10-Q 1 v472481_10q.htm 10-Q

 

 

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, 2017

 

  ¨ 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 ¨

 

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 ¨ No.

 

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

 

Large accelerated filer ¨   Accelerated filer ¨
     
Non-accelerated filer ¨   Smaller reporting company x
(Do not check if a smaller reporting company)    
    Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

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  ¨ No  ¨

 

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 11, 2017 there were 28,402,389 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 20
     
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 25
     
ITEM 4 Controls and Procedures 25
     
PART II — OTHER INFORMATION  
     
ITEM 1 Legal Proceedings 26
     
ITEM 1A Risk Factors 26
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 26
     
ITEM 3 Defaults Upon Senior Securities 26
     
ITEM 4 Mine Safety Disclosures 26
     
ITEM 5 Other Information 27
     
ITEM 6 Exhibits 27

 

 2 

 

  

ITEM 1     Financial Statements

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in United States dollars)

 

   June 30,   December 31, 
   2017   2016 
   (Unaudited)     
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents  $4,080,437   $11,722,102 
Restricted cash   3,690,000    2,250,000 
Prepaid expenses and other current assets   1,021,527    1,139,760 
           
Total Current Assets   8,791,964    15,111,862 
           
NON - CURRENT ASSETS:          
Property and equipment, net   3,768,567    4,310,980 
Mineral rights   22,803,912    22,786,912 
Reclamation bond deposit   50,000    25,000 
Deposit   3,884    3,884 
           
Total Non - Current Assets   26,626,363    27,126,776 
           
Total Assets  $35,418,327   $42,238,638 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES:          
Accounts payable and accrued expenses  $577,081   $2,150,195 
Deferred rent - current portion   8,381    6,738 
           
Total Current Liabilities   585,462    2,156,933 
           
LONG-TERM LIABILITIES:          
Deposit   1,750    1,750 
Deferred rent - long term portion   -    4,512 
Asset retirement obligation   914,349    895,085 
           
Total Liabilities   1,501,561    3,058,280 
           
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, 2017 and December 31, 2016)   -    - 
Convertible Series B Preferred stock ($0.0001 Par Value; 8,000,000 Shares Authorized; none issued and outstanding as of June 30, 2017 and December 31, 2016)   -    - 
Convertible Series C Preferred stock ($0.0001 Par Value; 3,284,396 Shares Authorized; none issued and outstanding as of June 30, 2017 and December 31, 2016)   -    - 
Convertible Series D Preferred stock ($0.0001 Par Value; 7,500,000 Shares Authorized; none issued and outstanding as of June 30, 2017 and December 31, 2016)   -    - 
Convertible Series E Preferred stock ($0.0001 Par Value; 15,151 Shares Authorized; 8,946 shares issued and outstanding; liquidation preference of $9,742,194 as of June 30, 2017 and December 31, 2016)   1    1 
Common stock ($0.0001 Par Value; 200,000,000 Shares Authorized; 28,402,389 and 28,389,378 shares issued and outstanding as of June 30, 2017 and December 31, 2016)   2,840    2,839 
Additional paid-in capital   197,049,124    195,705,344 
Accumulated deficit   (163,135,199)   (156,527,826)
           
Total Stockholders' Equity   33,916,766    39,180,358 
           
Total Liabilities and Stockholders' Equity  $35,418,327   $42,238,638 

 

See accompanying notes to unaudited consolidated financial statements.

  

 3 

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in United States dollars)

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2017   2016   2017   2016 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Net revenues  $-   $-   $-   $- 
                     
Operating expenses:                    
Compensation and related taxes   1,237,618    1,611,127    2,312,510    2,671,495 
Exploration cost   230,851    213,793    828,130    505,788 
Consulting fees   699,859    370,327    1,222,405    1,158,282 
General and administrative expenses   1,116,564    1,042,119    2,242,477    2,037,816 
                     
Total operating expenses   3,284,892    3,237,366    6,605,522    6,373,381 
                     
Loss from operations   (3,284,892)   (3,237,366)   (6,605,522)   (6,373,381)
                     
Other income (expenses):                    
Other income   9,673    -    9,673    - 
Foreign currency gain (loss)   500    -    (10,655)   - 
Interest expense and other finance costs   (2,056)   (1,805)   (4,978)   (4,703)
Interest income   3,141    502    4,109    717 
                     
Total other income (expenses) - net   11,258    (1,303)   (1,851)   (3,986)
                     
Loss before provision for income taxes   (3,273,634)   (3,238,669)   (6,607,373)   (6,377,367)
                     
Provision for income taxes   -    -    -    - 
                     
Net loss  $(3,273,634)  $(3,238,669)  $(6,607,373)  $(6,377,367)
                     
Preferred deemed dividend   -    -    -    (3,599,565)
                     
Net loss available to common stockholders  $(3,273,634)  $(3,238,669)  $(6,607,373)  $(9,976,932)
                     
Net loss per common share, basic and diluted  $(0.12)  $(0.12)  $(0.23)  $(0.41)
                     
Weighted average common shares outstanding - basic and diluted   28,400,084    26,116,068    28,394,151    24,465,109 

 

See accompanying notes to unaudited consolidated financial statements.

 

 4 

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in United States dollars)

 

   For the Six Months Ended June 30, 
   2017   2016 
   (Unaudited)   (Unaudited) 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
           
Net loss  $(6,607,373)  $(6,377,367)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   567,883    555,025 
Accretion   19,264    19,461 
Stock-based compensation   838,378    1,372,246 
           
Changes in operating assets and liabilities:          
Other receivables   -    70,145 
Prepaid expenses and other current assets   118,233    443,425 
Accounts payable and accrued expenses   (1,067,711)   (37,879)
Deferred rent   (2,869)   (1,870)
           
NET CASH USED IN  OPERATING ACTIVITIES   (6,134,195)   (3,956,814)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Increase in reclamation bond deposits   (25,000)   - 
Purchase of mineral rights   (17,000)   - 
Purchase of property and equipment   (25,470)   - 
           
NET CASH USED IN INVESTING ACTIVITIES   (67,470)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from sale of common stock, net of issuance costs   -    13,216,545 
Payments on notes payable   -    (12,909)
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   -    13,203,636 
           
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS   (6,201,665)   9,246,822 
           
CASH, CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS- beginning of period   13,972,102    5,487,384 
           
CASH, CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS- end of period  $7,770,437   $14,734,206 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:          
Cash paid for:          
Interest  $4,978   $4,703 
Income taxes  $-   $- 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:           
           
Reduction of accrued bonuses in connection with vested restricted common stock unit grants  $427,320   $- 
Reduction of accounts payable in connection with issuance of common stock  $8,250   $- 
Reduction of accounts payable in connection with issuance of restricted stock unit grants  $65,000   $- 
Preferred stock deemed dividend  $-   $3,599,565 

 

See accompanying notes to unaudited consolidated financial statements.

  

 5 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

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, development, and mining 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 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. On July 5, 2016, a wholly-owned subsidiary, Blackjack Gold Corporation, a Nevada corporation, was formed for potential purchases of exploration targets.

 

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 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”).

 

Going concern

 

These consolidated financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. The Company has incurred a net loss of approximately $6.6 million for the six months ended June 30, 2017, has used $6.1 million of net cash in operations for the six months ended June 30, 2017, has incurred a total cumulative deficit of approximately $163.1 million since its inception and requires capital for its contemplated business and exploration activities to take place. The Company plans to raise additional capital to carry out its business plan. The Company’s ability to raise additional capital through future equity and debt securities issuances is unknown. Obtaining additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to profitable operations are necessary for the Company to continue business. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and principles of consolidation

 

The 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 and its wholly-owned subsidiaries as of June 30, 2017. 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, 2017, and the results of operations and cash flows for the six months ended June 30, 2017 have been included. The results of operations for the six months ended June 30, 2017 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, 2016, which are contained in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2017. The consolidated balance sheet as of December 31, 2016, contained herein, was derived from those financial statements.

 

 6 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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, the valuation of deferred tax assets and liabilities, including valuation allowance, 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 preferred stock, capitalized mineral rights, asset valuations, timing of the performance criteria of restricted stock units and the fair value of common stock issued.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with an original 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, 2017, 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.

 

Restricted cash

 

Restricted cash consists of cash and investments which are held as collateral under surface management surety bonds issued on the Company’s behalf. The following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows: 

 

   June 30, 2017   December 31,
2016
 
      (Unaudited)     
         
Cash and cash equivalents  $4,080,437   $11,722,102 
Restricted cash equivalents   3,690,000    2,250,000 
Total cash, cash equivalents and restricted cash equivalents  $7,770,437   $13,972,102 

   

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.
 7 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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, other receivables, prepaid expenses, accounts payable and accrued expenses approximate their estimated fair market values based on the short-term maturity of these instruments.

 

Prepaid expenses and other current assets

 

Prepaid expenses and other current assets of $1,021,527 and $1,139,760 at June 30, 2017 and December 31, 2016, respectively, consist primarily of costs paid for future services which will occur within a year. Prepaid expenses principally include prepayments for consulting, public relations, 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. Included in other current assets are deferred financing costs of $369,240 and $312,415 at June 30, 2017 and December 31, 2016, respectively. The Company defers these costs until such time that the associated financing is completed. Upon completion and recognition of the proceeds, any deferred financing costs will be reported as a direct deduction from the amount of the proceeds received. If it is determined that the contemplated financing will not be completed, any amounts deferred will be expensed.

 

Mineral property acquisition and exploration costs

 

Costs of leasing, 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.

 

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 provide 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 twenty-five years.

 

 8 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Impairment of long-lived assets

 

The Company accounts for the impairment or disposal of long-lived assets according to 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, 2017 and December 31, 2016, 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.

 

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 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.

 

 9 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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.

 

Effective for the fiscal year-ended December 31, 2016, the Company early adopted ASU 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016-09”), which makes several modifications to Topic 718. Upon adoption of ASU 2016-09, the Company recognizes the effect of forfeitures in compensation cost as they occur, rather than estimating forfeitures as of the award date. Any previously recognized compensation cost will be reversed in the period of forfeiture.

 

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.

 

Foreign currency transactions

 

The Company accounts for foreign currency transactions in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”), specifically the guidance in subsection ASC 830-20, “Foreign Currency Transactions”. The U.S. dollar is the functional and reporting currency for the Company and its subsidiaries. Pursuant to ASC 830, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting gains or losses upon settlement reported in foreign exchange gain (loss) in the computation of net income (loss).

 

Recent accounting pronouncements

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods and is applied retrospectively. Early adoption is permitted. The Company does not believe the guidance will have a material impact on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016-09”) as part of FASB's simplification initiative focused on improving areas of GAAP for which cost and complexity may be reduced while maintaining or improving the usefulness of information disclosed within the financial statements. ASU 2016-09 focuses on simplification specifically with regard to share-based payment transactions, including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. The guidance in ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company’s adoption did not have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

 10 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance will be effective for the Company on January 1, 2018. The Company does not believe the guidance will have a material impact on its consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash,” or ASU 2016-18. ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company early adopted ASU 2016-18 for the three-month period-ended June 30, 2017 and its adoption did not have a material impact on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-4, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. When an indication of impairment was identified after performing the first step of the goodwill impairment test, Step 2 required that an entity determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) using the same procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the amendments in ASU No. 2017-4, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. An entity would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. In addition, an entity must consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. A public business entity that is a SEC filer should adopt the amendments in ASU No. 2017-4 for its annual, or any interim, good will impairment tests in fiscal years beginning after December 15, 2019. The Company does not believe the guidance will have a material impact on its consolidated financial statements.

 

In July 2017, the FASB issued ASU 2017-11 “Earnings Per Share (Topic 260). The amendments in the update change the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260, Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features would be subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company does not believe the guidance will have a material impact on its consolidated financial statements.

 

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.

 

 11 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

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 mining lease of private lands 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 private lands covered by 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 begins, the Company can repurchase up to 3% of the royalty on gold production at the rate of $600,000 for each 1%.

 

In September 2013, the Company entered into a lease agreement and purchase option for 19 unpatented mining claims (approximately 400 acres) in the Pershing Pass 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 annual advance minimum royalty payment until September 2023. The annual advance minimum royalty payment 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.

 

Newmont Properties

 

On April 5, 2012, the Company purchased from Victoria Gold Corp. and Victoria Resources (US) Inc. (collectively, “Victoria”) 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.

 

Approximately 8,900 acres of the lands that the Company acquired from Victoria 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 (the “Asset Purchase Agreement”) 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.

 

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.

 

 12 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 3 — MINERAL PROPERTIES (continued)

 

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. Upon the eighth anniversary of the effective date of the Third Amendment, the Company shall pay an annual rental payment of $10.00 per acre if the Company does not incur $500,000 in qualified expenditures during the preceding year. Expenditures incurred in excess of the annual work commitment or rental payment obligation may be carried forward as credits against future annual work commitment obligations or rental payment obligations. As of June 15, 2017, the most recent cost reporting date, the Company can credit approximately $2.8 million in exploration expenditures already incurred against the remaining $2.3 million work commitment and future rental payment obligations.

 

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 on 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.

 

On March 29, 2017, the Company entered into a Mining Sublease with Newmont granting the Company the exclusive right to prospect, explore for, develop, and mine minerals on certain lands within the Pershing Pass area south of the Relief Canyon Mine. The Mining Sublease has an initial term of ten years and may be extended by the Company until December 3, 2034 and so long thereafter as any mining, development, or processing operations are being conducted continuously. The Mining Sublease calls for the Company to make minimum work expenditures for the first four years of the Mining Sublease, followed by annual advanced minimum royalty payments to Newmont to maintain the Mining Sublease in good standing. The Sublease may be terminated any time after providing 90 days written notice of termination. If the required minimum work commitment of $500,000 has not been satisfied prior to termination the Company must pay Newmont the difference between the $500,000 required minimum work commitment and costs already incurred by the Company towards the required minimum work commitment. As of June 30, 2017, the most recent cost reporting date, the Company can credit approximately $200,000 in exploration expenditures already incurred against the $1.5 million work commitment.

 

General

 

The Company has posted statewide surface management surety bonds with the United States Department of the Interior Bureau of Land Management (“BLM”) as required by the State of Nevada in the amount of approximately $12.3 million, which is approximately $76,000 in excess of the coverage requirement as of June 30, 2017, to reclaim land disturbed in its exploration and mining operations. The surface management surety bonds are provided through third-party insurance underwriters. The Company was required to deposit a total of $3,690,000, or 30% of the total surety bonds, in collateral accounts. The funds deposited in the collateral accounts are classified as restricted cash on the Company’s balance sheet.

 

As of June 30, 2017, 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 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.

 

Mineral properties consisted of the following:

 

   June 30,
2017
   December 31,
2016
 
   (Unaudited)     
Relief Canyon Mine — Gold Acquisition  $8,501,071   $8,501,071 
Relief Canyon Mine — Newmont Properties   13,709,441    13,709,441 
Pershing Pass Property   593,400    576,400 
           
   $22,803,912   $22,786,912 

 

 13 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 4 — PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   Estimated Life   June 30,
2017
   December 31,
2016
 
       (Unaudited)     
Furniture and fixtures   5 years   $56,995   $56,995 
Office and computer equipment   1 - 5 years    425,394    416,363 
Land       358,886    358,886 
Building and improvements   5 - 25 years    820,182    820,182 
Site costs   10 years    1,412,624    1,412,624 
Crushing system   20 years    2,505,012    2,505,012 
Process plant and equipment   10 years    3,517,809    3,517,809 
Vehicles and mining equipment   5 - 10 years    605,824    699,025 
         9,702,726    9,786,896 
Less: accumulated depreciation        (5,934,159)   (5,475,916)
                
        $3,768,567   $4,310,980 

 

For the six months ended June 30, 2017 and 2016, depreciation expense amounted to $567,883 and $555,025, respectively. During the six months ended June 30, 2017, the Company wrote off fully depreciated property and equipment for a total of $109,640.

 

NOTE 5 — 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:

 

   June 30,
2017
   June 30,
2016
 
   (Unaudited)   (Unaudited) 
Balance, beginning of period  $895,085   $783,539 
Accretion expense   19,264    9,731 
Reclamation obligations settled   -    - 
Additions and changes in estimates   -    - 
Balance, end of period  $914,349   $793,270 

 

NOTE 6 — 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 establishes.

  

 14 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

 

Series A Convertible Preferred Stock

 

As of June 30, 2017, 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, 2017, 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, 2017, 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, 2017, 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, 2017, 15,151 shares of Series E Preferred Stock, $0.0001 par value, were authorized with 8,946 Series E Preferred shares outstanding.

 

Common Stock

 

Restricted Stock Units

 

In February 2017, the Company granted an aggregate of 116,229 restricted stock units to employees and directors of the Company in connection with employee bonus compensation and annual equity awards to non-employee directors for fiscal year 2016. The fair market value on the date of grant was approximately $382,000. The restricted stock units granted to employees and directors vest 50% on the date of grant and the balance vest over a one-year period from the date of issuance. For each vested restricted stock unit, the holder will be entitled to receive one restricted share of the Company's Common Stock upon the holder's separation of employment under certain circumstances or upon a change in control.

 

In February 2017, the Company granted 25,000 restricted stock units to new employees of the Company. The fair market value on the date of grant was approximately $80,000. The restricted stock units granted to employees vest one-third on December 31, 2017, 2018 and 2019. For each vested restricted stock unit, the holder will be entitled to receive one restricted share of the Company's Common Stock upon the holder's separation of employment under certain circumstances or upon a change in control.

 

In March 2017, the Company granted 50,000 restricted stock units to the CEO of the Company in connection with bonus compensation for fiscal year 2016. The fair market value on the date of grant was approximately $149,500. The restricted stock units granted to the CEO vested upon grant. The Common Stock underlying the restricted stock units will be issued upon on the earlier of a change in control or other acceleration or December 31, 2018.

 

Between February 2017 and March 2017, the Company issued 5,591 shares of Common Stock upon the vesting of 5,591 restricted stock units to former employees. The Company cancelled 3,759 forfeited restricted stock units and retired an aggregate of 10,926 shares of restricted Common Stock due to forfeitures prior to their vesting.

 

In April 2017, the Company converted 15,995 vested restricted stock units into 15,995 shares of the Company’s Common Stock due to the passing of one of the members of the Company’s Board of Directors.

 

Between April 2017 and June 2017, the Company issued 2,351 shares of Common Stock and granted a total of 30,320 restricted stock units to two members of the Company’s Board of Directors as payment in lieu of cash for retainer and meeting fees earned totaling $73,250 for fiscal years 2015 and 2016 and $39,000 for the six months ended June 30, 2017. For each vested restricted stock unit, the holder will be entitled to receive one restricted share of the Company's Common Stock upon the holder's separation of employment under certain circumstances or upon a change in control. 

 

 15 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

 

As of December 31, 2016, the Company recognized a liability for employee bonus compensation with a fair value of approximately $530,000 which was included in accounts payable and accrued expenses. Consequently, the Company recognized stock based compensation of approximately $530,000 during the year ended December 31, 2016 in connection with these transactions. As of June 30, 2017, the Company recorded approximately $427,000 into additional paid in capital and a contemporaneous reduction of accounts payable and accrued expenses in connection with the issuance of vested restricted stock units related to fiscal year 2016 bonus compensations. As of June 30, 2017, the remaining balance of unvested restricted stock units related to fiscal year 2016 bonus compensations amounted to approximately $98,000.

 

During the six months ended June 30, 2017 and 2016, the Company recorded total stock-based compensation expense in connection with restricted stock and restricted stock unit awards of $734,692 and $1,316,646, respectively.  At June 30, 2017, there was a total of $2,192,415 unrecognized compensation expense in connection with restricted stock and restricted stock unit awards.

 

A summary of the status of the restricted stock units as of June 30, 2017, and of changes in restricted stock units outstanding during the six months ended June 30, 2017, is as follows:

 

   Six months ended June 30, 2017 
   (Unaudited) 
   Restricted Stock
Unit
   Weighted
Average
Grant-Date
Fair Value
Per Share
 
Outstanding at December 31, 2016   845,765   $5.68 
Granted   221,549    3.23 
Vested and converted   (21,586)   3.55 
Forfeited   (3,759)   3.41 
Outstanding at June 30, 2017   1,041,969   $5.21 

 

Common Stock Options

 

A summary of the Company’s outstanding stock options as of June 30, 2017 (unaudited) and changes during the six months ended are presented below:

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Life
(Years)
 
Balance at December 31, 2016   1,794,453   $7.21    5.20 
Granted            
Exercised            
Forfeited            
Cancelled            
Balance at June 30, 2017   1,794,453    7.21    4.70 
                
Options exercisable at end of period   1,794,453   $7.21      
Options expected to vest              
Weighted average fair value of options granted during the period       $      

 

 16 

 

  

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 6 — STOCKHOLDERS’ EQUITY (continued)

 

Common Stock Warrants

 

A summary of the Company’s outstanding stock warrants as of June 30, 2017 (unaudited) and changes during the six months ended are presented below:

 

   Number of
Warrants
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Life
(Years)
 
Balance at December 31, 2016   4,311,166   $6.16    0.98 
Granted   100,000    3.45    2.00 
Cancelled   (1,913,403)   7.79     
Forfeited            
Exercised            
Balance at June 30, 2017   2,497,763   $4.80    1.17 
                
Warrants exercisable at June 30, 2017   2,477,763   $4.81    1.17 
                
Weighted average fair value of warrants granted during the period       $0.87      

 

In February 2017, the Company granted 100,000 24-month warrants to purchase shares of Common Stock at an exercise price of $3.45 per share in connection with a contract for services. The warrants vest ratably over the 6-month term of the services agreement. During the six months ended June 30, 2017, the Company recorded total stock-based compensation expense of $69,519 in connection with this stock warrant grant.

 

During January 2017 and February 2017, 1,128,358 warrants to purchase shares of the Company’s Common Stock were forfeited as the warrants were not exercised prior to their expiration date.

 

During April 2017, 785,045 warrants to purchase shares of the Company’s Common Stock were forfeited as the warrants were not exercised prior to their expiration date.

 

NOTE 7 — 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,
2017
   For the Six
Months ended
June 30,
2016
 
   (Unaudited)   (Unaudited) 
Numerator:          
Net loss available to common stockholders  $(6,607,373)  $(9,976,932)
Denominator:          
Denominator for basic and diluted loss per share (weighted-average shares)   28,394,151    24,465,109 
           
Net loss per common share, basic and diluted  $(0.23)  $(0.41)

 

 17 

 

 

PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 7 — NET LOSS PER COMMON SHARE (continued)

 

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, 2017   June 30, 2016 
   (Unaudited)   (Unaudited) 
Common stock equivalents:          
Stock options   1,794,453    1,794,453 
Stock warrants   2,497,763    5,057,598 
Restricted stock units   1,041,969    848,765 
Convertible preferred stock   2,725,092    2,725,092 
Total   8,059,277    10,425,908 

 

NOTE 8 — COMMITMENTS AND CONTINGENCIES

 

Operating Lease

 

The Company leases its corporate facility and certain office equipment under operating leases with expiration dates through 2018. In April 2015, the Company executed a new operating lease agreement for its corporate facility in Lakewood, Colorado. The lease is for a period of 39 months commencing in May 2015 and expiring in July 2018. The Company recognized total deferred rent of $8,381 in connection with this lease agreement as of June 30, 2017. Rent expense was $25,937 and $35,477 for the six months ended June 30, 2017 and 2016, respectively.

 

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

 

2017  $42,171 
2018   45,455 
   $87,626 

 

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:

 

2017  $25,000 
2018   25,000 
2019   25,000 
2020   25,000 
2021   25,000 
Thereafter   42,500 
   $167,500 

 

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PERSHING GOLD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(in United States Dollars)

 

NOTE 8 — COMMITMENTS AND CONTINGENCIES (continued)

 

Credit Facility

 

On November 29, 2016, the Company entered into a non-binding term sheet with Sprott Resource Lending (the “Lender”) pursuant to which the Lender would provide a credit facility with a principal amount of up to $20 million (the “Facility”). The Company’s ability to draw down on the Facility is subject to the negotiation and execution of definitive agreements, completion by the Lender of its due diligence review and the satisfaction of other customary closing conditions. The Facility, when completed, would be available for up to three draws occurring during a period of five months following the closing date. As a condition to any such draw, the Company would be required to raise equity financing not less than the amount drawn. Amounts drawn under the Facility would be secured by a lien on the Relief Canyon Mine and processing facilities and would bear interest at 9.0% per annum. Amounts drawn would mature three years following the date drawn, with monthly principal payments commencing on the earlier of June 30, 2018 or upon achievement of commercial production at the Relief Canyon Mine. The proceeds of the Facility would be used to advance the Relief Canyon project towards production. There is no assurance that definitive agreements with respect to the Facility will be completed or that any amount will be drawn under the Facility.

 

The Company has paid the Lender a structuring fee of $200,000 and a retainer fee of $100,000. Such retainer is refundable and shall be applied against legal fees and expenses incurred. As of June 30, 2017, the fees paid to the Lender and legal fees related to the Facility totaled $369,240 which are included in prepaid expenses and other current assets and will be recorded as a reduction in proceeds received from the Facility when, and if, drawn.

 

 

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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. We completed a preliminary feasibility study (“PFS”) of the Relief Canyon Mine in May 2017 and continue to advance the permitting process and evaluate financing alternatives for the Relief Canyon Mine project.

 

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, 2016.

 

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 planned expenditures and cash position, business goals, planned exploration and metallurgical work, our 2017 drilling program, business strategy, planned permitting activities, geographic surveys and the PFS, plans with respect to an environmental studies to expand the Relief Canyon open-pit mines, our liquidity and capital resources outlook and future financing requirements, the effectiveness of our shelf registration statement and Canadian base shelf prospectus, and estimates and assumptions required under our financial statements.  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 and engineering 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, 2016.

 

Overview

 

During the six months ended June 30, 2017, we focused primarily on engineering and other work related to the potential commencement of mining at the Relief Canyon Mine; continuing permitting and bonding; and financing efforts. An overview of certain significant events follows:

 

·In May 2017, we completed the PFS of the Relief Canyon Mine. The positive PFS recommends that we advance the Relief Canyon Mine to a production decision.

 

·During the quarter ended June 30, 2017, we drilled 12 holes, totaling approximately 4,800 feet, at our Blackjack Project Area, located approximately six miles south of our Relief Canyon Mine.

 

·During the quarter ended March 31, 2017, we successfully completed the environmental permitting process and have secured all necessary permits to restart and expand the Relief Canyon Mine. As part of the permitting process we increased our statewide surface management surety bonds with the United States Department of the Interior Bureau of Land Management (“BLM”) as required by the State of Nevada from approximately $5.6 million to approximately $12.3 million.

 

·On March 29, 2017, we entered into a Mining Sublease with Newmont granting us the exclusive right to prospect, explore for, develop, and mine minerals on certain lands within the Pershing Pass area south of the Relief Canyon Mine.

 

Preliminary Feasibility Study and Mineralized Material Estimate

 

On May 26, 2017, Mine Development Associates of Reno, Nevada (“MDA”) completed a PFS on the Relief Canyon Mine. The PFS included an estimate of mineralized material at the Relief Canyon Mine deposit, calculated at a cut-off grade of 0.005 ounces of gold per ton for oxide material, 0.01 ounces of gold per ton for mixed material and 0.02 ounces of gold per ton for sulfide material. Silver grades were only available for a portion of the deposit. The database used for the mineralized material estimate described below includes 419 core holes and 676 reverse circulation holes for a total of 482,755 feet, of which 415 core holes and 89 reverse circulation holes were drilled by the Company from 2011 to September 2016.

 

 20 

 

 

 

Tons   Average gold grade 
(ounces per ton)
 
 41,876,000    0.019 

  

Tons   Average silver grade 
(ounces per ton)
 
 17,576,000    0.117 

 

“Mineralized material” as used in this quarterly report on Form 10-Q, although permissible under the Securities and Exchange Commission (“SEC”) Guide 7, does not indicate “reserves” by SEC standards.  We cannot be certain that any part of the Relief Canyon deposit will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves.” Investors are cautioned not to assume that all or any part of the mineralized material will be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.

 

The PFS indicates the possibility of a viable mine and recommended work should continue on advancing the project to a production decision. The recommended advancement work would include additional drilling to improve the knowledge of the deposit, and obtaining silver assays for continuous mineralized intervals from past core drilling and new drilling so that more silver values can be added to the economic analysis for the mine. We would also need to arrange financing for the project before any production decision could be made. See “Liquidity and Capital Resources” below.

 

Permitting

 

We have all of the state and federal permits necessary to start mining and heap-leach processing operations. We have planned a two-phase permitting and development scenario for the project. Phase I, which has been fully authorized under our permits, is the re-purposing of previously approved disturbance for expanded mining to a pit bottom elevation of 5,080 feet, partial backfilling of the Phase I pit to approximately 20 feet above the historical groundwater elevation to eliminate a pit lake, expanded exploration operations, full build-out of the heap leach pad to accommodate leaching of the Phase I ore, and construction of a new waste rock storage facility. Phase II would include additional mine expansion activities and would allow mining further below the water table. We will use the mine plan in the PFS as the basis for the Phase II permit applications, and anticipate we will submit the Phase II permit applications in the second half of 2017.

 

Results of Operations

 

Three and Six months ended June 30, 2017 and 2016

 

Net Revenues

 

We are an exploration stage company with no operations, and we generated no revenues for the three and six months ended June 30, 2017 and 2016.  

 Operating Expenses

 

Total operating expenses for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 were approximately $6.6 million and $6.4 million, respectively. The $0.2 million increase in operating expenses for the six months ended June 30, 2017 is comprised of a $0.3 million increase in exploration expenses on our Relief Canyon properties to approximately $0.8 million from $0.5 million in the prior period due to increased direct drilling activities during the current period; an increase in consulting fees of approximately $0.1 million to approximately $1.2 million from $1.1 million as a result of consulting costs associated with the completion of the PFS and increased consulting in connection with services related to obtaining mining license permits; an increase of $0.2 million in general and administrative expenses to approximately $2.2 million from $2.0 million in the prior period, primarily due to increased public company expenses and legal costs offset by a decrease of approximately $0.4 million in compensation to approximately $2.3 million from $2.7 million in the prior period as a result of decreased stock-based compensation.

 

Total operating expenses for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 were approximately $3.3 million and $3.2 million, respectively. The $0.1 million increase in operating expenses for the three months ended June 30, 2017 is comprised of an increase in consulting fees of approximately of $0.4 million to approximately $0.7 from $0.3 as a result of consulting costs associated with the completion of the PFS, an increase of $0.1 million in general and administrative expenses to approximately $1.1 from $1.0 million, offset by the decrease in compensation of approximately $0.4 million to approximately $1.2 from $1.6 million due to decreased stock-based compensation.

 

Loss from Operations

 

We reported a loss from operations of $6.6 million and $6.4 million for the six months ended June 30, 2017 and 2016, respectively. The increase in operating loss was due primarily to the increase in operating expenses described above. We reported a loss from operations of $3.3 million and $3.2 million for the three months ended June 30, 2017 and 2016, respectively.

 

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Other Income (Expenses)

 

Total other income (expense) was approximately ($1,800) and ($4,000) for the six months ended June 30, 2017 and 2016, respectively. The change in other income (expense) is primarily attributable to an increase in foreign currency loss offset by an increase in other income. Total other income (expense) was approximately $11,000 and ($1,300) for the three months ended June 30, 2017 and 2016, respectively. The change in other income (expense) is primarily attributable to an increase in other income.

 

Net Loss

 

As a result of the operating expense and other income (expense) discussed above, we reported a net loss of approximately ($6.6) million for the six months ended June 30, 2017 as compared to a net loss of ($6.4) million for the six months ended June 30, 2016. As a result of the operating expense and other income (expense) discussed above, we reported a net loss of approximately ($3.3) million for the three months ended June 30, 2017 as compared to a net loss of ($3.2) million for the three months ended June 30, 2016.

 

Liquidity and Capital Resources

 

At June 30, 2017, our cash, cash equivalents and restricted cash equivalents totaled $7.8 million. Our cash, cash equivalents and restricted cash equivalents decreased during the six months ended June 30, 2017 by $6.2 million from our cash, cash equivalents and restricted cash equivalents balance at December 31, 2016 of $14.0 million. The decrease in cash and cash equivalents was primarily the result of cash used in operations of $6.1 million that was comprised of costs to complete the PFS, exploration expenditures on our Relief Canyon properties, and general and administrative expenses, including consultant fees, compensation costs, legal fees and public company expenses.

 

We plan the following expenditures for the remainder of fiscal year 2017:

 

·$3.3 million on general and administrative expenses (including employee salaries, public company expenses, consultants, land holding costs and annual insurance premium renewals);

 

·$0.3 million on permitting and the continuation of studies to evaluate the possibility of mining the Relief Canyon Mine below the water table.

 

After the foregoing expenses, we anticipate having approximately $4.2 million in cash, cash equivalents and restricted cash equivalents at the end of fiscal year 2017. We expect to require additional financing to fund our current operations in the first quarter of 2018. There is no assurance that we will be able to obtain additional financing on acceptable terms or at all.

 

The actual amount we spend for fiscal year 2017 may vary significantly from the amounts specified above if we decide to advance the Relief Canyon Mine toward production in 2017. Based on the estimates contained in the PFS, we currently expect to incur capital expenditures and working capital expenses of approximately $35 million. The Company is evaluating various sources of additional financing. No development decision with respect to the Relief Canyon Mine is expected to be made unless and until the Company is able to solidify its financing plans. Our ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. The additional funds necessary to fund the development of the Relief Canyon Mine may not be available to us on acceptable terms or at all.

 

Recent Accounting Pronouncements

 

In February 2016, FASB issued ASU 2016-02, “Leases” (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods and is applied retrospectively. Early adoption is permitted. We do not believe the guidance will have a material impact on our consolidated financial statements.

 

In March 2016, FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016-09”) as part of FASB's simplification initiative focused on improving areas of GAAP for which cost and complexity may be reduced while maintaining or improving the usefulness of information disclosed within the financial statements. ASU 2016-09 focuses on simplification specifically with regard to share-based payment transactions, including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. The guidance in ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. Our adoption did not have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

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In August 2016, FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance will be effective for us beginning on January 1, 2018. We do not believe the guidance will have a material impact on our consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash,” or ASU 2016-18. ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. Early adoption is permitted, including adoption in an interim period. We adopted ASU 2016-18 for the three-month period ended June 30, 2017 and our adoption did not have a material impact on our consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-4, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. When an indication of impairment was identified after performing the first step of the goodwill impairment test, Step 2 required that an entity determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) using the same procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the amendments in ASU No. 2017-4, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. An entity would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. In addition, an entity must consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. A public business entity that is a SEC filer should adopt the amendments in ASU No. 2017-4 for its annual, or any interim, good will impairment tests in fiscal years beginning after December 15, 2019. We do not believe the guidance will have a material impact on our consolidated financial statements.

 

In July 2017, the FASB issued ASU 2017-11 “Earnings Per Share (Topic 260). The amendments in the update change the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260, Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features would be subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company does not believe the guidance will have a material impact on its consolidated financial statements.

 

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. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our 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.

 23 

 

  

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 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.

 

Effective for the fiscal year-ended December 31, 2016, we early adopted ASU 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016-09”), which makes several modifications to Topic 718. Upon adoption of ASU 2016-09, we recognize the effect of forfeitures in compensation cost as they occur, rather than estimating forfeitures as of the award date. Any previously recognized compensation cost will be reversed in the period of forfeiture.

 

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. We have chosen to expense all mineral exploration costs as incurred given that we are still in the exploration stage. Once we have identified proven and probable reserves in our investigation of our properties and upon development of a plan for operating a mine, we 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 we have capitalized mineral properties, these properties will be periodically assessed for impairment of value and any diminution in value. To date, we have 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.

 

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Asset Retirement Obligations

 

Asset retirement obligations, consisting primarily of estimated mine reclamation and closure costs at our 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 3Quantitative and Qualitative Disclosures About Market Risk

 

As a “ smaller reporting company ” as defined by the rules and regulations of the SEC, the Company is not required to provide this information.

 

ITEM 4Controls 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, 2017, 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 disclosure controls and procedures were effective as of June 30, 2017.

 

Changes in Internal Controls

 

There have been no changes in the Company’s internal control over financial reporting during the six months ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1Legal Proceedings

 

None.

 

ITEM 1ARisk Factors

 

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, except for the following risk factor:

 

If we are unable to regain compliance with certain Nasdaq Stock Market listing rules, our common stock could be delisted, which would make our common stock significantly less liquid.

 

As previously announced, on April 10, 2017, we were informed that one of our independent directors, Douglass Scott Barr, had passed away. Mr. Barr had served as a director of since 2016 and was a member of the Audit Committee and Corporate Governance and Nominating Committee and was chair of the Technical Committee. Following the death of Mr. Barr, the Audit Committee has been reduced to two members. As a result, the Company is no longer compliant with The Nasdaq Stock Market LLC (“Nasdaq”) Listing Rule 5605(c)(2) which requires that the Audit Committee consist of at least three members. In accordance with the Nasdaq Listing Rules, on April 10, 2017, the Company notified Nasdaq of Mr. Barr’s passing and the resulting non-compliance with Nasdaq Listing Rule 5605(c)(2).

 

On April 13, 2017, the Company received a written notice from Nasdaq confirming the Company’s non-compliance with Listing Rule 5605(c)(2), and confirming that the Company, in accordance with the cure period provided for in Nasdaq Listing Rule 5605(c)(4), has until the earlier of its next annual stockholders’ meeting or April 9, 2018 to regain compliance. Under Nasdaq Listing Rule 5620(a), the Company’s next annual meeting of stockholders must be held on or prior to December 31, 2017. The Company's Board of Directors intends to identify candidates to replace Mr. Barr and appoint a new director to the Audit Committee who satisfies the applicable requirements of the Nasdaq Listing Rules prior to the expiration of the cure period.

 

If we are unable to regain compliance with the Nasdaq rules prior to the end of the cure period, our common stock could be delisted from the Nasdaq Global Market and our common stock would likely trade in the over-the-counter (“OTC”) market. OTC transactions involve risks in addition to those associated with transactions on a stock exchange. Many OTC stocks trade less frequently and in smaller volumes than stocks listed on an exchange, and accordingly, are less liquid and are likely to be more volatile than exchange-traded stocks. Consequently, the liquidity of our common stock could be greatly impaired, not only in the number of shares which could be bought and sold, but also through difficulties in obtaining price quotations, reduction in our coverage by security analysts and in the news media and lower prices for our securities than might otherwise be attained. These circumstances could have an adverse effect on the ability of an investor to sell any shares of our common stock as well as on the selling price for such shares. Further, if we are delisted, we would incur additional costs under state blue sky laws in connection with any sales of our securities. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

  

ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds

 

On April 9, 2017, the Company issued 15,995 shares of Common Stock upon the vesting of 15,995 restricted stock units to a former director of the Company. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

 

On June 30, 2017, the Company granted 30,320 restricted stock units to two directors of the Company for payment in lieu of cash for retainer and meeting fees earned. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

 

On July 7, 2017, the Company issued 2,351 shares of Common Stock to a director of the Company for payment in lieu of cash for retainer and meeting fees earned. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

 

ITEM 3Defaults Upon Senior Securities

 

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

 

ITEM 4Mine Safety Disclosures

 

None.

 

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ITEM 5Other Information

 

None.

 

ITEM 6Exhibits

 

23.1   Consent of Mine Development Associates Inc.
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 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
+Management contract or compensatory plan or arrangement

  

 27 

 

  

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 11, 2017 By: /s/ Stephen Alfers
    Stephen Alfers
    President and Chief Executive Officer
     (Principal Executive Officer)

 

Date: August 11, 2017 By: /s/ Eric Alexander
    Eric Alexander
    Vice President Finance and Controller
     (Principal Financial Officer)

   

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