7. Stockholders' Equity

9 Months Ended

Sep. 30, 2015

Notes

7. Stockholders' Equity

7.   STOCKHOLDERS’ EQUITY

Private Placement Offerings

Unit Private Placements

On March 31, 2015, the Company completed the first tranche of the private placement consisting of 4,800,000 units issued at a price of $0.05 per unit and resulted in net proceeds of $239,193. A second tranche of 200,000 units at the same price per unit for net proceeds of $10,000 was completed on April 7, 2015. Each unit consists of one share of our common stock and one full share Class O warrant.  Each full Class O warrant is exercisable to purchase one additional common share of the Company at $0.06, for a period of five years following the date of issue. 

Preferred Shares:

Series A Convertible Preferred Stock:

The Company has 175,000 shares of Series A Convertible Preferred Stock outstanding at September 30, 2015. Originally issued in October 2008, these shares were issued from the designated 1,000,000 shares of Series A Preferred Stock, no par value, with the following rights and preferences:

·         Liquidation Preference: Upon a liquidation event, an amount in cash equal to $2.00 per share (adjusted appropriately for stock splits, stock dividends and the like), for a total of $350,000 at September 30, 2015, together with declared but unpaid dividends to which the holders of outstanding shares of Series A Preferred Stock are entitled shall be paid prior to liquidation payments to holders of Company securities junior to the Series A Preferred Stock.

·         Voting: Each holder of Series A Preferred Stock shall be entitled to vote on all matters upon which holders of common stock would be entitled to vote and shall be entitled to that number of votes equal to the number of whole shares of common stock into which such holder’s shares of Series A Preferred Stock could be converted.

·         Conversion: Any share of Series A Preferred Stock may, at the option of the holder, be converted at any time into six shares of common stock. The Company has the right, at its sole option, to convert all Series A Preferred Stock into common stock after the third anniversary of its issuance if the weighted average trading price of the common stock exceeds $1.00 per share for ten consecutive trading days. The Company also has the right, at its sole option, to convert all Series A Preferred Stock into common stock after the tenth anniversary from the date of issuance.

·         Dividend Rate: The holders of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board, yearly cumulative dividends from the surplus or net profits of the Company at an effective rate of 5% per annum, of the original Series A Preferred Stock purchase price of $1.00 per share. The Series A dividend shall accrue ratably from the date of issuance of the Series A Preferred Stock through the entire period in which shares of Series A Preferred Stock are held and shall be payable to the holder of the Series A Preferred Stock on the conversion date of the Series A Preferred Stock or as may be declared by the Board, with proper adjustment for any dividend period which is less than a full year.

·         Preferential and Cumulative. The Series A dividends shall be payable before any dividends will be paid upon, or set apart for, the common stock of the Company and will be cumulative, so that any dividends not paid or set apart for payment for the Series A Preferred Stock, will be fully paid and set apart for payment, before any dividends will be paid upon, or set apart for, the common stock of the Company.

·         Payment of Dividend: If the Company shall have sufficient earnings to pay a dividend on the Series A Preferred Stock, upon declaration of any dividend by the Board in compliance with the Alaska Code and the Company’s Articles of Incorporation and Bylaws, the holder of Series A Preferred Stock may elect to receive payment of Series A dividend on a dividend payment date in cash, or provisionally in gold. Payment of Series A dividends in gold shall be paid only if the Company is producing gold in sufficient quantities as of the dividend payment date to pay such in-kind dividend and shall be delivered in the form of gold produced from the Company’s Chandalar property.

Series B Convertible Preferred Stock:

The Company has 200 shares of Series B Convertible Preferred Stock outstanding at September 30, 2015. These shares were issued from the designated 300 shares of Series B Preferred Stock, no par value, with the following rights and preferences:

·         Liquidation Preference: Upon a liquidation event, an amount in cash equal to $1,000 per share (adjusted appropriately for stock splits, stock dividends and the like), for a total of $200,000 at September 30, 2015 shall be paid prior to liquidation payments to holders of Company securities junior to the Series B Preferred Stock. Holders of the Company’s Series A Preferred Stock shall be paid in advance of holders of the Series B Preferred Stock on the occurrence of a Liquidation Event.

·         Voting: Each holder of Series B Preferred Stock shall be entitled to vote on all matters upon which holders of common stock would be entitled to vote and shall be entitled to that number of votes equal to the number of whole shares of common stock into which such holder’s shares of Series B Preferred Stock could be converted. Holders of Series B Preferred Stock vote as a single class with the common shares on an as-if-converted basis. No holder of Series B Preferred Stock is entitled to pre-emptive voting rights.

·         Conversion: Shares of Series B Preferred Stock may, at the option of the holder, be converted at any time into a number of fully-paid and non-assessable shares of common stock as is equal to the product obtained by multiplying the Series B shares by $1,000, then dividing by the Series B conversion price of $0.07 per common share. The Series B conversion price is subject to adjustment in accordance with the provisions of the statement of designation.

·         Dividend Rate: The holders of Series B Preferred Stock shall not be entitled to receive dividends.

Warrants:    The following is a summary of warrants for September 30, 2015:

	Shares	Exercise Price ($)	Expiration Date
Class H Warrants: (Issued for Private Placement)
Outstanding and exercisable at January 1, 2014	5,125,936	0.30		May 31, 2016
Outstanding and exercisable at December 31, 2014	5,125,936
Outstanding and exercisable at September 30, 2015	5,125,936
Class I Warrants: (Issued for Private Placement)
Outstanding and exercisable at January 1, 2014	13,906,413	0.40		May 31, 2016
Outstanding and exercisable at December 31, 2014	13,906,413
Outstanding and exercisable at September 30, 2015	13,906,413
Class J Warrants: (Issued for Private Placement)
Outstanding and exercisable at January 1, 2014	8,780,478	0.30		July 29, 2016
Outstanding and exercisable at December 31, 2014	8,780,478
Outstanding and exercisable at September 30, 2015	8,780,478
Class K Warrants: (Issued for Notes payable in gold)
Outstanding and exercisable at January 1, 2014	307,500	0.40		March 29, 2015
Outstanding and exercisable at December 31, 2014	307,500
Warrants expired March 29, 2015	(307,500)
Outstanding and exercisable at September 30, 2015	-
Class L Warrants: (Issued for Private Placement of Preferred Stock
Warrants issued January 23, 2014	2,857,142	0.10		January 23, 2019
Outstanding and exercisable at December 31, 2014	2,857,142
Outstanding and exercisable at September 30, 2015	2,857,142
Class M Warrants: (Issued for Note Payable)
Warrants issued January 29, 2014	1,735,000	0.15		January 29, 2019
Outstanding and exercisable at December 31, 2014	1,735,000
Outstanding and exercisable at September 30, 2015	1,735,000
Class N Warrants: (Issued for Private Placement)
Warrants issued June 6, 2014	7,104,317	0.11		June 6, 2019
Warrants issued June 30, 2014	4,350,180	0.11		June 30, 2019
Warrants issued July 18, 2014	2,408,545	0.11		July 18, 2019
Outstanding and exercisable at December 31, 2014	13,863,042
Outstanding and exercisable at September 30, 2015	13,863,042
Class N-2 Warrants: (Issued for Finders Fees)
Warrants issued July 18, 2014	2,701,386	.055		July 18, 2019
Outstanding and exercisable at December 31, 2014	2,701,386
Outstanding and exercisable at September 30, 2015	2,701,386
Class O Warrants:
Warrants issued March 31, 2015	5,000,000	.06		March 31, 2020
Outstanding and exercisable at September 30, 2015	5,000,000
Class P Warrants: (Issued for Sale of Distribution Interest)
Warrants issued June 23, 2015	2,250,000	.07		June 23, 2020
Outstanding and exercisable at September 30, 2015	2,250,000
Class P-2 Warrants: (Issued for Finders Fees)
Warrants issued June 23, 2015	1,200,000	.05		June 23, 2020
Outstanding and exercisable at September 30, 2015	1,200,000	*
Weighted average exercise of warrants outstanding and weighted average exercise price at September 30, 2015	57,419,397	0.172

Stock Options and Stock-Based Compensation:

Under the Company’s 2008 Equity Incentive Plan, as amended by shareholder vote on November 27, 2013 (the “Plan”), options to purchase shares of common stock may be granted to key employees, contract management and directors of the Company. The Plan permits the granting of nonqualified stock options, incentive stock options and shares of common stock. Upon exercise of options, shares of common stock are issued from the Company’s treasury stock or, if insufficient treasury shares are available, from authorized but unissued shares. Options are granted at a price equal to the closing price of the common stock on the date of grant. The stock options are generally exercisable immediately upon grant and for a period of 10 years. In the event of cessation of the holder’s relationship with the Company, the holder’s exercise period terminates 90 days following such cessation. The Plan authorizes the issuance of up to 9,550,672 shares of common stock, subject to adjustment for certain events, such as a stock split or other dilutive events. As of September 30, 2015, there were a total of 1,925,672 shares available for grant in the Plan, 4,275,000 shares issued or exercised, and 3,350,000 options outstanding.

For the periods ended September 30, 2015 and December 31, 2014, the fair value of stock options was estimated at the date of grant using the Black-Scholes option pricing model, which requires the use of highly subjective assumptions, including the expected volatility of the stock price, which may be difficult to estimate for small reporting companies traded on micro-cap stock exchanges. The fair value of each option grant was estimated on the grant date using the following weighted average assumptions:

	2015	2014
Risk-free interest rate	--	2.17%
Expected dividend yield	--	--
Expected term (in years)	--	10
Expected volatility	--	143%

The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant. The expected term of stock options granted is from the date of the grant. The expected volatility is based on historical volatility. The Company has evaluated previous low occurrences of option forfeitures and believes that current holders of the option will hold them to maturity as has been experience historically; therefore, no variable for forfeiture was used in the calculation of fair value.

During the year ended December 31, 2014, the Company issued 450,000 options to directors. The fair value of these options was determined using a Black Scholes model, resulting in a fair value of $22,050. The Company also issued 2,700,000 common shares to officers, directors, and employees. These shares were issued at the grant date market price of $0.045 per share, resulting in share based compensation expense of $121,025.

A summary of stock option transactions for the period ended September 30, 2015 are as follows:

	Shares	Weighted- Average Exercise Price (per share)	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at December 31, 2013	3,315,000	$      0.28	4.41	$0
Granted	450,000	0.05		$0
Forfeited	(265,000)	0.23
Options outstanding and exercisable at December 31, 2014	3,500,000	$      0.26	4.71	$0
Granted	-	-
Forfeited	(150,000)	0.68
Options outstanding and exercisable at September 30, 2015	3,350,000	$      0.24	4.83	$0
Options available for future grants	1,925,672

For the period ended September 30, 2015, the Company recognized no share-based compensation for employees and directors.