Results of Operations
Year Year Ended Ended 12/31/13 12/31/12 Revenue $ - $ - Operating Expenses General and Administrative 971,138 1,598,502 Exploration Costs 865,474 967,323 Marketing 1,370,225 1,271,551 Total Operating Expenses 3,206,867 3,828,376 Net Operating Loss (3,206,867 ) (3,828,376 ) Other income (loss) (6,845 ) 0 Interest Expense (762,737 ) (39,771 )
Revaluation of Warrant Liability 1,431,844 2,498,597 Net Loss
$ (2,544,605) $ (1,369,550)
We are still in the exploration stage and have no revenues to date.
During the year ended
1. General and Administrative variances due to the following: a. In 2012 there was a total charge to general and administrative for a stock compensation year-end bonus of
$185,000for 500,000 restricted shares issued. This was a non-cash bonus that was given to two individuals in lieu of a cash year-end bonus and performance bonus. This was a one-time charge in 2012. The year-end bonus in 2013 was 400,000 stock options awarded to three individuals with a value of approximately $32,000. b. In 2012 there was a payment made to RMB of $50,000to review the possibility of a financing arrangement. This was an upfront payment made in May 2012and did not guarantee terms of a debt agreement would be met. In December 2012the Company entered into the Facility with RMB. On September 5, 2012the Company had a Promissory Note that included extension payments of common stock. These payments included 50,000 shares issued in October 2012valued at $11,500and 100,000 shares issued in November 2012valued at $38,000. c. The stock options that were awarded in 2011 were fully vested in September 2013. Therefore, in 2012 there was a full year of option compensation charged of approximately $350,000versus approximately $216,000in 2013. However, there was a year-end bonus in 2013 of 400,000 stock options awarded to three individuals with a value of approximately $32,000. See Note 2 in the Notes to the Consolidated Financial Statements for additional discussion of stock options. d. There were additional legal fees in 2012 of approximately $100,000due to the September 2012Promissory Note, the 2012 Private Placement and the RMB Facility. The Company did not have these financing arrangements in 2013 and therefore did not have the related legal expenses. 2. Exploration costs decreased from approximately $967,000in 2012 to approximately $865,000in 2013. This decrease of approximately of $100,000is due to the phase 1 drilling program at the Newsboy Projectwas started at the end of the year in 2011 with the majority of the cost being incurred in 2012. Additionally, there was a phase 2 drilling program that was started and completed in 2012. The phase 3 drilling program was started and completed in 2013 and the phase 4 drilling program was started in December 2013. However, the phase 4 program consisted of shallow drilling. The average drilling expense for phases 1-3 was approximately $225,000versus approximately $25,000for phase 4. 39 3. Marketing expenses in 2013 of approximately $1,370,000versus $1,272,000in 2012 resulted in an increase of approximately $98,000. This increase was due to the payment made in 2012 to Antibes. On December 17, 2012, the Company entered into the Consulting Agreement with Antibes to provide management consulting, business advisory, shareholder information and public relations services to the Company. In connection with the Consulting Agreement, the Company paid Antibes $500,000from the proceeds of a private placement that was completed on December 17, 2012. On January 31, 2013, the Company amended the Consulting Agreement with Antibes to reduce the aggregate cash compensation payable thereunder from $1 millionto $900,000and paid the remaining $400,000from the proceeds of the February 2013Private Placement. The Antibes payment was amortized from December 2012through July 2013. The stock options that were awarded in 2011 charged to marketing were fully vested in September 2013. Therefore, in 2012 there was a full year of option compensation charged of approximately $528,000versus approximately $328,000in 2013. See Note 2 in the Notes to the Consolidated Financial Statements for additional discussion of stock options. 4. Interest expense in 2012 was approximately $40,000versus approximately $763,000in 2013. This increase is due to the RMB Facility that was entered into on December 10, 2012. The cash interest paid to RMB in 2012 was approximately $1,700versus approximately $109,000in 2013. In addition, there was a $244,000cash financing fee that was paid to RMB in December 2012along with warrants issued to RMB with a value of approximately $1,064,000. These amounts are being amortized over the life of the loan which resulted in an interest expense of approximately $37,000in 2012 versus $654,000in 2013. 5. The change in the Revaluation of Warrant Liability from approximately $2,500,000in 2012 versus approximately $1,432,000in 2013. See Note 3 in the Notes to the Consolidated Financial Statements for additional discussion and valuation of the warrant liability.
Liquidity and Capital Resources
As a result of the 2011 Private Placement of
In addition, on
(iii) any proposed changes to the Corporate and Newsboy budget, and (iv) a Proceeds Account (as defined in the Facility Agreement) report no later than 21 days after the end of each quarter summarizing deposits and withdrawals, the Company has provided the required reports to RMB as of the date of this filing.
The Company is allowed to submit a draw down request once a month in accordance with the amounts set out in the agreed upon Corporate budget and Newsboy work program unless otherwise agreed upon between the Company and RMB. The draw down request cannot be for an amount greater than the agreed upon Corporate and Newsboy budgets. Once the draw down request is submitted, RMB has up to five business days to fund the request. As stated in the Facility, once the draw down request is presented to RMB they are obligated to provide the requested funds without discretion assuming no default has occurred and the draw down request complies with the requirements of the Facility. As of the date of this filing all draw down requests that have been presented by the Company to RMB have been properly funded. However, if the Company is in default or a material adverse effect has occurred which will prevent the Company from developing or operating the projects in accordance with the Corporate and Newsboy budgets then RMB has the option of not fulfilling the funding request. The Company is considered to be in default of the Facility if all or any material part of the
The Company completed two phases of drilling in 2012, with a total of 48 drill holes and approximately 14,500 feet, and we completed drilling phase 3 in early
1. A first draw down on
December 11, 2012for approximately $428,000which was used to pay legal fees related to the closing of the RMB Facility of approximately $87,000and the remaining arrangement fee of $244,000due to RMB (the arrangement fee was 7% of the Facility for a total of $294,000, however, the Company paid RMB $50,000in May 2012to be applied to the total arrangement fee leaving a balance due at closing of $244,000), therefore the Company received net cash from the first draw down of approximately $97,000. 2. A second draw down on January 30, 2013for approximately $317,000. 3. A third draw down on March 6, 2013for approximately $242,000. 4. A fourth draw down on April 2, 2013for approximately $337,000. 5. A fifth draw down on June 11, 2013for approximately $400,000. 6. A sixth draw down on September 18, 2013for approximately $150,000. 7. A seventh draw down on October 25, 2013for approximately $50,000. 8. An eighth draw down on November 15, 2013for approximately $150,000. 9. A ninth draw down on December 20, 2013for approximately $526,000.
This leaves a balance to be received of approximately
Milestones completed during 2013 included compilation of all relevant paper data into an electronic format, estimation of resources by an independent engineering firm using historic data and that collected by the Company in 2012 and 2013, perfection of land issues, staking 160 new lode mining claims and continuation of internal economic studies of the
The Company does not intend to utilize the full Facility amount from RMB and will need to raise additional funds to pay off the Facility amount when due,
We have estimated minimum monthly general corporate expenses of
In addition to the continued exploration and commitments scheduled for the Newsboy and Bullfrog Projects, the Company must spend no less than
$100,000prior to June 11, 20132. An additional $150,000prior to June 11, 20143. An additional $200,000prior to June 11, 20154. An additional $200,000prior to June 11, 20165. An additional $200,000prior to June 11, 2017
Furthermore, the Initial Maturity Date of the Note was extended to the Initial Maturity Extension Date and, on such date, the Company failed to pay the principal amount of the Promissory Note, along with all accrued but unpaid interest thereon, and the Initial Extension Maturity Date was automatically extended to
"Second Maturity Date"). Since the Promissory Note was automatically extended to the Second Maturity Date, the Company paid to the holder of the Promissory Note an extension payment equal to 100,000 shares of our common stock. In connection with the Promissory Note the Company issued 150,000 shares to the holder of the Promissory Note.
As part of the 2012 Private Placement, the holder of the Promissory Note in the principal amount of
As previously stated, the Company has obtained funding from RMB for certain agreed corporate expenses and
We have no revenues and do not expect to have revenues in 2014. The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should we be unable to continue as a going concern, we may be unable to realize the carrying value of our assets and to meet our obligations as they become due. To continue as a going concern, we are dependent on continued fund raising. However, we have no commitment from any party to provide additional capital and there is no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to us. The Company is currently exploring various financing alternatives to refinance or repay the amount outstanding to RMB. To do so, the Company will have to raise additional funds from external sources. There can be no assurance that additional financing will be available at all or on acceptable terms. If additional financing is not available, we may have to substantially reduce or cease operations. Further, if the Company fails to restructure or refinance its RMB indebtedness or should any of RMB's indebtedness be accelerated, the Company will not have adequate liquidity to fund its operations, meet its obligations (including its debt payment obligations) and we may not be able to continue as a going concern, and will likely be forced to surrender our ownership interest in the
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.
Critical Accounting Policies and Use of Estimates
Stock based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes pricing model. The Company estimates the volatility of its common stock at the date of grant based on the volatility of comparable peer companies which are publicly traded. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.
The Company accounts for derivative instruments in accordance with FASB ASC 815, Derivatives and Hedging, which requires additional disclosures about the Company's objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for, and how the derivative instruments and related hedging items affect the financial statements. The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt and equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability.