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

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 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 No. 000-22905

(Exact Name of Registrant as Specified in Its Charter)

Registrant's telephone number, including area code (801) 418-9378

 

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 ☒    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):

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

As of November 4, 2015 there were 461,770,907 outstanding shares of the registrant's common stock.

GOLDEN PHOENIX MINERALS, INC.

FORM 10-Q INDEX

QUARTER ENDED SEPTEMBER 30, 2015

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GOLDEN PHOENIX MINERALS, INC.

Condensed Consolidated Balance Sheets

See accompanying notes to condensed consolidated financial statements

GOLDEN PHOENIX MINERALS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

See accompanying notes to condensed consolidated financial statements

 

GOLDEN PHOENIX MINERALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

See accompanying notes to condensed consolidated financial statements

GOLDEN PHOENIX MINERALS, INC.

Notes to Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2015

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION

Golden Phoenix Minerals, Inc. (the "Company") is a United States mining and exploration company with significant property holdings in the Silver Peak Mining District near Tonopah, Nevada.  Pending requisite funding, the Company seeks to maximize the value of its gold and silver assets through exploration, joint venture, or mineral royalties.

The Company was formed in Minnesota on June 2, 1997 and reincorporated in the State of Nevada in May 2008.

The accompanying condensed consolidated financial statements include the accounts of the Company and of Ra Minerals, Inc. ("Ra Minerals"), a wholly owned subsidiary.  All intercompany accounts and balances have been eliminated in consolidation.

The interim financial information of the Company as of September 30, 2015 and for the three months and nine months ended September 30, 2015 and 2014 is unaudited, and the balance sheet as of December 31, 2014 is derived from audited financial statements.  The accompanying condensed consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial statements.  Accordingly, they omit or condense notes 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 2 to the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.  In the opinion of management, all adjustments 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 and nine months ended September 30, 2015 are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2015.  The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Certain amounts in the condensed consolidated financial statements for the three months and nine months ended September 30, 2014 have been reclassified to conform to the current period presentation.

NOTE 2 – GOING CONCERN

Our condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, we have a history of operating losses since our inception in 1997, and have an accumulated deficit of $60,935,893 and a total stockholders' deficit of $725,875 at September 30, 2015.  We currently have no operating revenues.

During 2014, we completed the sale of our 10% ownership interest in the Santa Rosa, Panama gold project for $US 2.6 million.  This funding has helped capitalize the Company, extinguish certain liabilities and provided working capital.

As more fully described in these Notes to Condensed Consolidated Financial Statements and elsewhere in this quarterly report, we have entered into options and agreements for the acquisition and development of our Nevada mineral properties.  None of these mineral properties currently have reserves.  We believe we will be required to raise significant additional capital to fund our operations and to complete the acquisition of the interests in and further the exploration, evaluation and development of our existing mineral properties and other prospects.  There can be no assurance that we will be successful in raising the required capital at favorable rates or at all, or that any of these mineral properties will ultimately attain a successful level of operations.  If we are unable to raise sufficient capital to meet our current obligations, we may be forced to further reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.  These factors and our negative working capital position together raise substantial doubt about our ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 – MINERAL PROPERTIES

Our current efforts are focused on our mining properties in Nevada.  These properties are early exploration stage and we have not developed any significant future exploration plans due to the lack of funding.

We have entered into an agreement to acquire an 80% interest in the "Mhakari Properties", which include the Vanderbilt Silver and Gold Project, the Coyote Fault Gold and Silver Project, and Galena Flat Gold Project, and claims that are an extension to the Coyote Fault property, all located adjacent to the producing Mineral Ridge property near Silver Peak, Nevada.   In addition, we entered into an agreement to acquire the rights to the "North Springs" properties consisting of 16 unpatented lode mining claims in three claim blocks on BLM lands in Esmeralda County, Nevada, also located near the Mineral Ridge property.

Mhakari Properties

The Mhakari properties are all in early stage exploration and do not contain any reserves.  Of the three properties held under the Mhakari Option Agreement, the Vanderbilt and Coyote Fault properties have been those where we have performed exploration activities consisting of sampling and mapping.  Because the three properties are exploration in nature, there is no infrastructure established.

Vanderbilt

The Vanderbilt property is located within 4 miles of the town of Silver Peak, Nevada and highway 265 via Coyote Road.  It is comprised of 44 claims, plus 3 patented claims for a total of 900 acres and is located on the southern flank of Mineral Ridge within the Silver Peak Range.  The Vanderbilt property is within the middle of the Walker Lane tectonic belt with the Sierra uplift to the west and the Basin and Range to the east.  Phase I geologic mapping and outcrop sampling (above ground) was completed in October 2010, resulting in average grades of 2.1 g/t gold and 58.6 g/t silver.  A Phase II exploration program (below ground) in the old mine workings was commenced during the first quarter of 2011 to help identify drill targets, with an exploratory drill program expected to begin as funding is obtained and the Company receives permits from the BLM.

Coyote Fault/Coyote Fault Extension

The Coyote Fault/Coyote Fault Extension claim block is within nine miles of Silver Peak, Nevada and Hwy 265 via Coyote Road.  The property consists of 110 contiguous unpatented mining claims having a total of 2,200 acres, and is also located within the middle of the Walker Lane tectonic belt with the Sierra uplift to the west and the Basin and Range to the east. The property is on the northern flank of Mineral Ridge and is along the eastern edge of the Silver Peak Range.  Phase 1 geologic mapping and outcrop sampling (above ground) was completed on the Coyote Fault claim group in December 2010, which identified a new potential gold exploration target.  No further exploration plans have been developed at this time.

Galena Flat

The Galena Flat claims are found about 4 miles from Silver Peak, Nevada and can be accessed by dirt road from the historic town site of Blair off of State Highway 265.  The project is in early stage exploration and consists of 24 unpatented lode mining claims for a total of 480 acres.  Very little exploration work has been conducted on the Galena Flat Project. No sampling or mapping has been conducted, and no further exploration plans have been developed at this time.

Amended and Restated Option Agreement

On February 26, 2013, we entered into an Amended and Restated Option Agreement with Mhakari Gold (Nevada) Inc. ("Mhakari") with respect to the Mhakari Properties, which terminated all rights and obligations under prior agreements and restated the parties' agreement with respect to each of the Mhakari Properties.

Mhakari granted us an option to acquire up to an undivided 80% interest in the Mhakari Properties for the following consideration to be paid by us to Mhakari:

Cash payments: $25,500, payable $20,000 upon execution of the agreement and $5,500 within 60 days thereafter; $20,000 payable on the 3 month anniversary of the agreement; $15,000 on the 6 month and 9 month anniversary of the agreement; and $50,000 on the 15 month anniversary of the agreement.

Equity payments: 8,000,000 shares of our common stock upon the execution of the agreement; an additional 7,000,000 shares of our common stock on the 4 month anniversary of the agreement; and an additional 5,000,000 shares on the 12 month anniversary of the agreement.

Work commitment:  $500,000 in exploration and development expenditures on the Mhakari Properties within 18 months of the date of the agreement; an additional $500,000 in exploration and development expenditures between 18 months and 30 months from the date of the agreement; with no less than $2,000,000 in exploration and development expenditures in the aggregate within 48 months from the date of the agreement.  Inclusive in this work commitment, we are to earmark no less than $10,000 per contract year for 4 years to enhancing safety on the Mhakari Properties.

Upon satisfying the consideration payable under the agreement, we shall receive an 80% undivided interest in the Mhakari Properties and the parties shall enter into a joint venture to further develop the Mhakari Properties, with us retaining an 80% interest in the joint venture.  In the event that we fail to satisfy the entire purchase price by completing all cash, equity and work commitment payments within the required time frames, the agreement will be deemed to have been terminated and all payments made to date will be forfeited to Mhakari with no interest earned by us in the Mhakari Properties.

As of the date of filing this report, we have met the cash payments and equity payments obligations but were not current on the work commitment obligations.  We are currently in discussions with Mhakari and anticipate reaching an agreement on a revised work commitment schedule and beginning our work commitment in the near future as funding permits.

North Springs Properties

The North Springs Properties consist of a large, bulk-tonnage and a high-grade vein-shear hosted gold system located along the western margin of the Mineral Ridge Mining District, approximately 8 miles west of the town of Silver Peak and 3 miles west of the Mineral Ridge open pit and underground mines.  This property consists of 16 unpatented lode mining claims comprised of 320 acres.

Both the North Springs Properties and the Mineral Ridge deposits are situated along a regional northwest trending, large anticline known as the Mineral Ridge Metamorphic Core Complex. This complex contains extensive high-grade gold veins (52 miles of underground workings on low-angle veins) and stacked, low angle, shear zones, which has been open pit mined in several deposits.  The North Springs Properties occupies very similar geology, alteration and mineralization, geochemistry and structural setting to the Mineral Ridge deposits. Sampling to date has identified gold mineralization up to 0.8 ounces per ton from surface workings.  The North Springs Properties contain several untested gold targets that include open-pit, disseminated mineralization and high-grade shear zones and feeder veins, such as those that have been mined by several mining companies at the nearby Mineral Ridge deposits.  We plan exploration activities on the North Springs Properties in the near future as funding permits.

Exploration and Mining Lease with Options to Purchase Agreement

Under the terms of an Exploration and Mining Lease with Options to Purchase Agreement effective June 17, 2013 (the "North Springs Agreement"), we acquired the rights to the 16 unpatented lode mining claims comprising the North Springs Properties on BLM lands in Esmeralda County, Nevada, located near the operating Mineral Ridge gold project.  As required by the North Springs Agreement, we made advance royalty payments of $5,000 cash in June 2013 and issued 1,000,000 shares of our common stock in July 2013.  We are further obligated to make the following payments under the terms of the North Springs Agreement:

We are current on our obligations under the North Springs Agreement.

Subject to prior termination, the term of the North Springs Agreement shall be for a period of twenty years commencing on the effective date.  The Company is obligated to pay a production royalty equal to three percent of the Net Smelter Returns ("NSR") from the production or sale of minerals from the North Springs Properties and meet defined minimum annual work commitments ranging from $10,000 in the first year to $100,000 beginning in the fifth year and thereafter.

The terms of the Second Anniversary of Effective Date, or June 17, 2015, were amended pursuant to the terms of a Memorandum of Understanding dated October 1, 2015 (see Note 15).

 

NOTE 4 – MARKETABLE SECURITIES

In October 2014, we participated in a private placement in Ximen Mining Corp. ("Ximen"), a Canadian publicly listed mineral exploration company, with an investment of $124,000.   We purchased 450,000 units consisting of one common share and one non-transferable warrant entitling us to purchase one further common share of Ximen at an exercise price of $0.40 per warrant share for a period of two years.  Ximen is focused on the exploration and development of gold projects in southern British Columbia and currently has a 100% interest in two properties: the Gold Drop Project and the Brett Gold Project.

These marketable securities are recorded at market value, with market value based on market quotes.  We classified these marketable securities as securities held-for-sale in accordance with ASC Topic 320, Investments – Debt and Equity Securities.  Unrealized gains and losses resulting from changes in market value were recorded as other comprehensive income, a component of stockholders' equity in our consolidated balance sheet.  During the three months ended September 30, 2015, we determined that the unrealized losses were other than temporary, and we recognized an investment loss of $103,930.

NOTE 5 – ACCRUED LIABILITIES

Accrued liabilities consisted of the following at:

 

NOTE 6 – NOTES PAYABLE AND EXTINGUISHMENT OF DEBT

Our current notes payable consisted of the following at:

Effective September 24, 2015, the Company reached a settlement and mutual release agreement with David A. Caldwell ("Caldwell") et al regarding litigation pertaining to a Peruvian mining venture (the "Agreement") (see Note 12).  Settlement terms included the extinguishment of disputed Company notes payable totaling $913,223.  Caldwell is a former officer and director of the Company, and the $913,223 gain on extinguishment of the notes payable has been recorded as a contribution to capital of the Company.

The Company agreed to pay Caldwell $45,000 in consulting fees, which had been accrued prior to the settlement and included in accrued expenses.  The amount has been included in a long-term promissory note payable that is unsecured, bears interest at an annual rate of 6% and is payable September 24, 2017.

The two notes payable to Pinnacle Minerals Corporation ("Pinnacle") resulted from an Amendment to Membership Interest Purchase Agreement whereby we purchased Pinnacle's membership interest in Molyco, LLC, which owned or controlled portions of mineral properties in Peru.  Pinnacle initiated legal action against the Company related to these unpaid obligations and the parties submitted the dispute to binding arbitration.  The arbitration proceedings were completed, and on June 4, 2015, the arbitrator ruled in favor of the Company and denied the claims of Pinnacle (see Note 12).  Therefore, the two notes payable to Pinnacle have been eliminated and a gain on extinguishment of debt totaling $440,000 was recorded in our condensed consolidated financial statements for the nine months ended September 30, 2015.

 

NOTE 7 – STOCKHOLDERS' DEFICIT

We have 50,000,000 shares of no par value, non-voting convertible preferred stock authorized.  As of September 30, 2015 and December 31, 2014, there were no shares of preferred stock outstanding.

We also have 800,000,000 shares of $0.001 par value common stock authorized.

During the nine months ended September 30, 2015, we cancelled 3,000 shares of our common stock, reducing common stock and increasing additional paid-in capital by $3 for the par value of the stock.  We issued a total of 5,000,000 shares of our common stock to our directors in payment of services valued at $8,000.

During the nine months ended September 30, 2014, we issued a total of 55,691,614 shares of our common stock: 37,191,614 shares valued at $67,276 for conversion of debt; 6,000,000 shares valued at $35,300 for exploration and evaluation expenses pursuant to our mineral property option agreements (Note 3); 5,000,000 shares for cash of $10,000; 6,000,000 shares valued at $21,600 for accrued liabilities; and 1,500,000 shares valued at $5,250 for contract services of officers and directors.

As of September 30, 2015 and December 31, 2014, we had 415,392 shares of our common stock acquired in a previous stock repurchase program that are recorded as treasury shares at a cost of $49,008.

 

NOTE 8 – STOCK WARRANTS

We have issued warrants to purchase shares of our common stock in connection with equity financing agreements and pursuant to certain consulting agreements.

A summary of the status of our stock warrants as of September 30, 2015 and changes during the nine months then ended is presented below:

 

The following summarizes the exercise price per share and expiration date of our outstanding warrants to purchase common stock at September 30, 2015:

 

NOTE 9 – STOCK-BASED COMPENSATION

We account 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 estimated value of the award granted, using the Black-Scholes option pricing model, and recognized over the period in which the award vests in general and administrative expenses.  Stock-based compensation expense, included in general and administrative expenses, was $3,056 and $0 for the nine months ended September 30, 2015 and 2014, respectively.

During the nine months ended September 30, 2015, we granted our directors options to purchase a total of 1,500,000 shares of our common stock at an exercise price of $0.0022 per share.  We estimated the grant date fair value of these options at $0.002 per share using the Black-Scholes option pricing model with the following assumptions:

The following table summarizes the stock option activity during the nine months ended September 30, 2015:

 

		Options				Weighted Average Exercise Price			Weighted Average Remaining  Contract Term			Aggregate Intrinsic Value
Outstanding at December 31, 2014			3,300,000			$	0.08
Granted			1,500,000			$	0.0022
Exercised			-
Expired or cancelled			(200,000	)		$	0.04
Outstanding, vested and exercisable at September 30, 2015			4,600,000			$	0.05		2.59		$	-

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $0.0022 as of September 30, 2015 that 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 September 30, 2015, there was no future compensation cost related to non-vested stock-based awards not yet recognized in our condensed consolidated statements of operations and comprehensive loss.

NOTE 10 – EARNINGS (LOSS) PER SHARE

The computation of basic earnings (loss) 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.

The shares used in the computation of our basic and diluted earnings per share are reconciled as follows:

 

As of September 30, 2015, we had outstanding options and warrants to purchase a total of 20,250,000 common shares that could have a future dilutive effect on the calculation of earnings per share.

NOTE 11 – COMPENSATION AGREEMENTS

Donald B. Gunn

On December 7, 2011, we entered into a Consulting Agreement (the "Gunn Consulting Agreement) with Donald Gunn, whereby Mr. Gunn is to provide services to the Company in his role as President of the Company.  Mr. Gunn was appointed President of the Company effective March 15, 2011.  Pursuant to the Gunn Consulting Agreement, the Company currently compensates Mr. Gunn at $9,000 per month.

Dennis P. Gauger

Pursuant to an Independent Contractor Agreement dated January 17, 2013, we currently compensate Dennis Gauger, our Chief Financial Officer, at $5,000 per month.

Board of Directors

We currently compensate the members of our Board of Directors at $1,000 per month.

NOTE 12 – LEGAL MATTERS

On October 24, 2013, we filed a lawsuit in the Second Judicial District Court for the State of Nevada (Golden Phoenix Minerals, Inc. vs. David A. Caldwell ("Caldwell"), Tom Klein, et al., case number CV 13-02332) alleging breaches by the defendants of various contracts and duties owed by the defendants to the Company, together with claims for fraud and breach of contract, conspiracy and other claims, relating primarily to the facts and circumstances surrounding the transaction we entered into with Pinnacle as discussed above, and related business and financial transactions among the parties.  Caldwell is a former Chief Executive Officer and former member of the Board of Directors of the Company.  Mr. Klein is a former Chief Executive Officer and a former member of the Board of Directors of the Company.  We subsequently entered into a settlement agreement with Mr. Klein to remove him from this case.

 

On September 24, 2015, we reached a settlement and mutual release agreement (the "Agreement") with Caldwell et al whereby the parties agreed to settle all disputes and the lawsuit originally filed by us in October 2013.  In regards to the legal action and counter claims between the parties and our current knowledge of these matters, we are satisfied that Caldwell and the other parties to the litigation committed no fraud.  Settlement terms included the extinguishment of disputed Company notes payable totaling $913,223 (see Note 6) and forgiveness of approximately $190,000 in unaccrued disputed invoices related to Peruvian operations.

In addition, Caldwell granted to the Company an option to purchase up to 1,000,000 shares owned by Caldwell in a private Canadian mining company in four blocks of stock, each comprising 250,000 shares, for a defined purchase price (the "Stock Options").  The Company will have the right to purchase one or all blocks of stock at any time beginning at the close of a current financing by the Canadian mining company and continuing until the 24-month anniversary of the Agreement.

The Company agreed to pay Caldwell $45,000 in consulting fees, which amount has been included in a long-term promissory note payable.   The long-term note payable is unsecured, bears interest at an annual rate of 6% and is payable September 24, 2017.

On May 22, 2013, Pinnacle Minerals Corporation, a Florida corporation ("Pinnacle"), sued the Company, seeking payments allegedly due on two promissory notes issued in connection with a membership interest purchase agreement entered into as of March 7, 2011, relating to a Peruvian mining venture.  The case was filed in the United States District Court for the District of Nevada, as "Pinnacle Minerals Corporation v. Golden Phoenix Minerals, Inc., Case number 2:13 – CV – 00915 – MMD – NJK."  The Company filed a motion to stay the litigation and compel arbitration, pursuant to a provision of the subject purchase agreement.  Based on negotiations, and agreement and stipulation between the parties, this case was dismissed on July 22, 2013.  The parties submitted the dispute to binding arbitration in Reno, Nevada.  

The arbitration proceedings were completed, and on June 4, 2015, the arbitrator ruled in favor of the Company and denied the claims of Pinnacle.  The arbitrator found that Pinnacle committed fraud in the sale of its membership interest.  The arbitrator awarded damages to the Company totaling $573,469, comprised of the return of cash amounts previously paid by the Company to Pinnacle, certain expenses paid by the Company towards production in Peru, and attorneys fees.  Notes payable to Pinnacle totaling $440,000 previously recorded by the Company were extinguished pursuant to the arbitration decision (see Note 6).

NOTE 13 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

During the nine months ended September 30, 2015 and 2014, we made no cash payments for income taxes.

During the nine months ended September 30, 2015 and 2014, we made cash payments for interest totaling $0 and $19,457, respectively.

During the nine months ended September 30, 2015, we had the following non-cash financing and investing activities:

 

●	Decreased marketable securities and increased accumulated other comprehensive loss by $65,250.

●	Decreased common stock and increased additional paid-in capital by $3.

●	Decreased accounts payable by $8,000, increased common stock by $5,000 and increased additional paid-in capital by $3,000 for common shares issued to our directors.

●	Decreased notes payable and increased additional paid-in capital by $913,223 for related party notes payable settled and recorded as a contribution to capital.

●	Decreased accrued liabilities and increased long-term note payable by $45,000 for note payable resulting from a settlement and mutual release agreement.

 

During the nine months ended September 30, 2014, we had the following non-cash financing and investing activities:

●	Decreased accrued interest payable by $1,700, decreased notes payable by $15,685, decreased debt discount by $2,967, decreased derivative liability by $52,106, increased common stock by $37,192 and increased additional paid-in capital by $30,084 for common shares issued in conversion of debt.

●	Decreased accrued liabilities by $21,600, increased common stock by $6,000 and increased additional paid-in capital by $15,600 for common shares issued for accrued liabilities.

●	Decreased accounts payable and increased additional paid-in capital by $143 for warrants issued for accounts payable.

●	Decreased accounts payable and increased additional paid-in capital by $279,465 for related party accounts payable settled and recorded as a contribution to capital.

 

NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements issued during the nine months ended September 30, 2015 and through the date of the filing of this report that we believe are applicable to or would have a material impact on our consolidated financial statements.

 

NOTE 15 – SUBSEQUENT EVENTS

Effective October 1, 2015, the parties to the North Springs Exploration and Mining Lease with Options to Purchase Agreement (Note 3) entered into a Memorandum of Understanding to amend the terms of the Second Anniversary of Effective Date, or June 17, 2015.  The terms were changed as follows:

●	The cash payment of $15,000 was reduced to $6,000, with a payment of $3,000 paid no later than October 1, 2015 and a payment of $3,000 paid no later than April 1, 2016.

●	The stock distribution of 1,000,000 common shares of the Company will be increased to 2,000,000 common shares to be issued upon the request of the owners.

●	The work commitment of $25,000 will be reduced to zero.

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 growth strategies, (c) our expectations regarding property acquisitions or exploration plans, (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, 2014 filed with the Securities and Exchange Commission (the "SEC") 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

We are a mining and exploration company, formed in Minnesota on June 2, 1997 and reincorporated in the State of Nevada in May 2008. 

Our business includes acquiring mineral properties with potential production and future growth through exploration discoveries.  We currently have significant property holdings in the Silver Peak Mining District near Tonopah, Nevada.  Pending requisite funding, we will seek to maximize the value of our gold and silver assets through exploration, joint venture, or mineral royalties.

We have entered into an agreement to acquire an 80% interest in the Vanderbilt Silver and Gold Project, the Coyote Fault Gold and Silver Project, and claims that are an extension to the Coyote Fault property, all located adjacent to the producing Mineral Ridge property near Silver Peak, Nevada (the "Mhakari Properties").  In addition, we entered into an agreement to acquire the rights to 16 unpatented lode mining claims on BLM lands in Esmeralda County, Nevada, also located near the Mineral Ridge property (the "North Springs Properties").

We have contracted the professional mining services of Cardno MM&A ("Cardno") to perform the technical evaluation of our Nevada mineral properties.  We began first round evaluation on the Vanderbilt property, which we believe is a viable gold and silver exploration project.   With the assistance of Cardno, we are currently permitting an exploration drilling program including up to 20 exploration drill holes using reverse circulation ("RC").  Other highlights include establishing survey control of the property's three patent claims from 1876, contracting heavy equipment for access road improvement and drill pad construction, and establishing a strong, positive relationship with the local lead regulator office. We have also spent time evaluating the North Springs Properties, and have decided to defer future work on them.

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

GOING CONCERN UNCERTAINTY

Our condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, we have a history of operating losses since our inception in 1997, and have an accumulated deficit of $60,935,893 and a total stockholders' deficit of $725,875 at September 30, 2015.  We currently have no operating revenues.

During 2014, we completed the sale of our 10% ownership interest in the Santa Rosa, Panama gold project for $US 2.6 million.  This funding has helped capitalize the Company, extinguish certain liabilities and provided working capital.

As more fully described in these Notes to Condensed Consolidated Financial Statements and elsewhere in this quarterly report, we have entered into options and agreements for the acquisition and development of our Nevada mineral properties.  None of these mineral properties currently have reserves.  We believe we will be required to raise significant additional capital to fund our operations and to complete the acquisition of the interests in and further the exploration, evaluation and development of our existing mineral properties and other prospects.  There can be no assurance that we will be successful in raising the required capital at favorable rates or at all, or that any of these mineral properties will ultimately attain a successful level of operations.  If we are unable to raise sufficient capital to meet our current obligations, we may be forced to further reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.  These factors and our negative working capital position together raise substantial doubt about our ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 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 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014, and certain of these critical accounting policies are as follows:

Marketable Securities

Marketable securities consist of investments in common stock of a publicly held mining company.  The marketable securities are 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 our consolidated balance sheet.  Realized gains and losses resulting from the sale or disposition of marketable securities are reflected in net income or loss for the period.  Estimated impairment losses that are determined to be other-than-temporary are included in net income or loss for the period.

Property and Equipment

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.  As of September 30, 2015 and December 31, 2014, we had no mineral properties with proven or probable reserves and no amortizable mine development costs.

Mineral Property Acquisition Costs

Mineral property acquisition costs are recorded at cost and capitalized where an evaluation of market conditions and other factors imply the acquisition costs are recoverable.  Such factors may include the existence or indication of economically mineable reserves, a market for the subsequent sale of the mineral property, the stage of exploration and evaluation of the property, historical exploration or production data, and the geographic location of the property.  Once a determination has been made that a mineral property has proven or probable reserves that can be produced profitably, depletion of the capitalized acquisition costs will be computed at the commencement of commercial production on the units-of-production basis using estimated proven and probable reserves.  As of September 30, 2015 and December 31, 2014, we had no capitalized mineral property acquisition costs.

Where an evaluation of market conditions and other factors results in uncertainty as to the recoverability of exploration mineral property acquisition costs, the costs are expensed as incurred and included in exploration and evaluation expenses.

Exploration and Evaluation Expenses

Exploration expenses relating to the search for resources suitable for commercial production, including researching and analyzing historic exploration data, conducting topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching and sampling are expensed as incurred.

Evaluation expenses relating to the determination of the technical feasibility and commercial viability of a mineral resource, including determining volume and grade of deposits, examining and testing extraction methods, metallurgical or treatment processes, surveying transportation and infrastructure requirements and conducting market and finance studies are expensed as incurred.

Mineral Property Development Costs

Mineral property development costs relate to establishing access to an identified mineral reserve and other preparations for commercial production, including infrastructure development, sinking shafts and underground drifts, permanent excavations, and advance removal of overburden and waste rock.

When it is determined that commercially recoverable reserves exist and a decision is made by management to develop the mineral property, mineral property development costs are capitalized and carried forward until production begins.  The capitalized mineral property development costs are then amortized using the units-of-production method using proven and probable reserves as the mineral resource is mined.

Proven and Probable Ore Reserves

We currently have no proven or probable ore reserves.

On a periodic basis, if warranted based on our property portfolio and the stage of development of each property, management would review 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 would be based on, along with independent consultant evaluations, in-house engineering and geological estimates using current operating costs, metals prices and demand for the metals. Periodically, management may obtain external determinations of 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 make estimates of closure, reclamation and remediation work that will need to be performed as required by those laws and regulations and make 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, the country where the project is located, and the possible participation of other potentially responsible parties.

At September 30, 2015 and December 31, 2014, we had no mining projects that had advanced to the stage where closure, reclamation and remediation costs were required to be accrued.

Property Evaluations and Impairment of Long-Lived Assets

We review and evaluate the carrying amounts of our mineral properties, capitalized mineral property development costs 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); operating, capital and reclamation costs; , and other factors beyond proven and probable reserves such as estimated market value for the property in an arms-length sale.  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.

Revenue Recognition

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

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

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.  As of September 30, 2015 and December 31, 2014, we had fully reduced our net deferred tax assets by recording a 100% valuation allowance.

Foreign Currency Transactions

At times, certain of our cash accounts may be deposited in a foreign bank.  Gains and losses resulting from translation of such account balances are included in operating results, as are gains and losses from foreign currency transactions.

Comprehensive Income (Loss)

We present the components of other comprehensive income (loss) in a single continuous consolidated statement of comprehensive income (loss).  Currently, other comprehensive loss consists of unrealized losses on our marketable securities.

Earnings per Common Share

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

RECENT ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements issued during the nine months ended September 30, 2015 and through the date of the filing of this report that we believe are applicable to or would have a material impact on our consolidated financial statements.

 

RESULTS OF OPERATIONS

Revenues

We currently have no operating revenues and accordingly, reported no revenues for the three months and nine months ended September 30, 2015 and 2014.

Operating Costs and Expenses

Exploration and evaluation expenses were $53,042 and $56,287 for the three months ended September 30, 2015 and 2014, respectively, and $53,042 and $173,853 for the nine months ended September 30, 2015 and 2014, respectively. The expenses in the current year consist of claim filing fees and contract services for the technical evaluation of our Nevada properties.  Exploration and evaluation expenses during the nine months ended September 30, 2014 also included payments for our Nevada properties required by the related option and acquisition agreements.

Our exploration projects currently do not have reserves.  The Mhakari and North Springs Properties in Nevada are currently our only mineral properties.  Exploration and evaluation activities will increase as funding permits.  More detailed explanations of these mineral properties are provided in Note 3 to our condensed consolidated financial statements.

General and administrative expenses were $238,286 and $141,971 for the three months ended September 30, 2015 and 2014, respectively, and $645,699 and $418,510 for the nine months ended September 30, 2015 and 2014, respectively.  These expenses include investor relations, consulting fees for our officers and directors, legal and professional fees, other outside consulting fees, travel and stock-based compensation expense.  The increase in our general and administrative expenses in the current year is due primarily to ongoing legal expenses.

Depreciation and amortization expense is not currently material to our consolidated financial statements and was $0 and $228 for the three months ended September 30, 2015 and 2014, respectively, and $76 and $684 for the nine months ended September 30, 2015 and 2014, respectively.  All of our depreciable assets are fully depreciated.

Other Income (Expense)

Interest and other income currently are not material to our condensed consolidated financial statements, and totaled $21 and $270 for the three months ended September 30, 2015 and 2014, respectively, and $146 and $481 for the nine months ended September 30, 2015 and 2014, respectively.

We reported a foreign currency gain of $14,477 and $10,327 for the three months ended September 30, 2015 and a foreign currency gain of $40,056 and $11,134 for the nine months ended September 30, 2015 and 2014, respectively.  The amount of the foreign currency gain or loss will fluctuate from period to period depending on the balance maintained in foreign bank accounts, our foreign investments, and changes in foreign exchange rates.

We reported a gain on extinguishment of debt of $0 and $300 for the three months ended September 30, 2015 and 2014, respectively, and $453,200 and $816,408 for the nine months ended September 30, 2015 and 2014, respectively.  The gain on extinguishment of debt in the current year resulted primarily from the favorable arbitration ruling where notes payable to Pinnacle were extinguished.  A significant portion of the gain in the prior year resulted from the repayment of convertible debt or the conversion of convertible debt into shares of our common stock where related derivative liabilities were extinguished.  We have also had favorable results from efforts to settle other outstanding obligations.

Interest expense was $52 and $650 for the three months ended September 30, 2015 and 2014, respectively, and $52 and $45,282 for the nine months ended September 30, 2015 and 2014, respectively.  The decrease in interest expense was due primarily to the repayment in full of convertible notes payable to an institutional investor during the first three months of the prior year.

We reported an investment loss of $103,930 for the three months and nine months ended September 30, 2015.  We concluded that the unrealized losses on our investment in Ximen Mining Corp. were other than temporary, and we recognized an investment loss of $103,930.

We reported a loss on derivative liability of $445,881 for the nine months ended September 30, 2014 related to convertible notes payable to an institutional investor.  We estimated the fair value of the derivative for the conversion feature of the notes at the inception of each note and at each subsequent report date or date of conversion or payment using the Black-Scholes pricing model, resulting in a gain or loss on derivative liability.  As discussed above, we repaid the convertible notes payable during the first three months of the prior year.

We reported a gain on disposition of assets of $2,509,885 in nine months ended September 30, 2014 resulting primarily from the sale of our 10% interest in the Santa Rosa Gold Mine, net of certain fees and expenses.  We had no gain or loss on disposition of assets in the three months and nine months ended September 30, 2015.

Net Income (Loss)

As a result, we reported a net loss of $380,812 and $188,239 for the three months ended September 30, 2015 and 2014, respectively, and a net loss of $309,397 and net income of $2,253,048 for the nine months ended September 30, 2015 and 2014, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

We have a history of operating losses since our inception in 1997, and had an accumulated deficit of $60,935,893 and a total stockholders' deficit of $725,875 at September 30, 2015.  At September 30, 2015, we had current assets of $127,042 and current liabilities of $807,917, resulting in a working capital deficit of $680,875.  Included in current assets at September 30, 2015 was cash of $90,188, substantially all of which is deposited in a corporate savings account.  We currently do not have sufficient cash to fund our operations for the next twelve months.

Our financial position has been significantly improved by the successful completion or settlement of legal matters that have been ongoing for several months.

Effective September 24, 2015, we reached a settlement and mutual release agreement with David A. Caldwell ("Caldwell") et al regarding litigation pertaining to a Peruvian mining venture.  Settlement terms included the extinguishment of disputed Company notes payable totaling $913,223.  Caldwell is a former officer and director of the Company, and the $913,223 gain on extinguishment of the notes payable has been recorded as a contribution to capital of the Company.

The Pinnacle arbitration proceedings were completed on June 4, 2015, and the arbitrator ruled in favor of the Company and denied the claims of Pinnacle.  The arbitrator found that Pinnacle committed fraud in the sale of its membership interest.  The arbitrator awarded damages to the Company totaling $573,469, comprised of the return of cash amounts previously paid by the Company to Pinnacle, certain expenses paid by the Company towards production in Peru, and attorneys fees.  Notes payable to Pinnacle totaling $440,000 previously recorded by the Company were extinguished pursuant to the arbitration decision, significantly improving our financial position.  Our deposit of $190,000, previously held in a legal escrow account, was returned to us as a result of the favorable ruling in the Pinnacle arbitration.  The ultimate collection of the damages awarded in the arbitration is uncertain.

During 2014, we completed the sale of our 10% ownership interest in the Santa Rosa, Panama gold project for $US 2.6 million.  This funding has helped capitalize the Company, extinguish certain liabilities and provided working capital.

We have entered into options and agreements for the acquisition and development of our mineral properties that will require significant funds and require us to raise additional capital to complete the acquisitions and to fund the required exploration, evaluation and development costs and expenditures.  There can be no assurance that we will be successful in raising the required capital or that any of these mineral properties will ultimately attain a successful level of operations.  None of our mineral properties currently have reserves.  If we are unable to raise sufficient capital to meet our current obligations, we may be forced to further reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws.

Long-Term Note Payable

As part of the settlement and mutual release agreement discussed above, we agreed to pay Caldwell $45,000 in back consulting fees, which amount has been included in a promissory note payable.   The long-term note payable is unsecured, bears interest at an annual rate of 6% and is payable September 24, 2017.

Net Cash Provided By or Used In Operating, Investing and Financing Activities

During the nine months ended September 30, 2015, net cash used in operating activities was $552,802 as a result of our net loss of $309,397, non-cash gains totaling $465,893, increase in prepaid expenses and other current assets of $10,421, and decreases in accounts payable of $6,687 and accrued liabilities of $57,466, partially offset by non-cash expenses totaling $107,062 and decrease in deposits of $190,000.

During the nine months ended September 30, 2014, net cash used in operating activities was $1,410,591 as a result non-cash gains totaling $3,326,293, increase in prepaid expenses and other current assets of $207,945, and decreases in accounts payable of $504,554 and accrued liabilities of $129,307, partially offset by net income of $2,253,048 and total non-cash expenses of $504,460.

During the nine months ended September 30, 2014, we had net cash provided by investing activities of $2,478,885, consisting primarily of proceeds from the sale of our 10% ownership interest in the Santa Rosa, Panama gold project.  During the nine months ended September 30, 2015, we had no net cash provided by or used in investing activities.

During the nine months ended September 30, 2014, net cash used in financing activities was $134,075, comprised of payments of notes payable of $59,075 and payment of amounts due to related party of $85,000, partially offset by proceeds from the issuance of common stock of $10,000.  During the nine months ended September 30, 2015, we had no net cash provided by or used in financing activities.

Off-Balance Sheet Arrangements

As of September 30, 2015, we had no material off-balance sheet arrangements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal 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 September 30, 2015.  Based on that evaluation, our principal 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.

Due to lack of funding, we significantly scaled back our operations, including eliminating certain employees with accounting and administrative responsibilities.  As a result, at September 30, 2015 we had insufficient segregation of accounting and financial reporting duties.  We consider these matters to be material weaknesses in our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

Other than the lack of segregation of duties described above, there was no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

On October 24, 2013, we filed a lawsuit in the Second Judicial District Court for the State of Nevada (Golden Phoenix Minerals, Inc. vs. David A. Caldwell ("Caldwell"), Tom Klein, et al., case number CV 13-02332) alleging breaches by the defendants of various contracts and duties owed by the defendants to the Company, together with claims for fraud and breach of contract, conspiracy and other claims, relating primarily to the facts and circumstances surrounding the transaction we entered into with Pinnacle as discussed above, and related business and financial transactions among the parties.  Caldwell is a former Chief Executive Officer and former member of the Board of Directors of the Company.  Mr. Klein is a former Chief Executive Officer and a former member of the Board of Directors of the Company.  We subsequently entered into a settlement agreement with Mr. Klein to remove him from this case.

 

On September 24, 2015, we reached a settlement and mutual release agreement (the "Agreement") with Caldwell et al whereby the parties agreed to settle all disputes and the lawsuit originally filed by us in October 2013.  In regards to the legal action and counter claims between the parties and our current knowledge of these matters, we are satisfied that Caldwell and the other parties to the litigation committed no fraud.  Settlement terms included the extinguishment of disputed Company notes payable totaling $913,223 and forgiveness of approximately $190,000 in unaccrued disputed invoices related to Peruvian operations.

In addition, Caldwell granted to the Company an option to purchase up to 1,000,000 shares owned by Caldwell in a private Canadian mining company in four blocks of stock, each comprising 250,000 shares, for a defined purchase price (the "Stock Options").  The Company will have the right to purchase one or all blocks of stock at any time beginning at the close of a current financing by the Canadian mining company and continuing until the 24-month anniversary of the Agreement.

The Company agreed to pay Caldwell $45,000 in consulting fees, which amount has been included in a long-term promissory note payable.   The long-term note payable is unsecured, bears interest at an annual rate of 6% and is payable September 24, 2017.

On May 22, 2013, Pinnacle Minerals Corporation, a Florida corporation ("Pinnacle"), sued the Company, seeking payments allegedly due on two promissory notes issued in connection with a membership interest purchase agreement entered into as of March 7, 2011, relating to a Peruvian mining venture.  The case was filed in the United States District Court for the District of Nevada, as "Pinnacle Minerals Corporation v. Golden Phoenix Minerals, Inc., Case number 2:13 – CV – 00915 – MMD – NJK."  The Company filed a motion to stay the litigation and compel arbitration, pursuant to a provision of the subject purchase agreement.  Based on negotiations, and agreement and stipulation between the parties, this case was dismissed on July 22, 2013.  The parties submitted the dispute to binding arbitration in Reno, Nevada.  

The arbitration proceedings were completed, and on June 4, 2015, the arbitrator ruled in favor of the Company and denied the claims of Pinnacle.  The arbitrator found that Pinnacle committed fraud in the sale of its membership interest.  The arbitrator awarded damages to the Company totaling $573,469, comprised of the return of cash amounts previously paid by the Company to Pinnacle, certain expenses paid by the Company towards production in Peru, and attorneys fees.  Notes payable to Pinnacle totaling $440,000 previously recorded by the Company were extinguished pursuant to the arbitration decision.

Item 1A.  Risk Factors

Not Applicable.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

During the three months ended September 30, 2015, we issued a total of 5,000,000 shares of unregistered common stock to our directors for services valued at $8,000: 1,875,000 shares to Donald Gunn; 1,875,000 shares to Dennis Gauger and 1,250,000 shares to Patrick Highsmith.

The issuance of the common stock was conducted in reliance upon the exemption from registration requirements provided by Section 4(2) of the Securities Act of 1933, as amended, and from various similar state exemptions.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None

Item 6.  Exhibits

^*Filed herewith.

 

** The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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.

 

 

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