On May 31, 2011, the Company acquired certain
assets from NAMC under the Acquisition, which included the right under a Letter of Intent (the LOI) to participate
in a joint venture with Win-Eldrich Gold Inc. (Win-Eldrich) for the improvement and operation of an ore milling
and refining facility located near Denio Junction, Nevada (the Ashdown Mill).
Under the terms of the
LOI, the Companys participation in the joint venture was subject to the Company contributing $2 million in cash to the
joint venture, along with a 100 ton-per-day gold milling circuit, and undertaking to pay 50% of the installation and mill operating
Under the LOI, Win-Eldrich
and the Company were to proceed in mutual good faith to jointly prepare and execute a definitive agreement by June 23, 2011 or
such other date as might be agreed upon by the parties in writing (the Due Date). If the definitive agreement was
not executed by the Due Date, then it was to terminate automatically.
The Company did not
meet the conditions for participation in the joint-venture. On November 21, 2011, Win-Eldrich gave written notice to the Company
that the LOI was terminated with effect on September 15, 2011, and that Win-Eldrich considers the LOI to be of further force or
By letter dated July
15, 2011 (the Proposal), the Company proposed to Win-Eldrich that the LOI be amended to extend the Due Date to September
15, 2011, with the parties agreeing to proceed in mutual good faith to jointly prepare and execute the definitive agreement by
such date. The Company further proposed that Win-Eldrich accept 2,000,000 shares of the Companys common stock and $1 million
cash on execution of the definitive agreement as payment in full of the Final Payment. In consideration of Win-Eldrichs
agreement, the Company proposed to pay it $50,000.
It is the position of
the Company that the Proposal was a non-binding invitation to negotiate binding terms of agreement, and that no binding obligation
on the Company or Win-Eldrich was created. If the Proposal is determined to be a binding obligation on the Company, then the Company
could be liable to pay Win-Eldrich $50,000. Win-Eldrich has not made any claim against the Company in respect of the Proposal.
The Company takes the position that Win-Eldrich is unlikely to make such a claim, and that if such a claim were made, it would
likely be unsuccessful.
On June 14, 2011,
the Company executed a letter agreement with Juniper Resources LLC (Juniper) and Versatech Capital for Mining LLC
under which Juniper agreed to advance the sum of $400,000 to the Company, to be paid out from a public offering by the Company,
to be negotiated and closed out by October 15, 2011 (the Loan). Interest on the Loan accrues at the
rate of 1.65% per month. The Loan is due by December 15, 2011, and is secured by a registered security interest in certain ore
milling equipment having an estimated book value of $600,000 (the Collateral). The Company was to issue Juniper
75,000 shares at $0.25 upon successful closing of the financing as a loan origination fee (the Fee).
Effective August 31,
2011, as a result of the acquisition of assets from NAMC being rescinded by mutual agreement, all right, title and interest of
the Company in and to the Collateral was transferred to NAMC. NAMC has agreed to assume any payment obligation to Juniper arising
from the Loan and to indemnify the Company from any loss arising from the Loan. It is the position of the Company that the Loan
is limited in recourse to the Collateral. If NAMC fails to repay the Loan and if the Collateral is insufficient to cover the Loan
principal and accrued interest, and if the Loan is determined not to be limited in recourse to the Collateral, then the Company
may face liability for the repayment of the Loan, subject to such rights as the Company may have against third parties in connection
with the Loan. It is the position of the Company that it is improbable that Juniper will make any claim or demand against the
Company in respect of the Loan or the Fee, but in accordance with accounting conservatism has recorded the cash value of the Fee
($18,750) as an accrued liability.