2. Liquidity, Capital Resources and Going Concern

At September 30, 2016 the Company’s aggregate cash and cash equivalents totaled $3.4 million, $0.7 million lower than the $4.1 million in similar assets held at December 31, 2015. The reduction is due primarily to $1.6 million in shutdown and care and maintenance costs at the Velardeña Properties, $2.9 million in exploration expenditures, including costs related to drilling at the San Luis del Cordero, Santa Maria, and Rodeo properties, $0.3 million in care and maintenance and property holding costs at the El Quevar project, $3.1 million in general and administrative expenses and, $0.6 million from an increase in working capital primarily related to a decrease in deferred revenue from the lease of the oxide plant, offset in part by $0.9 million of net proceeds from the sale of nonstrategic exploration properties, $3.3 million of net operating margin received pursuant to the oxide plant lease (defined as oxide plant lease revenue less oxide plant lease costs) and $3.6 million of net proceeds received in a registered direct offering of the Company’s common stock as discussed below.

On February 11, 2016, The Sentient Group (“Sentient”) converted approximately $3.9 million of principal and $0.1 million of accrued interest (representing the total amount of accrued interest at the conversion date) pursuant to the Sentient Note (defined below) into 23,355,000 shares of the Company’s common stock. See Note 11 for a full discussion of the Sentient Note. On June 10, 2016 Sentient converted the remaining approximately $1.1 million and approximately $34,000 of accrued interest under the Sentient Note into 4,011,740 shares of the Company’s common stock. At September 30, 2016 the Company had no outstanding debt.

On May 6, 2016, the Company issued 8.0 million registered shares of common stock at a purchase price of $0.50 per share in a registered direct offering (the “Offering”) resulting in gross proceeds of $4.0 million. The Company incurred costs and fees of approximately $0.4 million related to the Offering resulting in net proceeds of approximately $3.6 million. In connection with the Offering, for each share of common stock purchased by an investor, such investor received an unregistered warrant to purchase three‐quarters of a share of common stock. The warrants have an exercise price of $0.75 per share and are exercisable six months after the date of issuance and will expire five years from the initial exercise date (see Note 15).

In addition to its $3.4 million cash balance at September 30, 2016, in the remaining quarter of 2016 the Company expects to receive approximately $1.2 million in net operating margin from the lease of the oxide plant and $0.2 million from the second quarter farm out of a non-strategic exploration property. The Company also expects to receive $0.6 million in February 2017 relating to the final payment for the August 2016 sale of excess mining equipment. The Company currently plans to spend approximately $1.8 million in the remaining quarter of 2016, as detailed below, resulting in a projected cash balance at the end of 2016 of approximately $3.0 million.

Approximately $0.4 million at the Velardeña Properties for care and maintenance;

Approximately $0.5 million on exploration activities and property holding costs related to the Company’s portfolio of exploration properties located primarily in Mexico, including project assessment and development costs relating to Santa Maria, Rodeo, and other properties;

Approximately $0.2 million at the El Quevar project to fund ongoing maintenance activities, property holding costs, and continuing project evaluation costs; and

Approximately $0.7 million on general and administrative costs.

The actual amount that the Company spends during the remainder of 2016 and the projected yearend cash balance may vary significantly from the amounts specified above and will depend on a number of factors, including variations from anticipated care and maintenance costs at the Velardeña Properties and costs for continued exploration, project assessment, and development at the Company’s other exploration properties, including Santa Maria and Rodeo.

The consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, the continuing operations of the Company are dependent upon its ability to secure sufficient funding and to generate future profitable operations. The underlying value and recoverability of the amounts shown as property, plant and equipment in Note 8 are dependent on the ability of the Company to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to profitable mining activities or to generate proceeds from the disposition of property, plant and equipment. There can be no assurance that the Company will be successful in generating future profitable operations or securing additional funding in the future on terms acceptable to the Company or at all.