3. South Mountain Project

12 Months Ended

Dec. 31, 2017

Notes

3. South Mountain Project

3.         South Mountain Project

On November 8, 2012, the Company, through its wholly-owned subsidiary South Mountain Mines, Inc., (“SMMI”), and Idaho State Gold Company II, LLC (“ISGC II”) formed the Owyhee Gold Trust, LLC, (“OGT”) a limited liability company. In 2015 and through November 2016, disagreements between SMMI and ISGC II resulted in litigation about the status of OGT.      In November 2016, the parties entered into judicially-confirmed Settlement Agreement and Release that resolved outstanding disagreements and provided for a new operating agreement by which SMMI obtained an option to acquired 100% of OGT’s interest in the South Mountain Project upon payment of $5 million.

Under the new OGT operating agreement, SMMI is the sole manager and pays all expenses for exploration and development of the property.  SMMI and ISGC II have 75% and 25% ownership, respectively, in OGT.  SMMI and OGT have a separate Mining Lease with Option to Purchase (“Lease Option”) under which SMMI has an option to purchase the South Mountain mineral interest for a capped $5 million less net returns royalties paid through the date of exercise.  The Lease Option expires in November 2026.  If SMMI exercises the option, the option payment of $5 million less advance royalties will be distributed 100% by OGT to ISGC II.  Under the Lease Option, SMMI pays a $5,000 net returns royalty annually on November 4.

The carrying value of OGT’s net assets consisted of the following on the settlement date after the transfer of equipment: 

	Net Asset Value on Settlement Date	SMMI at 75%	ISGC II at 25%
Land	$  280,333	$  210,250	$    70,083
Mineral Interest	479,477	359,608	119,869
Accrued Reclamation	(65,000)	(48,750)	(16,250)
Net Assets	694,810	521,108	173,702
OGT equipment transferred to SMMI	233,965	233,965	-
Investment in OGT eliminated in consolidation with OGT	(479,477)	(479,477)	-
	$   449,298	$  275,596	$   173,702

The total net asset value of $449,298 was recognized as an increase in additional paid-in capital in 2016.  

With the Settlement Agreement signed on November 6, 2016, the Company has established 75% ownership and full management of the property.  Thus, OGT’s financial information is included 100% in the Company’s consolidated financial statements as of December 31, 2017 and 2016. The Company’s consolidated financial statements reflect ISGC II’s 25% non-controlling interest.   Changes in the non-controlling interest equity balance is as follows:

		Years Ended December 31,
		2017		2016
Balance at beginning of year	$	178,702
Noncontrolling interest portion of net asset acquired in Owyhee Gold Trust settlement		-	$	173,702
Distribution to non-controlling interest		(5,000)		-
Net income (loss) attributable to noncontrolling interest		409		5,000
Balance at end of year	$	174,111	$	178,702