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 June 30, 2015

 

¨

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

 

For the transition period from                                to                               .

 

Commission file number: 000-54710

 

Pershing Gold Corporation

(Exact name of registrant as specified in its charter)

 

Nevada (State or other jurisdiction of incorporation or organization)		26-0657736 (I.R.S. Employer Identification No.)
1658 Cole Boulevard Building 6, Suite 210 Lakewood CO		80401
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code (720) 974-7248

 

(Former name, former address and former fiscal year, if changed since last report.)

 

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 o

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		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 o No x

 

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 13, 2015, there were 21,707,671 shares of common stock, par value $0.0001, outstanding.

 

 

 

PERSHING GOLD CORPORATION

 

TABLE OF CONTENTS

 

		Page
PART I — FINANCIAL INFORMATION
ITEM 1	Financial Statements	3
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	22
ITEM 4	Controls and Procedures	22
PART II — OTHER INFORMATION
ITEM 1	Legal Proceedings	23
ITEM 1A	Risk Factors	23
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
ITEM 3	Defaults Upon Senior Securities	23
ITEM 4	Mine Safety Disclosures	23
ITEM 5	Other Information	23
ITEM 6	Exhibits	23

 

  

ITEM 1 Financial Statements

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2015				2014
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	12,923,858			$	15,147,837
Restricted cash			2,250,000				2,250,000
Prepaid expenses and other current assets			613,442				798,633
Total Current Assets			15,787,300				18,196,470
NON - CURRENT ASSETS:
Property and equipment, net			5,902,824				6,398,221
Mineral rights			22,786,912				16,786,912
Reclamation bond deposit			25,000				25,000
Total Non - Current Assets			28,714,736				23,210,133
Total Assets		$	44,502,036			$	41,406,603
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	569,743			$	714,291
Note payable - current portion			25,347				24,423
Deferred rent			11,697				-
Total Current Liabilities			606,787				738,714
LONG-TERM LIABILITIES:
Note payable - long term portion			4,410				17,319
Asset retirement obligation			781,299				798,605
Total Liabilities			1,392,496				1,554,638
Commitments and Contingencies
STOCKHOLDERS' EQUITY :
Preferred stock,  $0.0001 par value; 50,000,000 authorized
Convertible Series A Preferred stock ($0.0001 Par Value; 2,250,000 Shares Authorized;
none issued and outstanding as of June 30, 2015 and December 31, 2014)			-				-
Convertible Series B Preferred stock ($0.0001 Par Value; 8,000,000 Shares Authorized;
none issued and outstanding as of June 30, 2015 and December 31, 2014)			-				-
Convertible Series C Preferred stock ($0.0001 Par Value; 3,284,396 Shares Authorized;
none issued and outstanding as of June 30, 2015 and December 31, 2014)			-				-
Convertible Series D Preferred stock ($0.0001 Par Value; 7,500,000 Shares Authorized;
none issued and outstanding as of June 30, 2015 and December 31, 2014)			-				-
Convertible Series E Preferred stock ($0.0001 Par Value; 15,151 Shares Authorized;
9,425 shares issued and outstanding as of  June 30, 2015 and  and  December 31, 2014)			1				1
Common stock ($0.0001 Par Value; 200,000,000 Shares Authorized;
21,707,671 and 19,745,223 shares issued and outstanding as of June 30, 2015 and December 31, 2014)			2,171				1,975
Additional paid-in capital			169,404,612				158,018,742
Accumulated deficit			(126,297,244	)			(118,168,753	)
Total Stockholders' Equity			43,109,540				39,851,965
Total Liabilities and Stockholders' Equity		$	44,502,036			$	41,406,603

 

See accompanying notes to unaudited consolidated financial statements.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net revenues		$	-			$	-			$	-			$	-
Operating expenses:
Compensation and related taxes			987,958				1,068,955				2,067,803				2,345,083
Exploration cost			1,418,338				1,346,699				2,859,934				1,881,425
Consulting fees			361,662				375,258				662,768				653,051
General and administrative expenses			1,303,746				1,048,361				2,537,128				2,071,371
Total operating expenses			4,071,704				3,839,273				8,127,633				6,950,930
Loss from operations			(4,071,704	)			(3,839,273	)			(8,127,633	)			(6,950,930	)
Other income (expenses):
Interest expense and other finance costs, net of interest income			(551	)			(1,065	)			(858	)			(2,231	)
Total other income (expenses) - net			(551	)			(1,065	)			(858	)			(2,231	)
Loss before provision for income taxes			(4,072,255	)			(3,840,338	)			(8,128,491	)			(6,953,161	)
Provision for income taxes			-				-				-				-
Net loss		$	(4,072,255	)		$	(3,840,338	)		$	(8,128,491	)		$	(6,953,161	)
Net loss per common share, basic and diluted		$	(0.19	)		$	(0.25	)		$	(0.40	)		$	(0.45	)
Weighted average common shares outstanding - basic and diluted			21,454,509				15,570,592				20,171,334				15,503,651

 

See accompanying notes to unaudited consolidated financial statements.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Six Months Ended June 30,
		2015				2014
		(Unaudited)				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(8,128,491	)		$	(6,953,161	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			565,663				488,054
Accretion			23,074				-
Stock-based compensation			924,224				1,532,846
Changes in operating assets and liabilities:
Other receivables			-				(26,073	)
Prepaid expenses and other current assets			185,191				187,130
Accounts payable and accrued expenses			(144,548	)			131,607
Deferred rent			11,697				-
NET CASH USED IN  OPERATING ACTIVITIES			(6,563,190	)			(4,639,597	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mineral rights			(6,000,000	)			-
Asset retirement obligation settled			(18,737	)			-
Purchase of property and equipment			(91,909	)			(88,030	)
NET CASH USED IN INVESTING ACTIVITIES			(6,110,646	)			(88,030	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of issuance costs			10,461,842				-
Purchase of treasury stock			-				(181,421	)
Payments on notes payable			(11,985	)			(11,127	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			10,449,857				(192,548	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(2,223,979	)			(4,920,175	)
CASH AND CASH EQUIVALENTS - beginning of period			15,147,837				7,743,107
CASH AND CASH EQUIVALENTS - end of period		$	12,923,858			$	2,822,932
SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:
Cash paid for:
Interest		$	1,370			$	2,231
Income taxes		$	-			$	-

 

See accompanying notes to unaudited consolidated financial statements.

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Pershing Gold Corporation (the “Company”), formerly named Sagebrush Gold Ltd., was incorporated under the laws of the State of Nevada on August 2, 2007. The Company is a gold and precious metals exploration company pursuing exploration and development opportunities primarily in Nevada. The Company is currently focused on exploration of its Relief Canyon properties in Pershing County in northwestern Nevada. None of the Company’s properties contain proven and probable reserves, and all of the Company’s activities on all of its properties are exploratory in nature.

 

On August 30, 2011, the Company, through its wholly-owned subsidiary, Gold Acquisition Corp. (“Gold Acquisition”), acquired the Relief Canyon Mine property (“Relief Canyon”) located in Pershing County, near Lovelock, Nevada. 

 

A wholly-owned subsidiary, Pershing Royalty Company, a Delaware corporation, was formed on May 17, 2012 to hold royalty interests in two gold exploration properties. 

 

A wholly-owned subsidiary, EXCX Funding Corp., a Nevada corporation, was formed in January 2011 and held a note payable - related party, which was exchanged for the Company’s Series E Convertible Preferred Stock (“Series E Preferred Stock”) and warrants in August 2013 and was cancelled. On April 6, 2014 EXCX Funding Corp. was liquidated and dissolved.

 

On June 17, 2015, the Board of Directors of the Company approved a reverse stock split of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at a ratio of 1-for-18 (the “Reverse Stock Split”) which became effective on June 18, 2015. In connection with the Reverse Stock Split, the Company filed a Certificate of Amendment to its Amended and Restated Articles of Incorporation, as amended, with the Nevada Secretary of State to reduce the number of shares of Common Stock the Company is authorized to issue from 800,000,000 to 200,000,000. All share and per share values of the Company’s Common Stock for all periods presented in the accompanying unaudited consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split in accordance with Staff Accounting Bulletin Topic 4C: Equity Accounts – Change in Capital Structure (“SAB Topic 4C”).

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and principles of consolidation

 

The unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and present the consolidated financial statements of the Company as of June 30, 2015. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of June 30, 2015, and the results of operations and cash flows for the six months ended June 30, 2015 have been included. The results of operations for the six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year. The accounting policies and procedures employed in the preparation of these consolidated financial statements have been derived from the audited financial statements of the Company for the fiscal year ended December 31, 2014, which are contained in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 5, 2015. The consolidated balance sheet as of December 31, 2014, contained herein, was derived from those financial statements.

 

Use of estimates

 

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the useful life of property and equipment, amounts and timing of closure obligations, the assumptions used to calculate fair value of restricted stock units, options and warrants granted, stock-based compensation, beneficial conversion on convertible notes payable and preferred stock, capitalized mineral rights, asset valuations, timing of the performance criteria of restricted stock units and the fair value of common stock issued.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At June 30, 2015, the Company had bank balances exceeding the FDIC insurance limit on interest bearing accounts. To reduce its risk associated with the failure of such financial institutions, the Company evaluates at least annually the rating of the financial institutions in which it holds deposits.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Restricted cash

 

Restricted cash consists of cash and investments which are held as collateral under a surface management surety bond issued on the Company’s behalf.

 

Fair value of financial instruments

 

The Company adopted Accounting Standards Codification (“ASC’) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

 

These inputs are prioritized below:

 

Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate their estimated fair market values based on the short-term maturity of these instruments. The carrying amount of the note payable at June 30, 2015 approximates its respective fair value based on the Company’s incremental borrowing rate.

 

Prepaid expenses and other current assets

 

Prepaid expenses and other current assets of $613,442 and $798,633 at June 30, 2015 and December 31, 2014, respectively, consist primarily of costs paid for future services which will occur within a year. Prepaid expenses principally include prepayments for consulting and business advisory services, insurance premiums, drilling services, mining claim fees and mineral lease fees which are being amortized over the terms of their respective agreements.

 

Mineral property acquisition and exploration costs

 

Costs of lease, exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. The Company expenses all mineral exploration costs as incurred as it is still in the exploration stage. If the Company identifies proven and probable reserves in its investigation of its properties and upon development of a plan for operating a mine, it would enter the development stage and capitalize future costs until production is established. When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production method over the estimated life of the proven and probable reserves. If in the future the Company has capitalized mineral properties, these properties will be periodically assessed for impairment.

 

To date, the Company has not established the commercial feasibility of any exploration prospects; therefore, all exploration costs are being expensed.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

ASC 930-805, “Extractive Activities-Mining: Business Combinations” (“ASC 930-805”), states that mineral rights consist of the legal right to explore, extract, and retain at least a portion of the benefits from mineral deposits. Mining assets include mineral rights. Acquired mineral rights are considered tangible assets under ASC 930-805. ASC 930-805 requires that mineral rights be recognized at fair value as of the acquisition date. As a result, the direct costs to acquire mineral rights are initially capitalized as tangible assets. Mineral rights include costs associated with acquiring patented and unpatented mining claims.

 

ASC 930-805-30-1 and 30-2 provides that in fair valuing mineral assets, an acquirer should take into account both:

 

·          The value beyond proven and probable reserves (“VBPP”) to the extent that a market participant would include VBPP in determining the fair value of the assets.

 

·          The effects of anticipated fluctuations in the future market price of minerals in a manner that is consistent with the expectations of market participants.

 

Property and equipment

 

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets, generally one to 25 years.

 

Impairment of long-lived assets

 

The Company accounts for the impairment or disposal of long-lived assets according to the ASC 360, “Property, Plant and Equipment”. The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of long-lived assets, including mineral rights, may not be recoverable. Long-lived assets in the exploration stage are monitored for impairment based on factors such as the Company’s continued right to explore the area, exploration reports, assays, technical reports, drill results and the Company’s continued plans to fund exploration programs on the property, and whether sufficient work has been performed to indicate that the carrying amount of the mineral property cost carried forward as an asset will not be fully recovered. The tests for long-lived assets in the exploration stage are monitored for impairment based on factors such as current market value of the long-lived assets and results of exploration, future asset utilization, business climate, mineral prices and future undiscounted cash flows expected to result from the use of the related assets.

 

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated future net undiscounted cash flows expected to be generated by the asset. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The Company did not record any impairment of its long-lived assets at June 30, 2015 and December 31, 2014, respectively.

 

Asset Retirement Obligations

 

Asset retirement obligations (“ARO”), consisting primarily of estimated mine reclamation and closure costs at the Company’s Relief Canyon property, are recognized in the period incurred and when a reasonable estimate can be made, and recorded as liabilities at fair value. Such obligations, which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to accretion expense. Corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life. Asset retirement obligations are periodically adjusted to reflect changes in the estimated present value resulting from revisions to the estimated timing or amount of reclamation and closure costs. The Company reviews and evaluates its asset retirement obligations annually or more frequently at interim periods if deemed necessary. 

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income taxes

 

The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

  

The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

 

Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

 

The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.  The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Pursuant to ASC Topic 505-50, “Equity Based Payments to Non-employees”, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

 

Related party transaction

 

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recent accounting pronouncements

 

In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements—Going Concern” (“ASU No. 2014-15”). The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.

 

In November 2014, FASB issued ASU No. 2014-17, “Business Combinations: Pushdown Accounting” (“ASU No. 2014-17”). This ASU amended the Business Combination Accounting Standards Codification to provide guidance on whether and at what threshold an acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements. The Company’s adoption of ASU No. 2014-17 effective November 14, 2014 did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

NOTE 3 — MINERAL PROPERTIES

 

The Company’s Relief Canyon property rights currently total approximately 25,000 acres and are comprised of approximately 948 owned unpatented mining claims, 120 owned millsite claims, 172 leased unpatented mining claims, and 2,235 acres of leased and 2,770 acres of subleased private lands. Most of the property on which the Relief Canyon deposit is located is subject to a 2% net smelter return production royalty, with a portion of that property subject to net smelter return production royalties totaling 4.5%. The rest of the property is subject, under varying circumstances, to net smelter return production royalties ranging from 2% to 5%.

 

Pershing Pass Property

 

The Pershing Pass property consists of over 700 unpatented mining claims covering approximately 12,000 acres and a mining lease of private lands covering approximately 600 acres.  Out of the total unpatented mining claims, 17 unpatented mining claims are subject to a 2% net smelter return royalty and 19 unpatented mining claims are leased with a purchase option.

 

The primary term of the unpatented mining claim lease referenced above is ten years ending in January 2023, which may be extended as long as mineral exploration, development or mining continue on the property. Production from the lease is subject to a 1% net smelter return royalty on precious metals and a 0.5% net smelter royalty on all other metals produced from the leased property. Prior to production, and starting in September 2016, the Company is required to pay a $10,000 per year advance minimum royalty payment until September 2023. The annual advance minimum royalty increases to $12,500 in September 2023, to $15,000 in September 2028 and to $20,000 in September 2033.  The Company has the right to buy the leased claims at any time for $250,000.

 

The primary term of the private lands lease referenced above is ten years ending in January 2023, which may be extended as long as mineral development work continues on the property. Production from the lease is subject to a 2% net smelter return royalty on all metals produced other than gold, and to a royalty on gold indexed to the gold price, ranging from 2% at gold prices of less than $500 per ounce to 3.5% at gold prices over $1,500 per ounce. Prior to one year after commercial production, the Company can repurchase up to 3% of the royalty on gold production at the rate of $600,000 for each 1%.

 

Newmont Properties

 

On April 5, 2012, the Company purchased from Victoria Gold Corp. and Victoria Resources (US) Inc. their interest in approximately 13,300 acres of mining claims and private lands adjacent to the Company’s original landholdings at the Relief Canyon Mine in Pershing County, Nevada.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 3 — MINERAL PROPERTIES (continued)

 

Approximately 8,900 acres of the lands that the Company acquired from Victoria Gold Corporation were a leasehold interest comprised of unpatented mining claims and private lands subject to a 2006 Mineral Lease and Sublease with Newmont USA Ltd. (“Newmont”), which the Company refers to as the Newmont Leased property. At that time, the Newmont Leased property consisted of 155 unpatented lode mining claims owned by Newmont comprising approximately 2,800 acres, approximately 4,900 acres of privately-owned fee minerals leased by Newmont from the owners, and 62 unpatented mining claims that were owned by Victoria within the Newmont Leased property and area of interest.

  

On January 14, 2015, the Company entered into an Asset Purchase Agreement with Newmont pursuant to which the Company acquired for $6.0 million 74 unpatented mining claims totaling approximately 1,300 acres that the Company had previously leased from Newmont, and entered into a new mining lease directly with New Nevada Resources, LLC and New Nevada Lands, LLC for approximately 1,600 acres of fee, or private, land that the Company had previously subleased from Newmont.

 

New Mining Lease with New Nevada Resources and New Nevada Lands, Replacing Portion of Newmont Sublease

 

As part of the January 2015 transactions completed pursuant to the Asset Purchase Agreement, a subsidiary of the Company entered into a Mining Lease (the “2015 Mining Lease”) with New Nevada Resources, LLC and New Nevada Lands, LLC (the “Owners”), covering certain fee lands (the “Leased Properties”) included in the Company’s Relief Canyon properties. The 2015 Mining Lease has a term of twenty years and for as long thereafter as any mining, development or processing operations are being conducted on a continuous basis. The 2015 Mining Lease contains customary terms and conditions, including an advance royalty and a 2.5% net smelter returns production royalty on the Leased Properties payable to the Owners.

 

Newmont Leased Property

 

As part of the Asset Purchase Agreement transactions, Newmont and the Company entered into an amendment of the 2006 Minerals Lease and Sublease (the “Third Amendment”), pursuant to which the Company agreed to a $2.6 million work commitment on the properties remaining subject to the 2006 Minerals Lease and Sublease to be expended by the seventh anniversary of the effective date of the Third Amendment. As of mid-June 2015, the Company can credit approximately $2.4 million in exploration expenditures already incurred against the $2.6 million work commitment.

 

Also as part of the transactions completed pursuant to the Asset Purchase Agreement, Newmont and the Owners entered into a new Mining Lease (the “2015 Newmont Lease”) covering about 2,770 acres of private lands included in the Company’s Relief Canyon properties (the “Subleased Properties”) and subleased by the Company from Newmont pursuant to the 2006 Minerals Lease and Sublease. The 2015 Newmont Lease has a term of twenty years and for as long thereafter as any mining, development or processing operations are being conducted or a continuous basis. The 2015 Newmont Lease contains customary terms and conditions, including an advance royalty and a 2.5% net smelter returns production royalty on the Subleased Properties payable to the Owners. The Company continues to hold rights to the Subleased Properties pursuant to its 2006 Minerals Lease and Sublease with Newmont.

 

General

 

The Company has posted a statewide surface management surety bond with the United States Department of the Interior Bureau of Land Management (“BLM”) as required by the State of Nevada in an amount of approximately $5.6 million, which is approximately $120,000 in excess of the coverage requirement as of June 30, 2015, to reclaim land disturbed in its exploration and mining operations. The surface management surety bond is provided through a third-party insurance underwriter. When the bond was issued in November 2013, the Company was required to place $2,250,000, or 45% of the original $5.0 million bond, in a collateral account. No further collateral has been required for subsequent increases in the bond amount. The funds deposited in the collateral account are classified as restricted cash on the Company’s balance sheet.

 

As of June 30, 2015, based on management’s review of the carrying value of mineral rights, management determined that there is no evidence that the cost of these acquired mineral rights will not be fully recovered and accordingly, the Company has determined that no adjustment to the carrying value of mineral rights was required.

 

As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and has incurred only acquisition and exploration costs.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 3 — MINERAL PROPERTIES (continued)

 

Mineral properties consisted of the following:

 

		June 30, 2015 (Unaudited)				December 31, 2014
Relief Canyon Mine — Gold Acquisition		$	8,501,071			$	8,501,071
Relief Canyon Mine — Newmont Properties			13,709,441				7,709,441
Pershing Pass Property			576,400				576,400
		$	22,786,912			$	16,786,912

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

		Estimated Life		June 30, 2015 (Unaudited)				December 31, 2014
Furniture and fixtures		5 years		$	56,995			$	56,995
Office and computer equipment		1 - 5 years			402,835				402,835
Land		—			358,886				266,977
Building and improvements		5 - 25 years			815,036				817,187
Site costs		10 years			1,403,762				1,407,465
Crushing system		20 years			2,489,298				2,495,865
Process plant and equipment		10 years			3,495,742				3,504,964
Vehicles and mining equipment		5 - 10 years			699,025				699,025
					9,721,579				9,651,313
Less: accumulated depreciation					(3,818,755	)			(3,253,092	)
				$	5,902,824			$	6,398,221

 

For the six months ended June 30, 2015 and 2014, depreciation expense amounted to $565,663 and $488,054, respectively.

 

NOTE 5 — NOTES PAYABLE

 

In August 2012, the Company issued a note payable in the amount of $92,145 in connection with the acquisition of mining equipment. The note payable bears interest at approximately 7% per annum and is secured by a lien on the mining equipment. The note is payable in 48 equal monthly payments of $2,226.

 

Notes payable — short and long term portion consisted of the following:

 

		June 30, 2015 (Unaudited)				December 31, 2014
Total notes payable		$	29,757			$	41,742
Less: current portion			(25,347	)			(24,423	)
Long term portion		$	4,410			$	17,319

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 6 – ASSET RETIREMENT OBLIGATIONS

 

In conjunction with the permit approval permitting the Company to resume mining in the existing open pits at the Relief Canyon Mine during the third quarter of 2014, the Company has recorded an asset retirement obligation based upon the reclamation plan submitted in connection with the permit.

  

The following table summarizes activity in the Company’s ARO:

 

		For the Six Months Ended June 30, 2015
Balance, beginning of period		$	798,605
Accretion expense			23,074
Reclamation expenditures			(18,737	)
Additions and changes in estimates			(21,643	)
Balance, end of period		$	781,299

  

NOTE 7 — STOCKHOLDERS’ EQUITY

 

On June 17, 2015, the Board of Directors of the Company approved a reverse stock split of the Company’s Common Stock at a ratio of 1-for-18 (the “Reverse Stock Split”) which became effective on, June 18, 2015. In connection with the Reverse Stock Split, the Company filed a Certificate of Amendment to its Amended and Restated Articles of Incorporation, as amended, with the Nevada Secretary of State to reduce the number of shares of Common Stock the Company is authorized to issue from 800,000,000 to 200,000,000. All share and per share values of the Company’s Common Stock for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split in accordance with SAB Topic 4C.

 

Preferred Stock

 

The Company is authorized within the limitations and restrictions stated in the Amended and Restated Articles of Incorporation to provide by resolution or resolutions for the issuance of 50,000,000 shares of Preferred Stock, par value $0.0001 per share in such series and with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as the Company’s Board of Directors establish.

 

Series A Convertible Preferred Stock

 

As of June 30, 2015, 2,250,000 shares of Series A Preferred Stock, $0.0001 par value, were authorized with none outstanding.

 

Series B Convertible Preferred Stock

 

As of June 30, 2015, 8,000,000 shares of Series B Preferred Stock, $0.0001 par value, were authorized with none outstanding.

 

Series C Convertible Preferred Stock

 

As of June 30, 2015, 3,284,396 shares of Series C Preferred Stock, $0.0001 par value, were authorized with none outstanding.

 

9% Series D Cumulative Preferred Stock

 

As of June 30, 2015, 7,500,000 shares of Series D Preferred Stock, $0.0001 par value, were authorized with none outstanding.

 

Series E Convertible Preferred Stock

 

As of June 30, 2015, 15,151 shares of Series E Preferred Stock, $0.0001 par value, were authorized with 9,425 Series E shares outstanding.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 7 — STOCKHOLDERS’ EQUITY (continued)

 

As a result of the Reverse Stock Split, the conversion price of the Company’s Series E Convertible Preferred Stock was proportionately adjusted to $5.04. Accordingly, each share of Series E Preferred Stock is now convertible into approximately 196.429 shares of the Company’s Common Stock.

 

Common Stock

 

Private Placement

 

In April 2015, the Company raised approximately $11.5 million in gross proceeds through a private placement to certain accredited investors of a total of 1,962,501 Units priced at $5.85 per Unit, with each Unit comprised of one share (the “Unit Shares”) of the Company’s Common Stock and a 24 month warrant (the “Warrant”) to purchase 0.4 of a share of Common Stock (the “Warrant Shares”) at an exercise price of $7.92. Net proceeds totaled approximately $10.5 million after commissions and legal fees. A total of 1,962,501 shares of Common Stock and warrants to acquire 785,045 shares of Common Stock were issued in the private placement, with 30 month warrants to acquire an additional 120,187 shares of Common Stock at an exercise price of $5.85 issued to broker-dealers acting on behalf of the Company in the placement.

 

In connection with the private placement, the Company and the investors entered into registration rights agreements which require the Company to file a registration statement under the Securities Act of 1933, as amended, to register the resale of the Common Stock issued as part of the Units and the Common Stock issuable upon the exercise of the Warrants. The Registration Rights Agreement also contains piggyback registration rights requiring the Company to include the investors’ shares of Common Stock under certain circumstances in future registration statements that may be filed by the Company.

 

Restricted Stock Units

 

Between June 8, 2015 and June 9, 2015, the Company granted an aggregate of 66,668 shares of restricted stock units to certain of the Company’s non-employee members of the board of directors. The fair market value on the date of grant was approximately $406,000. The restricted stock units vest over a three year period. For each vested restricted stock unit, the holder will be entitled to receive one unrestricted share of the Company's Common Stock subject to acceleration upon the holder's termination of service on the Company's board of directors or upon a change in control.

 

On June 28, 2015, the Company granted an aggregate of 700,000 restricted stock units to Mr. Stephen Alfers, the Company’s Chief Executive Officer and President. Under the terms of the agreement, 300,000 restricted stock units (the “Initial RSUs”) are subject to vesting upon Mr. Alfers’ continuous employment through December 31, 2018, with earlier vesting upon certain events, such as a change in control. The remaining 400,000 restricted stock units (the “Incentive RSUs”) are subject to vesting upon the attainment of certain performance-based milestones set forth in the agreement and become fully vested upon a change in control. For each fully vested restricted stock unit, Mr. Alfers will be entitled to receive one share of Common Stock upon the earlier of December 31, 2018, Mr. Alfers’ separation from service or death, or a change in control. The fair market value on the date of grant of Mr. Alfers’ restricted stock units was approximately $1,755,000 and $2,340,000 for the Initial RSU’s and Incentive RSU’s, respectively. Compensation expense will be recognized on the Incentive RSU’s as the targets are obtained.

 

During the six months ended June 30, 2015 and 2014, the Company recorded stock-based compensation expense in connection with restricted stock and restricted stock unit awards of $899,915 and $1,484,423, respectively.   At June 30, 2015, there was a total of $5,596,143 unrecognized compensation expense in connection with restricted stock and restricted stock unit awards.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 7 — STOCKHOLDERS’ EQUITY (continued)

 

Common Stock Options

 

A summary of the Company’s outstanding stock options as of June 30, 2015 and changes during the period then ended are presented below: 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)
Balance at December 31, 2014			1,811,121			$	7.20				7.18
Granted			—				—				—
Exercised			—				—				—
Forfeited			—				—				—
Cancelled			—				—				—
Balance at June 30, 2015			1,811,121				7.20				6.68
Options exercisable at end of period			1,811,121			$	7.20
Options expected to vest			—
Weighted average fair value of options granted during the period						$	—

 

At June 30, 2015 there was approximately $2,000 intrinsic value for the stock options outstanding in the above table.

  

Common Stock Warrants

 

A summary of the Company’s outstanding stock warrants as of June 30, 2015 and changes during the period then ended are presented below: 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)
Balance at December 31, 2014			2,114,188			$	7.74				1.83
Granted			913,566				7.62				1.87
Cancelled			—				—				—
Forfeited			—				—				—
Exercised			—				—				—
Balance at June 30, 2015			3,027,754			$	7.65				1.50
Warrants exercisable at June 30, 2015			3,027,754			$	7.65				1.09
Weighted average fair value of warrants granted during the period						$	7.60

 

On January 28, 2015, the Company issued four-year warrants to purchase 8,334 shares of Common Stock to a consultant. The warrants vested on March 1, 2015 and are exercisable at $5.40 per share. The 8,334 warrants were valued on the grant date at approximately $2.88 per warrant or a total of approximately $24,300 using a Black-Scholes option pricing model with the following assumptions: stock price of $5.40 per share (based on the quoted trading price on the date of grant), volatility of 72%, expected term of 4 years, and a risk free interest rate of 1.25%.

 

In April 2015, in connection with the private placement, the Company issued 24 month warrants to purchase 0.4 of a share of Common Stock at an exercise price of $7.92, for a total of 785,045 shares of Common Stock. The Company also issued 30 month warrants to purchase 120,187 shares of Common Stock at an exercise price of $5.85 to broker-dealers acting on behalf of the Company in the private placement.

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 7 — STOCKHOLDERS’ EQUITY (continued)

 

Treasury Stock

 

The Company accounts for treasury stock under the cost method. Between February 2014 and March 2014, the Company reacquired 27,362 shares of its Common Stock from certain employees of the Company. The reacquisition by the Company of its Common Stock is the result of certain employees electing to surrender shares in order to satisfy their minimum applicable withholding obligation due to the vesting of restricted stock awards. The Company recorded a charge $181,421 in connection with the 2014 stock surrenders. In July 2014, 22,222 unvested restricted stock awards were returned to treasury stock as a result of an employee termination. The value of the treasury stock was reflected separately as a deduction from stockholders’ equity. In December 2014, all treasury stock was cancelled and as a result at June 30, 2015, there was no stock held in treasury.

 

NOTE 8 — NET LOSS PER COMMON SHARE

 

Net loss per common share is calculated in accordance with ASC Topic 260, “Earnings Per Share”. Basic loss per share is computed by dividing net loss available to common stockholder, adjusted for preferred dividends, by the weighted average number of shares of Common Stock outstanding during the period. The computation of diluted net loss per share does not include anti-dilutive Common Stock equivalents in the weighted average shares outstanding. The following table sets forth the computation of basic and diluted loss per share:

 

		For the Six Months ended June 30, 2015				For the Six  Months ended June 30, 2014
Numerator:
Net loss		$	(8,128,491	)		$	(6,953,161	)
Denominator:
Denominator for basic and diluted loss per share (weighted-average shares)			20,171,334				15,503,651
Net loss per common share, basic and diluted		$	(0.40	)		$	(0.45	)

 

The following were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss. In periods where the Company has a net loss, all dilutive securities are excluded.

 

		June 30, 2015				June 30, 2014
Common stock equivalents:
Stock options			1,811,121				1,827,778
Stock warrants			3,027,754				1,180,257
Convertible preferred stock			1,851,350				1,601,000
Total			6,690,225				4,609,035

 

NOTE 9 — COMMITMENTS AND CONTINGENCIES

 

Operating Lease

 

The Company leases its corporate facility, and certain office equipment, in Lakewood, Colorado under operating leases with expiration dates through 2018. Rent expense was $27,270 and $23,811 for the six months ended June 30, 2015 and 2014, respectively.

 

Future minimum rental payments required under operating leases are as follows:

 

2015		$	35,618
2016			81,345
2017			83,343
2018			45,455
		$	245,761

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

NOTE 9 — COMMITMENTS AND CONTINGENCIES (continued)

 

In April 2015, the Company executed a new operating lease agreement for its corporate facility in Lakewood, Colorado. The new lease is for a period of 39 months commencing in May 2015 and expiring in July 2018. The Company recognized deferred rent of $11,697 in connection with this lease agreement as of June 30, 2015.

 

Mining Leases

 

As more fully discussed in Note 3 — Mineral Properties, the Company leases certain mineral properties included in its Pershing Pass Property. The future minimum lease payments under these mining leases are as follows:

 

2015		$	10,000
2016			20,000
2017			25,000
2018			25,000
2019			25,000
Thereafter			92,500
		$	197,500

 

 

ITEM 2    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Pershing Gold Corporation and its subsidiaries (“Pershing Gold”, the “Company” or “we”) is a gold and precious metals exploration company pursuing exploration and development opportunities primarily in Nevada.  We are currently focused on exploration at our Relief Canyon properties in Pershing County in northwestern Nevada.

 

This discussion should be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

Forward-Looking Statements

 

This Report on Form 10-Q and other written and oral statements made from time to time by us may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties.  Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. Forward-looking statements include, without limitation, statements relating to our business goals, planned exploration and metallurgical work, business strategy, planned engineering studies, planned permitting activities, plans to complete an updated estimate of mineralized material and resources and the timing thereof, plans to complete an economic study of the Relief Canyon Mine, our efforts to obtain external financing and our liquidity and capital resources outlook.  Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Our actual results may differ materially from those contemplated by the forward-looking statements, which are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.  Important factors that could cause actual results to differ materially from those anticipated in forward- looking statements include, without limitation, results of future exploration, engineering studies and planned economic studies on our Relief Canyon properties; increases in estimates or costs of exploration and other activities; our ability to raise necessary capital to conduct our exploration and other activities and do so on acceptable terms or at all; results from exploration and changes in interpretations of geological, metallurgical or other technical information; problems or delays in permitting or other government approvals; and the matters described in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2014.  

 

Overview

 

During the three months ended June 30, 2015, we focused primarily on completing our 2014 drilling program and commencing our 2015 drilling program, both focused on expanding the Relief Canyon Mine deposit; continuing permitting, engineering and other work related to the potential commencement of mining at the Relief Canyon Mine; completing the acquisition of certain properties and rights from Newmont; completing a private placement transaction for approximately $11.5 million in gross proceeds; and the up-listing of our Common Stock to the NASDAQ Global Market, which was completed in July 2015. An overview of certain significant events during the three month period follows:

 

·

In early July 2015, we completed an updated estimate of mineralized material at the Relief Canyon Mine totaling 37,335,000 tons of mineralized material at an average grade of 0.020 ounces per ton gold. The Company’s in-house technical staff calculated the estimate under Industry Guide 7 of the SEC.

 

·

On July 6, 2015, we completed our up-listing to NASDAQ, and our Common Stock began trading on NASDAQ under the symbol PGLC.

 

·

In June 2015 we executed a 1-for-18 reverse split of our Common Stock in anticipation of our proposed up-listing to NASDAQ.

 

·

In June 2015 we appointed Alan Branham and Edward Karr to our Board of Directors. Mr. Branham possesses over 30 years of exploration and mine development experience and Mr. Karr has more than 20 years of capital markets experience as a financial analyst, money manager and investor.

 

·

In May 2015, we initiated phase 1 of our 2015 core-drilling program at our Relief Canyon mine, focused on adding gold ounces to the deposit and mineralized material estimate. We expect to drill approximately an additional 100 holes over three targets for approximately 75,000 feet under this program.

 

·

In April 2015, we raised approximately $11.5 million in gross proceeds, or approximately $10.5 million net of commissions and legal fees, through a private placement.  The private placement involved the issuance to certain accredited investors of 1,962,501 units for $5.85 per unit, with each unit comprised of one share of Common Stock and a 24 month warrant to acquire 0.4 of a share of Common Stock at an exercise price of $7.92, resulting in the issuance of a total of 1,962,501 shares of our Common Stock and warrants to acquire 785,045 shares of our Common Stock.

 

  

Results of Operations

 

Three and Six months ended June 30, 2015 and 2014

 

Net Revenues

 

We are an exploration stage company with no operations, and we generated no revenues for the six months ended June 30, 2015 and 2014.

 

Operating Expenses

 

Total operating expenses for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014, were $4.1 million and $3.8 million, respectively. The $0.3 million increase in operating expenses for the three months ended June 30, 2015 is comprised largely of a $0.1 million increase in exploration expenses on our Relief Canyon properties to approximately $1.4 million from $1.3 million in the prior period, and an increase of $0.3 million in general and administrative expenses to approximately $1.3 million from $1.0 million in the prior period, primarily for public company expenses and legal costs related to the Company’s NASDAQ listing. These increases were offset in part by a $0.1 million decrease in compensation expense related primarily to lower stock-based compensation expense.

 

Total operating expenses for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014, were $8.1 million and $7.0 million, respectively. The $1.1 million increase in operating expenses for the six months ended June 30, 2015 is comprised largely of a $1.0 million increase in exploration expenses on our Relief Canyon properties to approximately $2.9 million from $1.9 million in the prior period due to the completion of our late 2014/early 2015 drilling program and the commencement of our 2015 core-drilling campaign which started in May 2015, and an increase of $0.4 million in general and administrative expenses to approximately $2.5 million from $2.1 million in the prior period, primarily for public company expenses and legal costs related to the Company’s NASDAQ filing. These increases were offset in part by a $0.3 million decrease in compensation expense related primarily to lower stock-based compensation expense.

 

Loss from Operations

 

We reported loss from operations of $4.1 million and $3.8 million for the three months ended June 30, 2015 and 2014, respectively. We reported loss from operations of $8.1 million and $7.0 million for the six months ended June 30, 2015 and 2014, respectively. The increases in operating loss were due primarily to the increases in operating expenses described above.

 

Other Income (Expenses)

 

Total other income (expense) was approximately ($600) and ($1,100) for the three months ended June 30, 2015 and 2014, respectively. Total other income (expense) was approximately ($900) and ($2,200) for the six months ended June 30, 2015 and 2014, respectively. The change in other income (expense) is primarily attributable to a decrease in interest expense.

 

Net Loss

 

As a result of the operating expense and other income (expense) discussed above, we reported a net loss of ($4.1) million for the three months ended June 30, 2015 as compared to a net loss of ($3.8) million for the three months ended June 30, 2014 and a net loss of ($8.1) million for the six months ended June 30, 2015 as compared to a net loss of ($7.0) million for the six months ended June 30, 2014.

 

Liquidity and Capital Resources

 

At June 30, 2015, our cash and cash equivalents totaled $12.9 million. Our cash and cash equivalents decreased during the six months ended June 30, 2015 by $2.2 million from our cash and cash equivalents balance at December 31, 2014 of $15.1 million. The decrease in cash and cash equivalents was primarily the result of cash used in operations of $6.6 million that was comprised largely of exploration expenditures, primarily at the Relief Canyon mine focused on increasing and upgrading our current estimate of mineralized material, and general and administrative expenses, including consultant fees, compensation costs, legal fees and public company expenses, and cash used in investing activities of $6.1 million principally for the purchase of mineral rights and property. These expenditures were largely offset by cash provided by financing activities of approximately $10.5 million attributable to a private placement completed in April 2015.

 

  

We plan the following expenditures for the remainder of fiscal year 2015:

 

·

$3.6 million on exploration drilling to expand the current Relief Canyon deposit and other exploration targets;

 

·

$2.3 million on general and administrative expenses (including employee salaries, public company expenses, consultants and land holding costs);

 

·

$0.2 million on additional work at the Relief Canyon Mine including updated resource and mineralized material estimates, further metallurgy tests and completion of a thorough economic study;

 

·

$0.2 million on additional permitting and bonding, including an environmental assessment to expand the open-pit mines at the Relief Canyon Mine property above the water table.

 

The actual amount we spend for year 2015 may vary significantly from the amounts specified above and will depend upon several factors, including the results of our exploration, the results of the economic study of the Relief Canyon Mine, work related to the potential start of mining operations at the Relief Canyon Mine property, the timing of obtaining the necessary permitting approvals and whether we are able to raise additional external financing. We expect to require additional financing to fund operations by mid-2016.

 

Recent Accounting Pronouncements

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. We are currently assessing the impact of this ASU on the Company’s consolidated financial statements.

 

In November 2014, FASB issued ASU 2014-17, “Business Combinations: Pushdown Accounting”. This ASU amended the Business Combination Accounting Standards Codification to provide guidance on whether and at what threshold an acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements. The Company’s adoption of FASB ASU No. 2013-17 effective November 14, 2014 did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements.

 

  

Principles of Consolidation

 

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and present the financial statements of the Company and our wholly-owned subsidiaries. In the preparation of our consolidated financial statements, intercompany transactions and balances are eliminated.

 

Use of Estimates

 

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the useful life of property and equipment, amounts and timing of closure obligations, the assumptions used to calculate fair value of restricted stock units, options and warrants granted, stock-based compensation, beneficial conversion on convertible notes payable and preferred stock, capitalized mineral rights, asset valuations, timing of the performance criteria of restricted stock units and the fair value of common stock issued.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain.

 

Property and Equipment

 

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets, generally from one to twenty five years.

 

Mineral Property Acquisition and Exploration Costs

 

Costs of lease, exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. The Company has chosen to expense all mineral exploration costs as incurred given that it is still in the exploration stage. Once the Company has identified proven and probable reserves in its investigation of its properties and upon development of a plan for operating a mine, it would enter the development stage and capitalize future costs until production is established. When a property reaches the production stage, the related capitalized costs will be amortized, using the units-of-production method over proven and probable reserves. When the Company has capitalized mineral properties, these properties will be periodically assessed for impairment of value and any diminution in value. To date, the Company has not established the commercial feasibility of any exploration prospects; therefore, all costs are being expensed.

 

ASC 930-805 states that mineral rights consist of the legal right to explore, extract, and retain at least a portion of the benefits from mineral deposits. Mining assets include mineral rights. Acquired mineral rights are considered tangible assets under ASC 805. ASC 805 requires that mineral rights be recognized at fair value as of the acquisition date. As a result, our direct costs to acquire mineral rights are initially capitalized as tangible assets. Mineral rights include costs associated with acquiring patented and unpatented mining claims and mill sites. If proven and probable reserves are established for the property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over proven and probable reserves. For mineral rights in which proven and probable reserves have not yet been established, we assess the carrying values for impairment at the end of each reporting period and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

 

  

Long-Lived Assets

 

We review for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets”. An impairment is considered to exist when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its carrying amount.

 

Asset Retirement Obligations

 

Asset retirement obligations, consisting primarily of estimated mine reclamation and closure costs at the Company’s Relief Canyon property, are recognized in the period incurred and when a reasonable estimate can be made, and recorded as liabilities at fair value. Such obligations, which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to accretion expense. Corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life. Asset retirement obligations are periodically adjusted to reflect changes in the estimated present value resulting from revisions to the estimated timing or amount of reclamation and closure costs. We review and evaluate the asset retirement obligations annually or more frequently at interim periods if deemed necessary.

 

Off-Balance Sheet Arrangements

 

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

 

Contractual Obligations

 

Not applicable.

 

ITEM 3     Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

ITEM 4     Controls and Procedures

 

Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Vice President Finance, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

With respect to the quarterly period ended June 30, 2015, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, the Company’s management has concluded that certain disclosure controls and procedures were effective as of June 30, 2015.

 

Changes in Internal Controls

 

There have been no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

  

PART II — OTHER INFORMATION

 

ITEM 1

Legal Proceedings

 

None.

 

ITEM 1A

Risk Factors

 

Not applicable.

 

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

On June 8, 2015 and June 9, 2015, the Company granted 55,556 and 11,112 restricted stock units, respectively, to certain of the Company’s non-employee directors pursuant to the Company’s 2013 Equity Incentive Plan. The restricted stock units vest over a three year period. For each vested restricted stock unit, the holder will be entitled to receive one unrestricted share of the Company's Common Stock upon the holder's termination of service on the Company's board of directors or upon a change in control. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”) by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

ITEM 3

Defaults Upon Senior Securities

 

There have been no events that are required to be reported under this Item.

 

ITEM 4

Mine Safety Disclosures

 

None.

 

ITEM 5

Other Information

 

None.

 

ITEM 6		Exhibits
10.1		Form of the 2013 Equity Incentive Plan Restricted Stock Grant Agreement
10.2		Form of 2013 Equity Incentive Plan Restricted Stock Unit Grant Agreement
10.3		Offer Letter between the Company and Debra Struhsacker dated September 19, 2013
10.4		Severance Compensation Agreement, dated September 19, 2013, between the Company and Debra Struhsacker
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1		Chief Executive Officer and Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.ins		XBRL Instance Document
101.sch		XBRL Taxonomy Schema Document
101.cal		XBRL Taxonomy Calculation Document
101.def		XBRL Taxonomy Linkbase Document
101.lab		XBRL Taxonomy Label Linkbase Document
101.pre		XBRL Taxonomy Presentation Linkbase Document

 

*

Furnished herewith

 

  

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

	Pershing Gold Corporation
Date: August 13, 2015	By:	/s/ Stephen Alfers
		Stephen Alfers
		President and Chief Executive Officer (Principal Executive Officer)

 

Date: August 13, 2015	By:	/s/ Eric Alexander
		Eric Alexander
		Vice President Finance and Controller (Principal Financial Officer)