 2011
|
55,351 | |||
Other
|
13,285 | |||
Accrued
interest payable
|
99,283 | |||
Total
|
1,420,227 | |||
Less
current portion
|
1,369,143 | |||
Long-term
portion
|
$ | 51,084 |
16
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. On March 10,
2010, the Bridge Note was repaid in full.
Additionally,
pursuant to the Agreement, the Company and Lender restructured the Original
Debt, which was previously recorded as a production payment obligation, a
current liability in the Company’s balance sheet. 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 its statement of operations for the year
ended December 31, 2009. Upon formation of the joint venture in
relation to the Mineral Ridge Mine, the Company issued 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, the Lender
will release the joint venture from the assignment.
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.
17
NOTE
13 – AMOUNTS DUE TO RELATED PARTIES AND EMPLOYEE SEPARATION
AGREEMENT
Amounts due to related parties included
in current liabilities consist of the following at March 31, 2010:
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 | $ | 13,509 | $ | 179,916 | ||||||
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%, including
$70,090 issued for royalties expense
|
160,525 | 57,427 | 217,952 | |||||||||
$ | 326,932 | $ | 70,936 | $ | 397,868 |
As discussed in Note 18, the Company
reached debt settlement agreements with these individuals in April
2010.
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. The long-term liability, amounts due related parties,
with a
balance of $368,051 at March 31, 2010 is comprised of the Note principal balance
of $366,623 plus accrued interest payable of $1,428. 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.
18
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.
NOTE
14 – STOCKHOLDERS’ EQUITY
During
the three months ended March 31, 2010, the Company issued 11,148,552 shares of
its common stock, including: 6,333,333 shares for cash of $250,000; 3,276,757
shares for accounts payable of $51,346; and 1,538,462 shares for severance
obligation of $100,000. 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 three months ended March
31, 2010, no gain or loss on extinguishment of debt repaid through the issuance
of the Company’s common stock was recorded.
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.
NOTE
15 – LEGAL MATTERS
Earl
Harrison – Subsequent to the Company’s quarterly period ended March 31,
2010, the Company and Mr. Harrison agreed to the terms of a settlement of the
outstanding judgment and execution order in Mr. Harrison’s favor, which matter
is further described in the Company’s most recent Annual Report on Form 10-K for
the year ended December 31, 2009, as filed with the SEC on April 9,
2010. The terms of the settlement are further described in the
Company’s Current Report on Form 8-K as filed with the SEC on April 21,
2010.
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 requiring payments to be made by the
Ashdown Project, LLC and resulting in no material financial impact to the
Company. The Company remains contingently liable, however, for
amounts due Tetra under the settlement agreement in the event such amounts are
not paid by the Ashdown Project, LLC.
Ed Staub &
Sons Petroleum, Inc. - No material changes have occurred during the
quarter ended March 31, 2010. Further description of this legal
dispute is provided in the Company’s Form 10-K for the year ended December 31,
2009.
19
NOTE 16 – SUPPLEMENTAL
STATEMENT OF CASH FLOWS INFORMATION
During the three months ended March 31,
2010 and 2009, the Company made no cash payments for income taxes.
During the three months ended March 31,
2010 and 2009, the Company made cash payments for interest of $141,836 and
$4,151, respectively.
During the three months ended March 31,
2010, the Company had the following non-cash financing and investing
activities:
|
·
|
Increased
receivables and decreased property and equipment by
$18,880.
|
|
·
|
Increased
marketable securities and other comprehensive income by
$611,207.
|
|
·
|
Decreased
accounts payable by $51,346 increased common stock by $3,277 and increased
additional paid-in capital by
$48,069.
|
|
·
|
Decreased
severance obligations by $100,000, increased common stock by $1,539 and
increased additional paid-in capital by
$98,461.
|
|
·
|
Increased
amounts due related parties and decreased accrued liabilities by
$366,623.
|
|
·
|
Decreased
accounts payable and increased debt by
$55,351.
|
During
the three months ended March 31, 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 $12,473, increased common stock by $540, increased
additional paid-in capital by $10,746 and decreased common stock
subscribed by $1,187.
|
NOTE
17 – RECENT ACCOUNTING PRONOUNCEMENTS
There were no new accounting
pronouncements issued during the three months ended March 31, 2010 and through
the date of the filing of this report that the Company believes are applicable
to or would have a material impact on the financial statements of the
Company.
20
NOTE
18 – SUBSEQUENT EVENTS
Mhakari
Nevada Properties excluding Vanderbilt Mine
On April
19, 2010, the Company entered into a letter of intent with Mhakari Gold (Nevada)
Inc. (“Mhakari”) dated April 16, 2010 (the “First LOI”), concerning that certain
property known as the “Mhakari Nevada Properties excluding Vanderbilt Mine,”
located in the State of Nevada (the “Property”).
Pursuant
to the terms of the First LOI, the parties agreed to immediately proceed to
negotiate a definitive option agreement (the “Definitive Option Agreement”)
whereby the Company will be granted an option to acquire an undivided 80%
interest in the Property.
In
particular, the terms of the Definitive Option Agreement shall include an option
price payable by the Company to Mhakari as follows: (i) upon signing of the
Definitive Option Agreement, $75,000 cash payment in three monthly installments
of $25,000 as well as the issuance of 5,000,000 shares of the Company’s common
stock and warrants to purchase a further 5,000,000 shares of Company common
stock at a strike price of $0.05 per share exercisable for a period of five
years; (ii) within six months of the signing of the Definitive Option Agreement,
an additional $50,000 cash payment to Mhakari; (iii) within 12 months of signing
the Definitive Option Agreement, an additional $50,000 cash payment to Mhakari;
(iv) within 12 months of signing the Definitive Option Agreement, the Company
shall be required to expend no less than $150,000 in exploration and development
expenditures on the Property; and (v) within 48 months of signing the Definitive
Option Agreement, the Company shall be required to expend no less than an
additional $1,000,000 in exploration and development expenditures on the
Property.
Moreover,
the Definitive Option Agreement shall include a provision to the effect that
upon the satisfaction of option purchase price terms (i)-(iv) above, the parties
shall enter in to a joint venture agreement with respect to the Property in
which the Company will receive a 51% interest. Under the terms of
such joint venture agreement, the Company will assume day-to-day operational
control of the Property. Upon satisfying option purchase price term
(v) above, the Company’s interest in the Property shall automatically be
increased from 51% to 80%, with Mhakari retaining a 20% participating interest
and both parties subject to dilution for failure to contribute its respective
share of required capital to the joint venture.
Additionally,
the execution of the Definitive Option Agreement is contingent upon the parties
(a) receiving an “area of interest waiver” from Scorpio Gold (US) Corporation
(as previously defined, “Scorpio”) related to the Company’s current joint
venture with Scorpio US with respect to the Mineral Ridge property; (b)
concurrently completing the purchase and sale of an 80% interest in the “Mhakari
Vanderbilt Properties,” as further discussed below; and (c) conducting due
diligence to their reasonable satisfaction. In the event either party
has not completed due diligence to their reasonable satisfaction, either party
may terminate the First LOI within 30 days of the date of the First
LOI. Further, the First LOI shall automatically terminate if the
Definitive Option Agreement is not entered into on or before May 26,
2010.
As of the
date of the filing of this Report, the Company has paid Mhakari CDN$5,000 on
account of Mhakari’s legal fees. In addition, the Company has paid
Mhakari a non-refundable deposit of $25,000 which shall be credited against the
option purchase price payable under the Definitive Option
Agreement.
21
Mhakari
Vanderbilt Properties
Simultaneous
with the First LOI, on April 19, 2010, the Company entered into a further letter
of intent with Mhakari, dated April 16, 2010 (the “Second LOI”) concerning that
certain property, known as the “Mhakari Vanderbilt Properties,” located in the
State of Nevada (the “Vanderbilt Property”).
Pursuant
to the terms of the Second LOI, the parties agreed to immediately proceed to
negotiate a definitive purchase agreement (the “Definitive Purchase Agreement”)
whereby the Company will purchase an undivided 80% interest in the Vanderbilt
Property.
In
particular, the terms of the Definitive Purchase Agreement shall include a
purchase price payable by the Company to Mhakari as follows: (i) upon the
signing of the Definitive Purchase Agreement, the issuance of 2,000,000 shares
of the Company’s common stock as well as warrants to purchase a further
2,000,000 shares of the Company’s common stock with a strike price of $0.05 per
share exercisable for a period of five years; (ii) within 48 months of signing
the Definitive Purchase Agreement, the Company shall be required to expend no
less than $350,000 in exploration and development expenditures on the Vanderbilt
Property; and (iii) the Company will satisfy its obligations under the
Definitive Option Agreement concerning the “Mhakari Nevada Properties excluding
Vanderbilt Mine,” referred to above as the “Property” (collectively, items (i) –
(iii) referred to as the “Purchase Price”). As a condition to the
Company’s obligation to satisfy the Purchase Price, upon entering into the
Definitive Purchase Agreement, Mhakari agrees to satisfy the remaining payments
owing under an exclusive option agreement between itself and the current owner
of the Vanderbilt Property.
Moreover,
the Definitive Purchase Agreement shall include a provision to the effect that
upon satisfaction of the Purchase Price, the parties shall enter into a joint
venture agreement with respect to the Vanderbilt Property in which the Company
will receive an undivided 80% ownership interest in, and will assume day-to-day
operational control of, the Vanderbilt Property, with Mhakari retaining a 20%
participating interest and both parties subject to dilution for failure to
contribute its respective share of required capital to the joint
venture.
In the
event either party has not completed due diligence to their reasonable
satisfaction, either party may terminate the Second LOI within 30 days of the
date of the Second LOI. Further, the Second LOI shall automatically
terminate if the Definitive Purchase Agreement is not entered into on or before
May 26, 2010.
Debt
Reduction Agreements
On April
15, 2010, in furtherance of its debt reduction efforts, the Company entered into
a series of agreements with Kenneth Ripley (“Ripley”) and David Pearl (“Pearl”),
members of the Ashdown Milling Company, LLC (“Ashdown Milling”), Win-Eldrich
Gold, Inc., (“WEG”), the Ashdown Project, LLC (“Ashdown Project”) and Earl
Harrison (“Harrison”), whereby WEG agreed to modify that certain Limited
Recourse Secured Promissory Note in the principal amount of $5,300,000 made in
favor of the Company, dated May 13, 2009 (the “Initial Note”), and reissue and
replace the Initial Note with one Series A Note, two Series B Notes and one
Series C Note, with the Company maintaining the Series A Note and WEG consenting
to the Company’s assignment of the Series B Notes to Ripley and Pearl and the
Series C Note to Harrison, in settlement of outstanding sums owed by the Company
to each party, all as further described below (the overall transaction referred
to herein as the “Debt Reduction”):
As an
initial matter, in furtherance of the Debt Reduction, the Company and WEG
entered into a Promissory Note Modification Agreement, dated April 15, 2010,
whereby the parties agreed to replace the Initial Note issued under that certain
Purchase and Sale of Membership Interest Agreement, dated May 11, 2009 (the
“Ashdown Project Purchase Agreement”) with four separate notes as follows: (a)
one Series A Limited Recourse Secured Promissory Note in the principal amount of
$4,231,925 (the “Series A Note”), (b) two Series B Limited Recourse Secured
Promissory Notes, each in the principal amount of $489,002 (the “Series B
Notes”), and (c) one Series C Limited Recourse Secured Promissory Note in the
principal amount of $90,070 (the “Series C Note”) (the Series A Note, the Series
B Notes and the Series C Note, collectively, the “Replacement
Notes”). As discussed below, payments to the Company on the Series A
Note will commence on April 1, 2011 rather than on May 13, 2010 as initially
contemplated, in order to permit the commencement of payments on the Seris B
Notes and Series C Note, in furtherance of the Debt
Reduction.
22
The
Series A Note bears interest at a rate of 5.25% per annum, with interest
accruing from April 1, 2011, and monthly payments to commence as of even date
therewith and continue in equal monthly installments for 49 months until the
Series A Note’s maturity date of April 1, 2015, unless sooner accelerated upon
an event of default. The Series B Notes are non-interest bearing and
shall each be repaid in equal monthly installments over a twenty-four (24) month
period, with the first monthly installment to commence on May 1,
2010. The Series C Note bears interest at a rate of 5.25% per annum
and shall be repaid in equal monthly installments over a 24 month period, with
the first monthly installment to commence on May 1,
2010. Accordingly, the Series B Notes and Series C Note are scheduled
to commence payments one (1) year prior to the commencement of payments under
the Series A Note. However, an event of default under any of the
Series B Notes or Series C Note, constitutes an event of default under the
Series A Note, thereby triggering the acceleration of all Replacement
Notes.
Further,
the Replacement Notes are collectively secured by certain Ashdown Project and
WEG collateral as set forth in that certain Security Agreement and Mortgage and
Deed of Trust (“Security Agreement”) entered into by and between the Company,
WEG and the Ashdown Project simultaneous with and pursuant to the Ashdown
Project Purchase Agreement, such Security Agreement amended as of April 15, 2010
by that certain First Amendment to Security Agreement (the “Amendment”), to
facilitate the issuance of the Replacement Notes and to affirm that the Security
Agreement, as amended, remains in full force and effect, securing WEG’s
obligations under the Replacement Notes.
Also in
connection with the Debt Reduction, on April 15, 2010, the Company entered into
a Membership Interest Purchase Agreement (the “Ashdown Milling Purchase
Agreement”) with Ripley and Pearl (collectively, the “Sellers”), whereby the
Company agreed to purchase the Sellers’ collective 40% membership interest in
Ashdown Milling (the “Membership Interests”) for an aggregate purchase price of
$978,005 (the “Purchase Price”), payable in the form of an assignment of the
Company’s rights to those certain Series B Notes made by WEG, as described
above. The Company entered into the Ashdown Milling Purchase
Agreement to acquire the Membership Interests, in furtherance of its obligation
under the Ashdown Project Purchase Agreement to use its best efforts to reduce
or eliminate the net smelter royalty obligations owed to Ashdown
Milling. In consideration of the Purchase Price, the Sellers agreed
to assign the Company all of their respective right, title and interest in and
to the Membership Interests and to provide the Company with a general release of
any and all claims, obligations, debts, liabilities, agreements, warranties,
representations, damages, losses, costs and expenses, among other things, that
Sellers may have had against the Company. The Company provided
Sellers with a similar general release of liabilities.
To
facilitate the Company’s payment of the Purchase Price as described in the
Ashdown Milling Purchase Agreement, the Company and each of Ripley and Pearl
entered into an Assignment of Loan Documents dated April 15, 2010 (the
“Assignments”), whereby the Company assigned its right to the Series B Notes to
each of Ripley and Pearl, which Assignments were duly consented to by
WEG. Pursuant to the Assignments, Ripley and Pearl each agreed to
release the Company from any liability with respect to, and agreed to indemnify
and hold the Company harmless from and against, any claims arising out of or
relating to, the Series B Notes.
Finally,
in connection with the Debt Reduction, on April 21, 2010, the Company entered
into a Settlement Agreement with Earl Harrison (“Harrison”) dated April 9, 2010
(the “Harrison Settlement Agreement”), whereby the Company agreed to pay
Harrison the aggregate sum of $180,140 (the “Harrison Settlement
Amount”). The parties agreed that of the Harrison Settlement Amount,
$90,070 was to be paid in cash simultaneous with the Company’s execution of the
Harrison Settlement Agreement, and the remaining $90,070 was to be paid in the
form of an assignment of the Company’s right to that certain Series C Note made
by WEG, as described above. In consideration of the Company's payment
of the Harrison Settlement Amount, Harrison agreed to a full release of any and
all debts, claims, obligations, losses, costs and expenses he may have had
against the Company related to that certain default judgment dated February
2, 2009 from the
Second District Court of the State of Nevada in Washoe County entered in favor
of Harrison and the Execution Order dated May 1, 2009 issued in connection
therewith.
23
To
facilitate the assignment of the Series C Note, the Company and Harrison entered
into an Assignment of Loan Documents dated April 15, 2010 (the “Harrison
Assignment”), which Harrison Assignment was duly consented to by
WEG. Pursuant to the Harrison Assignment, Harrison agreed to release
the Company from any liability with respect to, and agreed to indemnify and hold
the Company harmless from and against, any claims arising out of or relating to,
the Series C Note.
Martin
Debt Settlement Agreement
On April
16, 2010, the Company entered into a Debt Settlement and Release Agreement with
Robert P. Martin, the Company’s current President, Secretary and Chairman of the
Company’s Board of Directors (the “Debt Settlement Agreement”), as part of the
Company’s ongoing efforts to consolidate and eliminate certain outstanding debt
obligations.
Pursuant
to the terms of the Debt Settlement Agreement, Mr. Martin agreed to accept the
total sum of $716,689 (the “Martin Settlement Amount”) in exchange for the
settlement of all outstanding amounts owed by the Company to Mr. Martin, such
amounts totaling $985,259 (the “Outstanding Debt”), as well as a release of all
claims against the Company by Mr. Martin relating to, or arising out of, the
Outstanding Debt. By agreeing to accept the Martin Settlement Amount,
Mr. Martin is forgiving $268,570 owed to him by the Company.
The
Outstanding Debt consists of: (i) loan obligations of the Company in the form of
three promissory notes issued to Mr. Martin totaling $215,940 (such amount
includes accrued interest on the three notes in the amount of $55,415) (“Loan
Obligations”); (ii) unpaid salary totaling $268,570 (“Unpaid Salary Obligation”)
and accrued unpaid expenses totaling $11,747 (“Accrued Expense Obligation”) owed
by the Company to Mr. Martin under the Employment Agreement between the Company
and Mr. Martin dated March 8, 2006, as supplemented by that certain Addendum to
Employment Agreement dated January 31, 2007; and (iii) financial obligations
totaling $489,002 owed by the Company to Mr. Martin in connection with the
Company’s investment in the mill owned by the Ashdown Milling Company, LLC, in
Mr. Martin’s capacity as a member thereof (the “Ashdown Milling
Obligations”).
Under the
terms of the Debt Settlement Agreement, the Company agreed to pay Mr. Martin the
Accrued Expense Obligation in cash as soon as reasonably practicable, with the
remainder of the Martin Settlement Amount to be issued in the form of a secured
promissory note (the “Secured Promissory Note”). Of the principal
amount owed on the Secured Promissory Note, (1) $215,940 will accrue interest at
a rate of 6.5% per annum, with a maturity date of September 12, 2010; and (2)
$489,002 will be paid by the Company to Mr. Martin after the Company has
satisfied its current financial obligations to Ripley and Pearl, the remaining
members of the Ashdown Milling Company, LLC (as previously defined, “Ashdown
Milling”), or by March 12, 2011, whichever comes first, said payment to be
structured, at Mr. Martin’s election, as a sale of Mr. Martin’s membership
interest in Ashdown Milling to the Company pursuant to, and in accordance with,
the terms and conditions of the Ashdown Milling Operating
Agreement.
24
The
Secured Promissory Note is secured by 1,020,000 shares of Scorpio Gold
Corporation’s (“Scorpio Gold”) common stock, valued at CN $0.50 per share
(“Scorpio Gold Shares”). Mr. Martin may elect to receive some or all
of the Scorpio Gold Shares at one time or in installments, at Mr. Martin’s
election, and apply those shares, to be valued at CN $0.50 per share at the time
of election, against the then outstanding balance of the Secured Promissory
Note, which will be reduced accordingly. The Scorpio Gold Shares to
be issued to Mr. Martin under the Debt Settlement Agreement are subject to that
certain Letter Agreement by and between the Company and Scorpio Gold dated March
10, 2010, pursuant to which Scorpio Gold holds a right of first refusal with
respect to the Scorpio Gold Shares. As such, Mr. Martin shall enter
into such written agreement with Scorpio Gold as may be deemed necessary to
further the intent of Scorpio Gold’s right of first
refusal.
25
Item
2. 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” 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” described in our Annual Report on Form 10-K for the
year ended December 31, 2009 filed with the Securities and Exchange Commission
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.
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.
On May
13, 2009, we completed an agreement to sell 100% of our ownership interest in
the Ashdown Project LLC (the “Ashdown LLC”) to Win-Eldrich Gold, Inc. (“WEG”)
and, on March 10, 2010, we closed an agreement dated December 31, 2009 for the
purpose of contributing our Mineral Ridge Mine into Mineral Ridge Gold, LLC, a
Nevada limited liability company, (the “Mineral Ridge LLC”) in which we retain a
30% interest, 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 our condensed financial
statements.
As
consideration for the sale of our ownership interest in the Ashdown LLC, we
received consideration from WEG in the form of a note receivable of $5.3
million. In addition, the assets of the Ashdown LLC have been pledged
as collateral for the note receivable. However, generally accepted
accounting principles preclude us from presenting an asset in our condensed
balance sheets 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 March 31, 2010 and 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. As further
discussed under Liquidity and Capital Resources, we entered into certain debt
reduction agreements in April 2010 whereby we extinguished debt and royalty
obligations totaling $1,068,075 through the assignment of portions of the $5.3
million note receivable and restructured the terms of the remaining note
balance.
26
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.
As
further discussed in Note 18 to our condensed financial statements, on April 19,
2010, we entered into a two letters of intent with Mhakari Gold (Nevada) Inc.
(“Mhakari”) dated April 16, 2010, concerning certain properties located in the
State of Nevada. Pursuant to the terms of the letters of intent, the
parties agreed to immediately proceed to negotiate definitive option and
purchase agreements whereby we will be granted an option to acquire and to
purchase, respectively, an undivided 80% interest in each of the
properties. It is our intent to enter into definitive purchase
agreements by May 26, 2010 and move forward with joint venture agreements to
further develop the properties.
GOING
CONCERN UNCERTAINTY
Our condensed 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 $38,971,875 at March 31,
2010. We currently have no sources of operating
revenues. In addition, a significant portion of our current assets at
March 31, 2010 is comprised of an investment in marketable securities of
$6,166,685, which may be difficult to liquidate in sufficient quantities and in
a timely fashion to meet our current obligations. We will require
additional capital to fund our operations and to pursue other mineral property
development opportunities with our existing properties and other
prospects. We will seek funding primarily from equity financing, and
anticipate we will also receive proceeds from the secured promissory note
received in the sale of our interest in the Ashdown LLC. There can be
no assurance that we will be successful in our efforts to continue to raise
capital at favorable rates or at all or that funds will be received from the
promissory note. 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. These factors together
raise doubt about our ability to continue as a going concern. The
accompanying condensed 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; 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.
27
On March
10, 2010, 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 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 the Company by Scorpio Gold) and 7,824,750 common shares of stock of
Scorpio Gold at a market value of $5,501,582. 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 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.
The
operations of the Ashdown LLC historically funded a portion of our operating
costs and expenses. 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”). The $5.3 million purchase price due the Company in the form
of a secured promissory note was initially payable over a 72 month term, and WEG
assumed substantially all of the liabilities of the Ashdown LLC. The
terms of the promissory note were subsequently modified in connection with
certain debt reduction agreements entered into in April 2010. 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, or pay us the amounts due in
accordance with the terms of the promissory note.
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 in our Annual Report on Form 10-K for the year ended
December 31, 2009 filed with the SEC, and several of those critical accounting
policies are as follows:
Marketable
Securities. Our marketable securities at March 31, 2010
consisted of shares of Scorpio Gold common stock received in the sale of the net
assets of the Mineral Ridge Mine. We classify these marketable
securities as securities held-for-sale in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification™ (ASC) Topic 320, Investments – Debt and Equity
Securities. The marketable securities are stated at fair value
based on market quotes. Unrealized gains and
losses resulting from changes in market value are recorded as other
comprehensive income, a component of stockholders’ equity in the Company’s
balance sheet.
28
In
accordance with ASC Topic 830, Foreign Currency Matters, the
increase or decrease in the recorded value of the marketable securities
resulting from changes in foreign exchange rates between the Company’s
functional currency, the US dollar, and the currency in which the marketable
securities are denominated, the Canadian dollar, is recorded as a foreign
currency transaction gain or loss in the Company’s statements of
operations.
Investment in Mineral Ridge
LLC. At March 31, 2010, our 30% membership interest in the
Mineral Ridge LLC is accounted for using the equity method of accounting in
accordance with ASC Topic 323 – Investments – Equity Method and
Joint Ventures. The investment is recorded at cost, with the
carrying value subsequently increased for our share of the Mineral Ridge LLC net
income or additional contributions made by us to capital, and decreased for our
share of the Mineral Ridge LLC net loss or equity distributions received by
us.
Because our book value of our initial
investment in the Mineral Ridge LLC, which was comprised of liabilities in
excess of assets, was recorded as a transfer to a related party and recorded as
an increase to additional paid-in capital, and because we have no obligation to
contribute capital to fund the operations of the Mineral Ridge LLC, the carrying
value of the investment is recorded at zero. In accordance with ASC
Topic 323, we have not recorded our share of the Mineral Ridge LLC net loss for
the period ended March 31, 2010 because our investment has been reduced to zero
and we have neither guaranteed obligations of or otherwise committed to provide
further financial support for the Mineral Ridge LLC.
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 40 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 March 31, 2010, we had no proven or probable reserves.
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.
29
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.
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, prior to the formation of the Mineral Ridge LLC, were included in our
financial statements in liabilities of discontinued operations in accordance
with generally accepted accounting principles, in accordance with ASC Topic
410, Asset Retirement and
Environmental 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 March 31, 2010 and 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.
30
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 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. March 31, 2010 and December 31, 2009,
we have fully reduced our deferred tax assets by recording a valuation
allowance.
Stock-Based Compensation and Equity
Transactions. We account for stock-based compensation in
accordance with ASC Topic 718, Compensation – Stock
Compensation, which requires us to 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 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
There
were no new accounting pronouncements issued during the three months ended March
31, 2010 and through the date of the filing of this report that are applicable
to or would have a material impact on our financial statements.
RESULTS
OF OPERATIONS
Sales
With the
sale of our interest in the Ashdown LLC in May 2009 and the presentation of its
operations as discontinued operations in our condensed financial statements, we
reported no sales of minerals for the three-month periods ended March 31, 2010
and 2009.
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. Consequently, during the three months ended March 31,
2010 and 2009, we had no income from the use of our drilling
equipment.
31
Operating
Costs and Expenses
Operating costs and expenses reported
in the accompanying condensed 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.
Drilling
operations expenses of $50,709 for the three months ended March 31, 2010 were
comprised primarily of equipment rental and incidental costs of supplies and
maintenance. There were no similar costs in the three months ended
March 31, 2009. As discussed above, we have suspended the operations
of our drilling services division, pending additional funding and project
opportunities. We will, however, continue to incur equipment rental
and other costs of keeping the drilling services division on a standby
basis.
General
and administrative expenses were $399,959 and $445,260 for the three months
ended March 31, 2010 and 2009, 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 a reduction in the number of employees and related administrative
expenses pursuant to the disposition of our interest in the Ashdown
LLC.
Depreciation
and amortization expense for the three months ended March 31, 2010 and 2009 was
$18,058 and 22,907, 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.
Other
Income (Expense)
Interest
and other income for the three months ended March 31, 2010 and 2009 was $0 and
$184, respectively. The decrease in interest and other income on a
year-to-date basis in the current year is due to decreased levels of
interest-bearing deposits.
Interest
expense for the three months ended March 31, 2010 and 2009 was $78,239 and
$485,707, respectively. The decrease in interest expense on a
year-to-date basis during the current year is due primarily to the interest
expense recorded upon the issuance of warrants associated with fund raising
activities in the three months ended March 31, 2009.
During the three months ended March 31,
2010 and 2009, we reported a gain on extinguishment of debt of $36,901 and
$974,456, respectively. We continue our efforts to reduce our
liabilities, reaching settlements where possible for a reduction in amounts
owed. The gain on extinguishment of debt in the three months ended
March 31, 2009 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 three months ended March 31, 2010, we reported a foreign currency gain of
$53,896 resulting from a positive change in the foreign exchange rates used to
translate the value of our marketable securities, which are denominated in
Canadian dollars, to our functional currency, the US dollar. We had
no foreign currency gains or losses in the three months ended March 31,
2009.
We also
reported an immaterial loss on disposal of property and equipment of $6,322 in
the three months ended March 31, 2010 and an immaterial gain on disposal of
property and equipment of $127 in the three months ended March 31,
2009.
32
Discontinued
Operations
We have
reported the results of operations of the Ashdown LLC and the Mineral Ridge Mine
in our condensed financial statements as discontinued operations for the three
months ended March 31, 2010 and 2009, including the following:
2010
|
2009
|
|||||||||||||||||||||||
Ashdown
LLC
|
Mineral
Ridge
|
Total
|
Ashdown
LLC
|
Mineral
Ridge
|
Total
|
|||||||||||||||||||
Revenues
|
$ | - | $ | - | $ | - | $ | 153,797 | $ | - | $ | 153,797 | ||||||||||||
Loss
before income taxes
|
- | (74,615 | ) | (74,615 | ) | (511,617 | ) | (195,629 | ) | (707,246 | ) | |||||||||||||
Provision
for income
taxes
|
- | - | - | - | - | - | ||||||||||||||||||
Loss
from discontinued
operations
|
- | (74,615 | ) | (74,615 | ) | (511,617 | ) | (195,629 | ) | (707,246 | ) | |||||||||||||
Gain
on sale of Mineral
Ridge assets
|
- | 8,986,279 | 8,986,279 | - | - | - | ||||||||||||||||||
Income
(loss) from
discontinued operations
|
- | 8,911,664 | 8,911,664 | (511,617 | ) | (195,629 | ) | (707,246 | ) | |||||||||||||||
Loss
from discontinued
operations attributable to
noncontrolling
interest
|
- | - | - | 204,647 | - | 204,647 | ||||||||||||||||||
Income
(loss) from
discontinued operations
attributable to the
Company
|
$ | - | $ | 8,911,664 | $ | 8,911,664 | $ | (306,970 | ) | $ | (195,629 | ) | $ | (502,599 | ) |
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. The Ashdown LLC reported a
loss of $511,617 for the three months ended March 31, 2009.
The sale
of our interest in the Ashdown LLC was completed on May 13, 2009, and no amounts
for the Ashdown LLC are included in our condensed statements of operations for
the three months ended March 31, 2010.
Amounts
included in income (loss) from discontinued operations for the Mineral Ridge
Mine for the three months ended March 31, 2010 and 2009 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 activities pending formation of the
Mineral Ridge LLC.
As
discussed in more detail above, on March 10, 2010, Scorpio Gold, Scorpio US and
the Company closed the Exploration, Development and Mining Joint Venture
Members’ Agreement entered into on December 31, 2009 and formed Mineral Ridge
LLC. We recognized a gain on sale of our 70% interest
in the net assets of the Mineral Ridge Mine of $8,986,279 in the three months
ended March 31, 2010, comprised of the following:
33
Cash
received, including amounts previously advanced
|
$ | 3,750,000 | ||
Marketable
securities received, shares of Scorpio Gold
recorded at their market value
|
5,501,582 | |||
Total
proceeds
|
9,251,582 | |||
Reclamation
liability transferred
|
2,129,349 | |||
Book
value of assets sold
|
(1,784,652 | ) | ||
Fees
to related party
|
(610,000 | ) | ||
Gain
on sale
|
$ | 8,986,279 |
The fees
on the transaction were incurred to Thomas Klein, our Chief Executive Officer,
with $375,000 payable to Mr. Klein and included in accrued expenses, a current
liability in our condensed balance sheet as of March 31, 2010.
As of the
date of this report, Scorpio Gold and we are working with regulatory
authorities, insurance carriers and others to complete the transfer to the
Mineral Ridge LLC of the reclamation obligation and related bonds, permits and
deposits that are established to fund the obligation. As of March 10,
2010, the date of the transfer, the reclamation obligation was estimated at
$3,041,927. Until the transfer of the reclamation obligation and
related assets is approved and completed, we are contingently liable for any
unfunded reclamation obligation. However, we believe the reclamation
bonds and deposits transferred are currently sufficient to fund the reclamation
obligation.
LIQUIDITY
AND CAPITAL RESOURCES
We have a
history of operating losses since our inception in 1997, and had an accumulated
deficit of $38,971,875 at March 31, 2010. At March 31, 2010, we had
current assets of $7,109,732 and current liabilities of $3,766,349, resulting in
working capital of $3,343,383. However, of our current assets,
$6,166,685 is comprised of 7,824,750 shares of Scorpio Gold common stock, which
may be difficult to liquidate in sufficient quantities and in a timely fashion
to meet our current obligations.
At March
31, 2010, we had cash of $908,427, primarily as a result of the successful
formation of the Mineral Ridge LLC in March 2010. In connection with
the formation of the Mineral Ridge LLC, we repaid the $1,000,000 Bridge Loan and
Crestview released the security interest in the Mineral Ridge
Mine. We also repaid other obligations out of the Scorpio Gold
proceeds. We have no current operating revenues and continue to
experience difficulties raising debt and equity capital. We have,
however, significantly reduced our operating costs, including a reduction in
force. In order to increase the level of our operations, evaluate and
participate in other mining ventures, commence again the activities of our
drilling department and explore or develop our existing mineral properties, we
will require additional capital.
The $5.3
million purchase price due us from WEG from the sale of our membership interest
in the Ashdown LLC is in the form of a secured promissory note originally
payable over a 72 month term commencing one year from the closing of the
sale. 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, or pay us
the amounts due in accordance with the terms of the promissory
note.
34
During
the three months ended March 31, 2010, we used net cash of $587,152 in operating
activities, compared to $121,168 net cash provided by operating activities
during the three months ended March 31, 2009. After eliminating
non-cash income and expense items, the increase in net cash used in operating
activities in the three months ended March 31, 2010 compared to the three months
ended March 31, 2009 is primarily due to a reduction of accounts payable of
$129,307 in the three months ended March 31, 2010 compared to an increase in
accounts payable of $532,114 in the three months ended March 31,
2009.
During
the three months ended March 31, 2010, we had no net cash provided by or used in
investing activities. During the three months ended March 31, 2009,
we had net cash used in investing activities of $1,147, consisting of the
purchase of property and equipment of $1,500, partially offset by proceeds from
the sale of property and equipment of $353.
During
the three months ended March 31, 2010, net cash used in financing activities was
$1,155,240, comprised of payments of severance obligations of $65,201, payments
of notes payable and long-term debt of $1,289,173 and payments of amounts due
related parties of $40,866, partially offset by proceeds from the sale of common
stock of $240,000.
During
the three months ended March 31, 2009, net cash provided by financing activities
was $989,145, comprised of proceeds from the issuance of debt of $1,000,000,
partially offset by payments of debt of $10,855.
During
the three months ended March 31, 2010, net cash provided by discontinued
operations was $2,556,034 compared to net cash used in discontinued operations
for the three months ended March 31, 2009 of $883,315. The net cash
provided by operations in the three months ended March 31, 2010 resulted
primarily as a result of the cash proceeds from the sale of net assets to
Scorpio Gold.
Debt
Restructuring Note
On
October 26, 2009, the Company and Crestview 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.
We had
previously issued Crestview warrants to purchase 23,000,000 shares of our 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 are subject to certain registration rights, which Crestview, 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.
35
Debt
Reduction Efforts
Leading
up to and following the successful formation of the Mineral Ridge LLC, we
continue our efforts to eliminate our indebtedness through negotiated debt
reductions, and structured cash and stock payments.
Caldwell
Separation Agreement
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, 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 $20,379 upon the earlier to occur of the Company’s closing of a
transaction involving our 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. The long-term liability, amounts due related parties, with
a balance of $368,051 at March 31, 2010 is comprised of the Note principal
balance of $366,623 plus accrued interest payable of
$1,428. Further, pursuant to certain events and conditions as
set forth in the Caldwell Separation Agreement, Mr. Caldwell can be issued
shares of our common stock in lieu of cash payments for the Note and the
Subsequent Payment.
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 we 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, 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.
36
April
2010 Debt Reduction Agreements
On April
15, 2010, in furtherance of our debt reduction efforts, we entered into a series
of agreements with Kenneth Ripley (“Ripley”) and David Pearl (“Pearl”), members
of the Ashdown Milling Company, LLC (“Ashdown Milling”), Win-Eldrich Gold, Inc.,
(“WEG”), the Ashdown Project, LLC (“Ashdown Project”) and Earl Harrison
(“Harrison”), whereby WEG agreed to modify that certain Limited Recourse Secured
Promissory Note in the principal amount of $5,300,000 made in favor of us, dated
May 13, 2009 (the “Initial Note”), and reissue and replace the Initial Note with
one Series A Note, two Series B Notes and one Series C Note, with the Company
maintaining the Series A Note and WEG consenting to our assignment of the Series
B Notes to Ripley and Pearl and the Series C Note to Harrison, in settlement of
outstanding sums owed by us to each party, all as further described below (the
overall transaction referred to herein as the “Debt Reduction”):
As an
initial matter, in furtherance of the Debt Reduction, we entered into a
Promissory Note Modification Agreement with WEG, dated April 15, 2010, whereby
the parties agreed to replace the Initial Note issued under that certain
Purchase and Sale of Membership Interest Agreement, dated May 11, 2009 (the
“Ashdown Project Purchase Agreement”) with four separate notes as follows: (a)
one Series A Limited Recourse Secured Promissory Note in the principal amount of
$4,231,925 (the “Series A Note”), (b) two Series B Limited Recourse Secured
Promissory Notes, each in the principal amount of $489,002 (the “Series B
Notes”), and (c) one Series C Limited Recourse Secured Promissory Note in the
principal amount of $90,070 (the “Series C Note”) (the Series A Note, the Series
B Notes and the Series C Note, collectively, the “Replacement
Notes”). We will begin receiving payments on the Series A Note on
April 1, 2011 rather than in May 2010 as initially contemplated, in order to
permit the commencement of payments on the Series B Notes and Series C Note, in
furtherance of the Debt Reduction.
The
Series A Note bears interest at a rate of 5.25% per annum, with interest
accruing from April 1, 2011, and monthly payments to commence as of even date
therewith and continue in equal monthly installments for 49 months until the
Series A Note’s maturity date of April 1, 2015, unless sooner accelerated upon
an event of default. The Series B Notes are non-interest bearing and
shall each be repaid in equal monthly installments over a twenty-four (24) month
period, with the first monthly installment to commence on May 1,
2010. The Series C Note bears interest at a rate of 5.25% per annum
and shall be repaid in equal monthly installments over a 24 month period, with
the first monthly installment to commence on May 1,
2010. Accordingly, the Series B Notes and Series C Note are scheduled
to commence payments one (1) year prior to the commencement of payments under
the Series A Note. However, an event of default under any of the
Series B Notes or Series C Note, constitutes an event of default under the
Series A Note, thereby triggering the acceleration of all Replacement
Notes.
Further,
the Replacement Notes are collectively secured by certain Ashdown Project and
WEG collateral as set forth in that certain Security Agreement and Mortgage and
Deed of Trust (“Security Agreement”) entered into by and between the Company,
WEG and the Ashdown Project simultaneous with and pursuant to the Ashdown
Project Purchase Agreement, such Security Agreement amended as of April 15, 2010
by that certain First Amendment to Security Agreement (the “Amendment”), to
facilitate the issuance of the Replacement Notes and to affirm that the Security
Agreement, as amended, remains in full force and effect, securing WEG’s
obligations under the Replacement Notes.
Also in
connection with the Debt Reduction, on April 15, 2010, we entered into a
Membership Interest Purchase Agreement (the “Ashdown Milling Purchase
Agreement”) with Ripley and Pearl (collectively, the “Sellers”), whereby we
agreed to purchase the Sellers’ collective 40% membership interest in Ashdown
Milling (the “Membership Interests”) for an aggregate purchase price of $978,005
(the “Purchase Price”), payable in the form of an assignment of our rights to
those certain Series B Notes made by WEG, as described above. We
entered into the Ashdown Milling Purchase Agreement to acquire the Membership
Interests, in furtherance of our obligation under the Ashdown Project Purchase
Agreement
to use its best efforts to reduce or eliminate the net smelter royalty
obligations owed to Ashdown Milling. In consideration of the Purchase
Price, the Sellers agreed to assign us all of their respective right, title and
interest in and to the Membership Interests and to provide us with a general
release of any and all claims, obligations, debts, liabilities, agreements,
warranties, representations, damages, losses, costs and expenses, among other
things, that Sellers may have had against us. We provided Sellers
with a similar general release of liabilities.
37
To
facilitate our payment of the Purchase Price as described in the Ashdown Milling
Purchase Agreement, we entered into an Assignment of Loan Documents with each of
Ripley and Pearl dated April 15, 2010 (the “Assignments”), whereby we assigned
our right to the Series B Notes to each of Ripley and Pearl, which Assignments
were duly consented to by WEG. Pursuant to the Assignments, Ripley
and Pearl each agreed to release us from any liability with respect to, and
agreed to indemnify and hold us harmless from and against, any claims arising
out of or relating to, the Series B Notes.
Finally,
in connection with the Debt Reduction, on April 21, 2010, we entered into a
Settlement Agreement with Earl Harrison (“Harrison”) dated April 9, 2010 (the
“Harrison Settlement Agreement”), whereby we agreed to pay Harrison the
aggregate sum of $180,140 (the “Harrison Settlement Amount”). The
parties agreed that of the Harrison Settlement Amount, $90,070 was to be paid in
cash simultaneous with our execution of the Harrison Settlement Agreement, and
the remaining $90,070 was to be paid in the form of an assignment of our right
to that certain Series C Note made by WEG, as described above. In
consideration of our payment of the Harrison Settlement Amount, Harrison agreed
to a full release of any and all debts, claims, obligations, losses, costs and
expenses he may have had against us related to that certain default
judgment dated February 2, 2009 from the Second District Court of the State of
Nevada in Washoe County entered in favor of Harrison and the Execution Order
dated May 1, 2009 issued in connection therewith.
To
facilitate the assignment of the Series C Note, we entered into an Assignment of
Loan Documents with Harrison, dated April 15, 2010 (the “Harrison Assignment”),
which Harrison Assignment was duly consented to by WEG. Pursuant to
the Harrison Assignment, Harrison agreed to release us from any liability with
respect to, and agreed to indemnify and hold us harmless from and against, any
claims arising out of or relating to, the Series C Note.
Martin
Debt Settlement Agreement
On April
16, 2010, we entered into a Debt Settlement and Release Agreement with Robert P.
Martin, our current President, Secretary and Chairman of our Board of Directors
(the “Debt Settlement Agreement”), as part of our ongoing efforts to consolidate
and eliminate certain outstanding debt obligations.
Pursuant
to the terms of the Debt Settlement Agreement, Mr. Martin agreed to accept the
total sum of $716,689 (the “Martin Settlement Amount”) in exchange for the
settlement of all outstanding amounts owed by us to Mr. Martin, such amounts
totaling $985,259 (the “Outstanding Debt”), as well as a release of all claims
against us by Mr. Martin relating to, or arising out of, the Outstanding
Debt. By agreeing to accept the Martin Settlement Amount, Mr. Martin
is forgiving $268,570 owed to him by us.
The
Outstanding Debt consists of: (i) loan obligations of the Company in the form of
three promissory notes issued to Mr. Martin totaling $215,940 (such amount
includes accrued interest on the three notes in the amount of $55,415) (“Loan
Obligations”); (ii) unpaid salary totaling $268,570 (“Unpaid Salary Obligation”)
and accrued unpaid expenses totaling $11,747 (“Accrued Expense Obligation”) owed
by the Company to Mr. Martin under the Employment Agreement between the Company
and Mr. Martin dated March 8, 2006, as supplemented by that certain Addendum to
Employment Agreement dated January 31, 2007; and (iii) financial obligations
totaling $489,002 owed by the Company to Mr. Martin in connection with the
Company’s investment in the mill owned by the Ashdown Milling Company, LLC, in
Mr. Martin’s capacity as a member thereof (the “Ashdown Milling
Obligations”).
38
Under the
terms of the Debt Settlement Agreement, we agreed to pay Mr. Martin the Accrued
Expense Obligation in cash as soon as reasonably practicable, with the remainder
of the Martin Settlement Amount to be issued in the form of a secured promissory
note (the “Secured Promissory Note”). Of the principal amount owed on
the Secured Promissory Note, (1) $215,940 will accrue interest at a rate of 6.5%
per annum, with a maturity date of September 12, 2010; and (2) $489,002 will be
paid to Mr. Martin after hawse have satisfied our current financial obligations
to Ripley and Pearl, the remaining members of the Ashdown Milling Company, LLC
(as previously defined, “Ashdown Milling”), or by March 12, 2011, whichever
comes first, said payment to be structured, at Mr. Martin’s election, as a sale
to us of Mr. Martin’s membership interest in Ashdown Milling pursuant to, and in
accordance with, the terms and conditions of the Ashdown Milling Operating
Agreement.
The
Secured Promissory Note is secured by 1,020,000 shares of Scorpio Gold’s common
stock, valued at CN $0.50 per share (“Scorpio Gold Shares”). Mr.
Martin may elect to receive some or all of the Scorpio Gold Shares at one time
or in installments, at Mr. Martin’s election, and apply those shares, to be
valued at CN $0.50 per share at the time of election, against the then
outstanding balance of the Secured Promissory Note, which will be reduced
accordingly. The Scorpio Gold Shares to be issued to Mr. Martin under
the Debt Settlement Agreement are subject to that certain Letter Agreement by
and between the Company and Scorpio Gold dated March 10, 2010, pursuant to which
Scorpio Gold holds a right of first refusal with respect to the Scorpio Gold
Shares. As such, Mr. Martin shall enter into such written agreement
with Scorpio Gold as may be deemed necessary to further the intent of Scorpio
Gold’s right of first refusal.
Ashdown
Milling Obligation
On
September 26, 2005, we 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 our share of production from the Ashdown mine for a minimum of
$800,000. In addition, Ashdown Milling received one share of our
common stock and one warrant to purchase one share of our common stock at $0.20
per share for each dollar paid us. In addition, the Production
Payment Purchase Agreement provided that, upon our request 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. A total of $1,500,000 was paid to us
pursuant to the agreement. The amount of the production payment to be
paid to Ashdown Milling was 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 had been paid. Robert P. Martin, one of our officers
and directors, and Kenneth S. Ripley, one of our former Chief Executive
Officers, are co-managers and two of the five original members of Ashdown
Milling. Our Board approved the transaction.
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 our 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%.
As a consequence to the sale of our
interest in the Ashdown LLC, the members of Ashdown Milling no longer had a net
smelter returns royalty on Ashdown LLC production. We intended to pay
the remaining
royalty obligation as sales proceeds were received from WEG. As part
of our debt reduction efforts, however, we have entered into agreements to
extinguish the remaining obligation to the members of Ashdown
Milling.
39
As discussed above, in April 2010, we
bought out the membership interests of two members of Ashdown Milling, Kenneth
Ripley and David Pearl, in exchange for an assignment of an aggregate $978,005
of the $5.3 million promissory note due us from the sale of our membership
interest in the Ashdown LLC.
As further discussed above, a debt
settlement agreement was reached with Robert P. Martin in April 2010 to include
$489,002, which at Mr. Martin’s election, will be structured as a purchase of
Mr. Martins membership interest in Ashdown Milling.
As a result of these April 2010
transactions with Messrs. Ripley, Pearl and Martin, we will no longer have any
obligations to Ashdown Milling pursuant to the Production Payment Purchase
Agreement.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Not
Applicable.
Item
4T. Controls and Procedures
Disclosure
Controls and Procedures
Our
management, under the supervision and with the participation of our chief
executive officer and chief financial officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31,
2010. Based on that evaluation, our chief executive officer and chief
financial officer concluded that the disclosure controls and procedures employed
at the Company were not effective to ensure that the information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms.
As a consequence of the sale of our
interest in the Ashdown LLC and the resulting substantial decrease in our
operations, we have eliminated substantially all full time accounting and
finance personnel. We currently utilize primarily former employees,
working either as part time employees or outside consultants, to maintain our
financial records and to prepare our financial statements and footnote
disclosures. This has resulted in less segregation of accounting
duties and less compliance with financial close procedures than had previously
been implemented when a fully staffed accounting and finance department was in
place. This lack of internal oversight and review resulted in
adjusting journal entries not detected by us that were material to our financial
statements. We believe this deficiency in our internal control over
financial reporting constitutes a material weakness.
Despite
the material weakness in financial reporting noted above, we believe that our
condensed financial statements 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.
We are committed to the establishment
of effective internal controls over financial reporting and have successfully
implemented such controls in prior reporting periods. In the future,
we will place emphasis on quarterly and year end closing procedures, including
timely internal review and discussion of accounting and financial reporting
consequences of material contracts and agreements, and enhanced review of all
schedules and account analyses by experienced accounting department personnel or
independent consultants.
40
Change
in Internal Control Over Financial Reporting
Other than the matters discussed above,
there was no change in our internal control over financial reporting during the
first fiscal quarter, that materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
41
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
Earl
Harrison – Subsequent to the Company’s quarterly period ended March 31,
2010, the Company and Mr. Harrison agreed to the terms of a settlement of the
outstanding judgment and execution order in Mr. Harrison’s favor, which matter
is further described in the Company’s most recent Annual Report on Form 10-K for
the year ended December 31, 2009, as filed with the SEC on April 9,
2010. The terms of the settlement are further described in the
Company’s Current Report on Form 8-K as filed with the SEC on April 21, 2010 as
well as under Note 18 to the interim condensed financial statements presented in
this Report.
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 requiring payments to be made by the
Ashdown Project, LLC and resulting in no material financial impact to the
Company. The Company remains contingently liable, however, for
amounts due Tetra under the settlement agreement in the event such amounts are
not paid by the Ashdown Project, LLC.
Ed Staub &
Sons Petroleum, Inc. - No material changes have occurred during the
quarter ended March 31, 2010. Further description of this legal
dispute is provided in the Company’s Form 10-K for the year ended December 31,
2009.
Item
1A. Risk Factors
Not
Applicable.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
During
the three months ended March 31, 2010, we issued a total of 11,148,552 common
shares for the following consideration:
Name
|
Shares
|
Consideration
|
|||
Lesweek
Pty. Ltd.
|
3,333,333 |
Cash
|
|||
David
A. Caldwell
|
1,500,000 |
Accounts
Payable
|
|||
Jeffrey
Dahl
|
1,500,000 |
Accounts
Payable
|
|||
Michael
R. or Lenora D. Fitzsimonds
|
1,538,462 |
Severance
Obligation
|
|||
West
Coast Environmental
|
276,757 |
Accounts
Payable
|
|||
H.
Allan Poser
|
3,000,000 |
Cash
|
|||
11,148,552 |
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.
42
Item
3. Defaults Upon Senior Securities
None.
Item
4. (Removed and Reserved.)
Item
5. Other Information
None
Item
6. Exhibits
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.(2)
|
|
3.4
|
Amended
and Restated Articles of Incorporation of Golden Phoenix Minerals,
Inc.(3)
|
|
3.5
|
Amended
and Restated Bylaws of Golden Phoenix Minerals, Inc.(3)
|
|
4.1
|
Specimen
Common Stock Certificate of Golden Phoenix Minerals, Inc.(3)
|
|
4.2
|
Form
of Warrant of Golden Phoenix Minerals, Inc.(4)
|
|
10.1
|
Exploration,
Development and Mining Joint Venture Agreement by and between the Company,
Scorpio Gold (US) Corporation and Scorpio Gold Corporation, dated December
31, 2009.*
|
|
10.2
|
Side
Letter Agreement by and between the Company and Crestview Capital Master,
LLC, dated January 13, 2010.*
|
|
10.3
|
Employment
Separation and Severance Agreement by and between the Company and David
Caldwell, dated January 19, 2010.(5)
|
|
10.4
|
LLC
Operating Agreement by and between the Company and Scorpio Gold (US)
Corporation, dated March 10, 2010.*
|
|
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 SB-2/A filed with the SEC on June 29,
2007.
|
(3)
|
Incorporated
by reference from Form 8-K filed with the SEC on June 5,
2008.
|
(4)
|
Incorporated
by reference from Exhibit A to Exhibit 10.1 of Form 8-K filed with the SEC
on April 25, 2007.
|
(5)
|
Incorporated
by reference from Form 8-K filed with the SEC on January 29,
2010.
|
43
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GOLDEN
PHOENIX MINERALS, INC.
|
||
Date: May
24, 2010
|
By:
|
/s/ Thomas
Klein
|
Name: Thomas
Klein
|
||
Title: Chief
Executive Officer
|
||
Date: May
24, 2010
|
By:
|
/s/ J. Roland
Vetter
|
Name: J.
Roland Vetter
|
||
Title: Chief
Financial Officer
|
||
44