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 September 30, 2013
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File No. 000-22905
GOLDEN PHOENIX MINERALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada | 41-1878178 | |
(State or Other Jurisdiction Of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |
125 East Main Street, Suite 602, American Fork, Utah | 84003 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code (801) 418-9378
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 checkmark 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).
Yes x No ¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-3 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) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
Yes ¨ No x
As of November 10, 2013 there were 391,851,524 outstanding shares of the registrant’s common stock.
GOLDEN PHOENIX MINERALS, INC.
FORM 10-Q INDEX
QUARTER ENDED SEPTEMBER 30, 2013
Page Number | |
PART I – FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Condensed Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012 | 3 |
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months and Nine Months Ended September 30, 2013 and 2012 (Unaudited) | 4 |
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited) | 5 |
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 30 |
Item 4. Controls and Procedures | 30 |
PART II – OTHER INFORMATION | |
Item 1. Legal Proceedings | 30 |
Item 1A. Risk Factors | 31 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 31 |
Item 3. Defaults Upon Senior Securities | 31 |
Item 4. Mine Safety Disclosures | 31 |
Item 5. Other Information | 31 |
Item 6. Exhibits | 32 |
Signature Page | 33 |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GOLDEN PHOENIX MINERALS, INC.
Condensed Consolidated Balance Sheets
September 30, 2013 | December 31, 2012 | |||||||
ASSETS | (Unaudited) | |||||||
Current assets: | ||||||||
Cash | $ | 3,670 | $ | 287,704 | ||||
Prepaid expenses and other current assets | 2,579 | 9,754 | ||||||
Marketable securities | - | - | ||||||
Total current assets | 6,249 | 297,458 | ||||||
Property and equipment, net (substantially all held for sale) | 1,216 | 72,384 | ||||||
Debt issuance costs | 4,281 | - | ||||||
$ | 11,746 | $ | 369,842 | |||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,241,130 | $ | 1,220,868 | ||||
Accrued liabilities | 648,578 | 738,932 | ||||||
Accrued interest payable | 101,778 | 84,710 | ||||||
Notes payable | 1,551,630 | 1,534,275 | ||||||
Derivative liability | 97,043 | - | ||||||
Amounts due to related party | 115,066 | �� | 115,066 | |||||
Total current liabilities | 3,755,225 | 3,693,851 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Preferred stock, no par value, 50,000,000 shares authorized, none issued | - | - | ||||||
Common stock; $0.001 par value, 800,000,000 shares authorized, 391,851,524 and 369,651,524 shares issued and outstanding, respectively | 391,852 | 369,652 | ||||||
Additional paid-in capital | 58,447,996 | 58,256,712 | ||||||
Treasury stock, 415,392 shares at cost | (49,008 | ) | (49,008 | ) | ||||
Accumulated deficit | (62,534,319 | ) | (61,901,365 | ) | ||||
Total stockholders’ deficit | (3,743,479 | ) | (3,324,009 | ) | ||||
$ | 11,746 | $ | 369,842 |
See accompanying notes to condensed consolidated financial statements
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GOLDEN PHOENIX MINERALS, INC.
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Rental income | $ | - | $ | 7,800 | $ | - | $ | 33,700 | ||||||||
Operating costs and expenses: | ||||||||||||||||
Exploration and evaluation expenses | 17,240 | 84,081 | 139,540 | 314,283 | ||||||||||||
General and administrative expenses | 103,741 | 326,970 | 407,876 | 1,644,959 | ||||||||||||
Depreciation and amortization expense | 449 | 11,769 | 5,160 | 46,715 | ||||||||||||
Total operating costs and expenses | 121,430 | 422,820 | 552,576 | 2,005,957 | ||||||||||||
Loss from operations | (121,430 | ) | (415,020 | ) | (552,576 | ) | (1,972,257 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest and other income | - | 124 | 48 | 1,410 | ||||||||||||
Interest expense | (27,607 | ) | (7,928 | ) | (45,015 | ) | (517,701 | ) | ||||||||
Gain (loss) on derivative liability | 35,251 | - | (22,043 | ) | - | |||||||||||
Foreign currency gain (loss) | (2,533 | ) | 13,306 | 9,602 | (58,661 | ) | ||||||||||
Gain (loss) on disposition of property and equipment | (58,009 | ) | 13,516 | (58,009 | ) | 13,077 | ||||||||||
Gain on extinguishment of debt | - | - | 35,039 | - | ||||||||||||
Impairment of marketable securities | - | (302,650 | ) | - | (302,650 | ) | ||||||||||
Gain on disposition of interest in LLC | - | - | - | 6,209,912 | ||||||||||||
Gain on rescission of joint venture agreement | - | 843,695 | - | 843,695 | ||||||||||||
Total other income (expense) | (52,898 | ) | 560,063 | (80,378 | ) | 6,189,082 | ||||||||||
Income (loss) before income taxes | (174,328 | ) | 145,043 | (632,954 | ) | 4,216,825 | ||||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net income (loss) | (174,328 | ) | 145,043 | (632,954 | ) | 4,216,825 | ||||||||||
Unrealized gain on marketable securities | - | 51,400 | - | 139,200 | ||||||||||||
Comprehensive income (loss) | $ | (174,328 | ) | $ | 196,443 | $ | (632,954 | ) | $ | 4,356,025 | ||||||
Income (loss) per common share, basic and diluted | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ | 0.01 | ||||||
Weighted average number of common shares outstanding - basic and diluted | 391,262,218 | 394,236,133 | 381,042,725 | 383,156,011 |
See accompanying notes to condensed consolidated financial statements
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GOLDEN PHOENIX MINERALS, INC.
(Unaudited)
Nine Months Ended September 30, | ||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (632,954 | ) | $ | 4,216,825 | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 5,160 | 46,715 | ||||||
Stock-based compensation | 2,283 | - | ||||||
Amortization of debt issuance costs to interest expense | 1,719 | 287,869 | ||||||
Amortization of debt discount to interest expense | 22,950 | - | ||||||
Loss on derivative liability | 22,043 | - | ||||||
Foreign currency loss | - | 48,900 | ||||||
(Gain) loss on disposition of property and equipment | 58,009 | (13,077 | ) | |||||
Gain on extinguishment of debt | (35,039 | ) | - | |||||
Issuance of warrants for services | - | 57,829 | ||||||
Impairment of marketable securities | - | 302,650 | ||||||
Gain on rescission of joint venture agreement | - | (500,000 | ) | |||||
Gain on disposition of interest in LLC | - | (6,209,912 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Decrease in prepaid expenses and other current assets | 7,175 | 83,524 | ||||||
Increase in accounts payable | 55,300 | 795,589 | ||||||
Increase in accrued liabilities | 137,915 | 212,499 | ||||||
Net cash used in operating activities | (355,439 | ) | (670,589 | ) | ||||
Cash flows from investing activities: | ||||||||
Proceeds from the disposition of property and equipment | 8,000 | 32,250 | ||||||
Purchase of property and equipment | - | (2,735 | ) | |||||
Net cash provided by investing activities | 8,000 | 29,515 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of debt | 75,000 | - | ||||||
Payment of debt issuance costs | (6,000 | ) | - | |||||
Payments of notes payable and long-term debt | (5,595 | ) | (42,979 | ) | ||||
Net proceeds from the sale of common stock | - | 412,500 | ||||||
Proceeds from the issuance of warrants | - | 420,000 | ||||||
Net cash provided by financing activities | 63,405 | 789,521 | ||||||
Net increase (decrease) in cash | (284,034 | ) | 148,447 | |||||
Cash, beginning of the period | 287,704 | 154,607 | ||||||
Cash, end of the period | $ | 3,670 | $ | 303,054 |
See accompanying notes to condensed consolidated financial statements
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GOLDEN PHOENIX MINERALS, INC.
Notes to Condensed Consolidated Financial Statements |
September 30, 2013 |
(Unaudited) |
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION |
Golden Phoenix Minerals, Inc. (the “Company” or “Golden Phoenix”) is a mineral exploration and development company engaged in acquiring mineral properties with potential production and future growth through exploration discoveries. Pending requisite funding, our current growth strategy is focused on the expansion of our operations through the development of mineral properties into joint ventures or royalty mining projects. Our current efforts are focused in Nevada and Panama.
The Company was formed in Minnesota on June 2, 1997. On May 30, 2008, the Company reincorporated in Nevada.
The accompanying condensed consolidated financial statements include the accounts of the Company and of Ra Minerals, Inc. (“Ra Minerals”), a wholly-owned subsidiary. All intercompany accounts and balances have been eliminated in consolidation.
The interim financial information of the Company as of September 30, 2013 and for the three months and nine months ended September 30, 2013 and 2012 is unaudited, and the balance sheet as of December 31, 2012 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial statements. Accordingly, they omit or condense notes and certain other information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in Note 2 to the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. In the opinion of management, all adjustments that are necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the three months and nine months ended September 30, 2013 are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2013. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.
Certain amounts in the condensed consolidated financial statements for the three months and nine months ended September 30, 2012 have been reclassified to conform to the current period presentation.
NOTE 2 – GOING CONCERN
Our condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, we have a history of operating losses since our inception in 1997, and have an accumulated deficit of $62,534,319 and a total stockholders’ deficit of $3,743,479 at September 30, 2013. Our only source of operating revenues in the recent past has been minimal rental income from our drilling equipment. We have sold or are currently offering for sale the assets of our drilling division, and will have no more revenues from this source.
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As more fully described in these Notes to Condensed Consolidated Financial Statements and elsewhere in this quarterly report, we currently own or have entered into options and agreements for the acquisition of certain mineral properties. None of these mineral properties currently have proven or probable reserves. We will be required to raise significant additional capital to fund our operations and to complete the acquisition of the interests in and further the exploration, evaluation and development of our existing mineral properties and other prospects. There can be no assurance that we will be successful in raising the required capital or that any of these mineral properties will ultimately attain a successful level of operations.
Because of the negative impact of disputes and litigation on our fund raising efforts, including the foreclosure and sale of our interest in the Mineral Ridge LLC and the rescission of our joint venture in Panama, and other negative market factors, we have been unable to raise the capital necessary to continue our mineral property exploration and evaluation activities and fund our operations. We have obtained only limited convertible debt financing to partially fund certain general and administrative expenses. As a result, we have significantly scaled back our mineral property acquisition and development plans and reduced the level of our operations. There can be no assurance that we will be successful in our efforts to obtain additional financing, or that we will be successful in our efforts to continue to raise capital at favorable rates or at all. If we are unable to raise sufficient capital to meet our current obligations, we may be forced to further reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws. These factors and our negative working capital position together raise doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – MINERAL PROPERTIES
Because of lack of funds and scaling back our operations, we have allowed certain of our mineral property claims interests to lapse, and we have abandoned the projects to focus on those properties, which in the opinion of management, have the best potential for success. Our mineral properties consist of our 10% interest in the Santa Rosa, Panama gold project and options to acquire interests in the Mhakari and North Springs properties in Nevada. These exploration projects currently do not have proven or probable reserves.
Santa Rosa, Panama
During the year ended December 31, 2011, extensive efforts were directed toward the acquisition and advancement of the Santa Rosa, Panama project. The Santa Rosa gold deposit is located near the city of Cañazas in Veraguas Province, Panama, approximately 300 kilometers southwest of Panama City. On July 9, 2011, we entered into a letter of intent with Silver Global, S.A. (“Silver Global”) to acquire an interest in the Santa Rosa gold mine (“Santa Rosa”). On September 16, 2011, we entered into a Definitive Acquisition Agreement to acquire a 60% interest, with an option to buy an additional 20% interest, in the Santa Rosa gold mine, via ownership in Golden Phoenix Panama S.A. (the “JV Company”), in consideration for $20,500,000 in cash over a period of approximately 12 to 15 months (with the final earn-in to occur upon achieving commercial production) and $4,500,000 in shares of our common stock (at an agreed upon value of $0.18 per share). We subsequently completed a Joint Venture Operating Agreement with Silver Global and effected transfer of all concessions to JV Company. We made payments in the aggregate amount of $4,500,000 in cash and issued 25,000,001 shares of our common stock in consideration for a 15% interest in the JV Company.
Effective July 23, 2012 and subsequently amended effective July 30, 2012, we entered into a Rescission and Release Agreement (the “Rescission Agreement”) with Silver Global and the JV Company (collectively the “Parties”) whereby the Parties agreed to resolve their disputes and rescind the Definitive Acquisition Agreement.
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In accordance with the terms of the Rescission Agreement, Silver Global agreed to return and pay to us a total of $4,100,000 in scheduled payments over twelve months, subject to a discount of $750,000 as consideration for timely payments, and return to us for cancellation 25,000,001 shares of our common stock. We were to transfer our 15% ownership interest in the JV Company to Silver Global in tranches concurrent with scheduled payments. In the event of any default in the scheduled payments, we were keep the unpaid portion of the 15% interest in the JV Company, allowing us to either hold the interest or sell it to a third party. Further, as part of the Rescission Agreement, all rights and obligations of the parties under the Santa Rosa Acquisition Agreement were immediately terminated, including the extinguishment of an outstanding loan for $500,000 payable by us to Silver Global.
Concurrent with the execution of the Rescission Agreement and our receipt of the first payment of $350,000 on August 8, 2012, the arbitration proceedings previously filed by us against Silver Global and pending before the International Chamber of Commerce were dismissed, without prejudice. As a result of the $350,000 payment from Silver Global and the extinguishment of the $500,000 note payable, less related bank and legal fees of $6,305, we recorded an $843,695 gain on rescission of the joint venture.
In October 2012, Silver Global returned to us the 25,000,001 shares of our common stock and we cancelled these shares. However, Silver Global elected not to make the scheduled January 2013 payment of $1,000,000, forfeiting its right to the $750,000 discount, and elected not to make further payments in July 2013 as scheduled in the Rescission Agreement. As a result, we currently own a 10% interest in the JV Company. We intend to either participate as a 10% owner in the Santa Rosa project, or sell all or a part of our interest in the JV Company to a third party.
Vanderbilt, Coyote Fault and Coyote Fault Extension Properties, Esmeralda County, Nevada (“Mhakari Properties”)
Vanderbilt
The Vanderbilt property is within 4 miles of the town of Silver Peak, Nevada and highway 265 via Coyote Road. It is comprised of 44 claims, plus 3 patented claims and is located on the southern flank of Mineral Ridge and is within the Silver Peak Range. The Vanderbilt property is within the middle of the Walker Lane tectonic belt with the Sierra uplift to the west and the Basin and Range to the east. Phase I geologic mapping and outcrop sampling (above ground) was completed in October 2010, resulting in average grades of 2.1 g/t gold and 58.6 g/t silver. Phase II exploration program (below ground) in the old mine workings was commenced during the first quarter of 2011 to help identify drill targets, with an exploratory drill program expected to begin in the near term as funding permits.
Coyote Fault/Coyote Fault Extension
The Coyote Fault/Coyote Fault Extension claims are within nine miles of Silver Peak, Nevada and Hwy 265 via Coyote Road. They are comprised of 110 contiguous claims and are also located in the middle of the Walker Lane tectonic belt with Sierra Block uplift to the west and the Basin and Range to the east. The property is on the northern flank of Mineral Ridge and is along the eastern edge of the Silver Peak Range. Phase I geologic mapping and outcrop sampling (above ground) was completed on the Coyote Fault claim group (38 claims) in December, 2010, which identified a new potential gold exploration target. Geological mapping of the Coyote Extension claim group (72 claims) is planned for the near term as funding permits.
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Amended and Restated Option Agreement
On February 26, 2013, we entered into an Amended and Restated Option Agreement with Mhakari with respect to the Mhakari Properties, which terminated all rights and obligations under prior agreements and restated the parties’ agreement with respect to each of the Mhakari Properties.
Mhakari granted us an option to acquire up to an undivided 80% interest in the Mhakari Properties for the following consideration to be paid by us to Mhakari:
Cash payments: $25,500, payable $20,000 upon execution of the agreement (which amount was paid) and $5,500 within 60 days thereafter ($5,000 of which was paid); $20,000 payable on the 3 month anniversary of the agreement; $15,000 on the 6 month anniversary of the agreement; and $50,000 on the 15 month anniversary of the agreement. We currently are in default on the $500 balance of the 60-day payment, the $20,000 3-month payment and the $15,000 6-month payment.
Equity payments: 8,000,000 shares of our common stock upon the execution of the agreement (which shares were issued April 22, 2013); an additional 7,000,000 shares of our common stock on the 4 month anniversary of the agreement (which shares were issued July 2, 2013); and an additional 5,000,000 shares on the 12 month anniversary of the agreement.
Work commitment: $500,000 in exploration and development expenditures on the Mhakari Properties within 18 months of the date of the agreement; an additional $500,000 in exploration and development expenditures between 18 months and 30 months from the date of the agreement; with no less than $2,000,000 in exploration and development expenditures in the aggregate within 48 months from the date of the agreement. Inclusive in this work commitment, we are to earmark no less than $10,000 per contract year for 4 years to enhancing safety on the Mhakari Properties.
Upon satisfying the consideration payable under the agreement, we shall receive an 80% undivided interest in the Mhakari Properties and the parties shall enter into a joint venture to further develop the Mhakari Properties, with us retaining an 80% interest in the joint venture. In the event that we fail to satisfy the entire purchase price by completing all cash, equity and work commitment payments within the required time frames, the agreement will be deemed to have been terminated and all payments made to date will be forfeited to Mhakari with no interest earned by us in the Mhakari Properties.
As of the date of filing this report, we had not made the $500 cash payment balance due in April 2013, the $20,000 cash payment due in May 2013, and the $15,000 cash payment due in August 2013 pursuant to the Amended and Restated Option Agreement. We are currently in discussions with Mhakari and anticipate making payments in the near future as funding permits.
North Springs Properties, Esmeralda County, Nevada
Under the terms of an Exploration and Mining Lease with Options to Purchase Agreement effective June 17, 2013 (the “North Springs Agreement”), we acquired the rights to 16 unpatented lode mining claims on BLM lands in Esmeralda County, Nevada, located near the operating Mineral Ridge gold project (the “North Springs Properties”). As required by the North Springs Agreement, we made advance royalty payments of $5,000 cash in June 2013 and issued 1,000,000 shares of our common stock in July 2013. We are further obligated to make the following payments under the terms of the North Springs Agreement:
Date | Cash Payment | Common Share Payment | |||
First Anniversary of Effective Date | $ | 10,000 | 1,000,000 shares | ||
Second Anniversary of Effective Date | $ | 15,000 | 1,000,000 shares | ||
Third Anniversary of Effective Date | $ | 20,000 | 1,000,000 shares | ||
Fourth Anniversary of Effective Date | $ | 25,000 | 1,000,000 shares | ||
Fifth Anniversary of Effective Date | $ | 30,000 | |||
Six through Tenth Anniversary of Effective Date | $ | 50,000 | |||
Eleventh through Fifteenth Anniversary of Effective Date | $ | 75,000 | |||
Sixteenth and Each Subsequent Anniversary of Effective Date | $ | 100,000 |
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Subject to prior termination, the term of the North Springs Agreement shall be for a period of twenty years commencing on the effective date. The Company is obligated to pay a production royalty equal to three percent of the Net Smelter Returns (“NSR”) from the production or sale of minerals from the North Springs Properties and meet defined minimum annual work commitments ranging from $10,000 in the first year to $100,000 beginning in the fifth year and thereafter
As previously described, because of lack of funding we currently are unable to significantly advance the exploration and evaluation activities on our mineral properties. Exploration and evaluation expenses included in our condensed consolidated statements of operations and comprehensive loss were comprised of expenses incurred for the following exploration mineral properties opportunities:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Santa Rosa | $ | - | $ | - | $ | - | $ | 64,516 | ||||||||
Mhakari Properties | 15,000 | - | 125,900 | - | ||||||||||||
North Springs Properties | 2,240 | - | 13,640 | - | ||||||||||||
General and other | - | 84,081 | - | 249,767 | ||||||||||||
Total | $ | 17,240 | $ | 84,081 | $ | 139,540 | $ | 314,283 |
NOTE 4 – MARKETABLE SECURITIES
Our marketable securities consist of 1,250,000 shares of American Mining Corporation common stock (“AMC”) and the 3,000,000 shares of Win-Eldrich Mines Ltd (“WEX”) common stock received in October 2011 in the settlement of a promissory note resulting from the sale of our interest in the Ashdown Project LLC. The marketable securities are recorded at market value, with market value based on market quotes and reduced by estimated impairment losses. We have classified these marketable securities as securities held-for-sale in accordance with Accounting Standards Update (“ASU”) Topic 320, Investments – Debt and Equity Securities. Unrealized gains and losses resulting from changes in market value are recorded as other comprehensive income, a component of stockholders’ equity in our consolidated balance sheet.
On May 9, 2012, trading of WEX common shares was halted on the Toronto Stock Exchange due to WEX not timely filing its annual report and audited financial statements. This trading suspension has not been resolved by WEX and no market for the WEX common shares has developed.
There is limited trading of the AMC shares and no market for the AMC shares has developed.
After considering the nature of the operations of AMC and WEX, the lack of trading volume of the shares, the number of shares held by us, and other factors, we have concluded that the recorded value of marketable securities at September 30, 2013 and December 31, 2012 should be fully impaired and that the impairment loss is other-than-temporary.
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NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
September 30, 2013 | December 31, 2012 | |||||||
Computer equipment | $ | 2,736 | $ | 7,924 | ||||
Support equipment | 39,932 | 39,932 | ||||||
Drilling equipment | - | 141,601 | ||||||
Office furniture and equipment | - | 7,459 | ||||||
42,668 | 196,916 | |||||||
Less accumulated depreciation and amortization | (41,452 | ) | (124,532 | ) | ||||
$ | 1,216 | $ | 72,384 |
Our support equipment was idle and held for sale at September 30, 2013 and December 31, 2012.
NOTE 6 – ACCRUED LIABILITIES
Accrued liabilities consisted of the following at:
September 30, 2013 | December 31, 2012 | |||||||
Accrued payroll and related | $ | 95,143 | $ | 124,112 | ||||
Liabilities assumed in Ra Minerals acquisition | 172,542 | 178,018 | ||||||
Put option liability | 120,000 | 120,000 | ||||||
Legal and consulting fees | 209,350 | 275,760 | ||||||
Other | 51,543 | 41,042 | ||||||
$ | 648,578 | $ | 738,932 |
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NOTE 7 – NOTES PAYABLE
Our notes payable consisted of the following at:
September 30, 2013 | December 31, 2012 | |||||||
Note payable to Komatsu Equipment Company, with principal payments of $58,486 on June 30, 2008, $58,486 on June 30, 2009, and $58,485 on June 30, 2010, with interest at 8%, unsecured | $ | 175,457 | $ | 175,457 | ||||
Convertible note payable to an institutional investor, with interest at 8% per annum, payable March 6, 2014, net of discount of $24,109 | 18,391 | - | ||||||
Convertible note payable to an institutional investor, with interest at 8% per annum, payable May 27, 2014, net of discount of $27,941 | 4,559 | - | ||||||
Convertible notes payable to SV, non-interest bearing, payable September 30, 2012 | 500,000 | 500,000 | ||||||
Convertible note payable to SV, non-interest bearing, payable September 30, 2012 | 413,223 | 413,223 | ||||||
Note payable to Pinnacle, non-interest bearing, payable in scheduled monthly payments ranging from $15,000 to $30,000 through August 2012 | 190,000 | 190,000 | ||||||
Convertible note payable to Pinnacle, non-interest bearing, payable October 31, 2013 | 250,000 | 250,000 | ||||||
Capital lease payable to Heartland Wisconsin Corp., repaid in 2013 | - | 5,595 | ||||||
$ | 1,551,630 | $ | 1,534,275 |
Convertible Notes Payable to Institutional Investor
On June 4, 2013 and August 22, 2013,we entered into a convertible promissory notes payable to an institutional investor (“investor”) for $42,500 and $32,500, respectively, (“Convertible Notes”), which bear interest at an annual rate of 8% and matures on March 6, 2014 and May 27, 2014, respectively. The investor has the right, after the first 180 days of the notes, to convert the Convertible Notes and accrued interest in whole or in part into shares of our common stock at a price per share equal to 58% (representing a discount rate of 42%) of the average of the lowest three trading prices for our common stock during the ten trading day period ending one trading day prior to the date of the conversion notice.
At any time for the period beginning on the date of the Convertible Notes and ending on the date which is 30 days following the date of the Convertible Notes, we may prepay the Convertible Notes upon payment of an amount equal to the outstanding principal multiplied by 110%, together with accrued and unpaid interest. The amount of the prepayment increases every subsequent 30 days to 115%, 120%, 125%, 130% and 135% of the outstanding principal together with accrued and unpaid interest. After the expiration of 180 days following the date of the Convertible Notes, we will have no right of prepayment.
At the inception of the June 4, 2013 Convertible Note, we recorded debt issuance costs of $3,000 and a debt discount and a derivative liability of $42,093 related to the conversion feature. At the inception of the August 22, 2013 Convertible Note, we recorded debt issuance costs of $3,000, a debt discount of $32,500 and a derivative liability of $55,894. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the Convertible Notes. As of September 30, 2013, accrued interest payable on the Convertible Notes was $1,377.
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During the nine months ended September 30, 2013, we had the following activity in the accounts related to the Convertible Notes:
Derivative Liability | Debt Discount | Loss on Derivative Liability | ||||||||||
Derivative liability at inception of the note | $ | 97,988 | $ | (74,593 | ) | $ | (23,395 | ) | ||||
Gain on derivative liability | (945 | ) | (407 | ) | 1,352 | |||||||
Amortization of debt discount to interest expense | - | 22,950 | - | |||||||||
Balance at September 30, 2013 | $ | 97,043 | $ | 52,050 | $ | (22,043 | ) |
In estimating the fair value of the derivative during the nine months ended September 30, 2013, we used the Black-Scholes pricing model with the following range of assumptions:
Risk-free interest rate | 0.10 – 0.40% |
Expected life in years | 0.76 - 0.43 |
Dividend yield | 0% |
Expected volatility | 204.08 – 310.37% |
Other Notes Payable
The two convertible notes payable to Sala-Valc S.A.C., a Peruvian corporation (“SV”), resulted from an Amendment to Mining Asset Purchase and Strategic Alliance Agreement related to mineral properties in Peru.
The two notes payable to Pinnacle Minerals Corporation (“Pinnacle”) resulted from an Amendment to Membership Interest Purchase Agreement whereby we purchased Pinnacle’s membership interest in Molyco, LLC, which owns or controls portions of mineral properties in Peru. Pinnacle has initiated legal action related to these unpaid obligations (see Note 14).
The parties involved in the mineral property projects in Peru were not able to finalize the transfer agreements to be filed with Peruvian governmental authorities to affect the transfer to us of the mineral properties in Peru. We have therefore discontinued our efforts in Peru, and the ultimate disposition of the convertible notes payable to SV and the notes payable to Pinnacle is dependent on our resolution of our dispute with SV and of the legal action initiated by Pinnacle. We are currently unable to predict the ultimate outcome of these matters.
NOTE 8 – AMOUNTS DUE RELATED PARTY
Amounts due to related party consists of a note due to Robert P. Martin, former Chairman of our Board of Directors, resulting from a debt settlement agreement entered into in April 2010. The repayment terms of the note were restructured as part of a consulting agreement entered into with Mr. Martin effective September 1, 2011. The obligation was paid 50% in November 2011, with the remaining 50% payable on or before February 27, 2012. The remaining note payable balance and related accrued interest payable were still outstanding as of the date of filing this report. At September 30, 2013 and December 31, 2013, the note payable had a principal balance of $115,066, and related accrued interest payable was $12,673 and $7,509, respectively.
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NOTE 9 – STOCKHOLDERS’ DEFICIT
We have 50,000,000 shares of no par value, non-voting convertible preferred stock authorized. As of September 30, 2013 and December 31, 2012, there were no shares of preferred stock outstanding.
We also have 800,000,000 shares of $0.001 par value common stock authorized.
During the nine months ended September 30, 2013, we issued a total of 22,200,000 shares of our common stock: 6,200,000 shares valued at $116,000 to Jeffrey Dahl, a member of our Board of Directors, for services in accordance with our Consulting Agreement with him (Note 13) and 16,000,000 shares valued at $95,200 for exploration and evaluation expenses pursuant to our mineral property option agreements (Note 3).
During the nine months ended September 30, 2012, we issued a total of 26,617,377 shares of our common stock, including: 24,136,364 shares for cash of $412,500 ($425,000 less $12,500 in finder’s fees) and 2,481,013 shares issued upon cashless exercise of warrants recorded at par value of $2,481.
As of September 30, 2013 and December 31, 2012, we had 415,392 shares of our common stock acquired in a previous stock repurchase program that were recorded as treasury shares at a cost of $49,008.
NOTE 10 – STOCK WARRANTS
We have issued warrants to purchase shares of our common stock in connection with equity financing agreements and pursuant to certain consulting agreements.
A summary of the status of our stock warrants as of September 30, 2013, and changes during the nine months then ended is presented below:
Weighted Average | ||||||||
Shares | Exercise Price | |||||||
Outstanding, December 31, 2012 | 34,083,333 | $ | 0.08 | |||||
Granted | - | |||||||
Canceled / Expired | (6,583,333 | ) | $ | 0.17 | ||||
Exercised | - | |||||||
Outstanding, vested and exercisable September 30, 2013 | 27,500,000 | $ | 0.06 |
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The following summarizes the exercise price per share and expiration date of our outstanding warrants to purchase common stock at September 30, 2013:
Expiration Date | Price | Number | ||||||
2013 | $ | 0.125 | 750,000 | |||||
2014 | $ | 0.12 | 1,000,000 | |||||
2014 | $ | 0.125 | 2,750,000 | |||||
2014 | $ | 0.04 | 8,500,000 | |||||
2015 | $ | 0.05 | 4,000,000 | |||||
2017 | $ | 0.06 | 2,500,000 | |||||
2017 | $ | 0.04 | 4,000,000 | |||||
2017 | $ | 0.08 | 4,000,000 | |||||
27,500,000 |
NOTE 11 – STOCK-BASED COMPENSATION
We account for stock-based compensation in accordance with ASU Topic 718, Compensation – Stock Compensation. Under the fair value recognition provisions of this standard, stock-based compensation cost is measured at the grant date based on the estimated value of the award granted, using the Black-Scholes option pricing model, and recognized over the period in which the award vests in general and administrative expenses.
Stock-based compensation expense included in general and administrative expenses for the nine months ended September 30, 2013 and 2012 was $2,283 and $0, respectively. We had no stock-based compensation expense for the three months ended September 30, 2013 and 2012.
During the nine months ended September 30, 2013, we granted to an officer and director stock options to purchase a total of 600,000 shares of our common stock at an exercise price of $0.0042 per share. We estimated the grant date fair value of these options at $0.0038 per share using the Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate | 0.41% |
Expected life in years | 5.0 |
Dividend yield | 0% |
Expected volatility | 149.42% |
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The following table summarizes the stock option activity during the nine months ended September 30, 2013:
Options | Weighted Average Exercise Price | Weighted Average Remaining Contract Term | Aggregate Intrinsic Value | |||||||||||
Outstanding at December 31, 2012 | 7,850,000 | $ | 0.11 | |||||||||||
Granted | 600,000 | $ | 0.004 | |||||||||||
Exercised | - | |||||||||||||
Expired or cancelled | (2,350,000 | ) | $ | 0.13 | ||||||||||
Outstanding, vested and exercisable at September 30, 2013 | 6,100,000 | $ | 0.09 | 2.55 | $ | - |
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $0.0037 as of September 30, 2013 which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.
As of September 30, 2013, there was no future compensation cost related to non-vested stock-based awards not yet recognized in our condensed consolidated statements of operations and comprehensive loss.
NOTE 12 – EARNINGS (LOSS) PER SHARE
The computation of basic earnings per common share is based on the weighted average number of shares outstanding during the period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the weighted average common stock equivalents which would arise from the exercise of stock options, warrants and rights outstanding using the treasury stock method and the average market price per share during the period.
For the three months and nine months ended September 30, 2013 and 2012, there were no common stock equivalents outstanding and, therefore, the computation of basic and diluted earnings per share were the same. At September 30, 2013, we had outstanding options and warrants to purchase a total of 33,600,000 common shares that could have a future dilutive effect on the calculation of earnings per share.
NOTE 13 – CONSULTING AGREEMENTS
Donald B. Gunn
On December 7, 2011, we entered into a Consulting Agreement (the “Gunn Consulting Agreement with Donald Gunn, whereby Mr. Gunn is to provide services to the Company in his role as President of the Company. Mr. Gunn was appointed President of the Company effective March 15, 2011. Pursuant to the Gunn Consulting Agreement, the Company has accrued monthly compensation to Mr. Gunn of $3,000 from July through November 2011 and $6,000 from December 31, 2011 forward.
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Dennis P. Gauger
On January 15, 2013, the Board of Directors appointed Dennis P. Gauger as our Chief Financial Officer and Corporate Secretary. Pursuant to an Independent Contractor Agreement, Mr. Gauger is to perform the agreed upon duties for a period of one year and will be paid $5,000 per month through June 2013 and $7,500 per month for the remainder of the contract. Mr. Gauger is eligible to participate in our stock option plan as approved by the Board of Directors.
Jeffrey Dahl
In March 2011, we entered into a Consulting Agreement (the “2011 Dahl Consulting Agreement”) with Jeffrey Dahl, a member of our Board of Directors (“Dahl”), whereby Mr. Dahl was to develop, coordinate, manage and execute a comprehensive corporate finance and business transaction campaign for us. The 2011 Dahl Consulting Agreement had an initial term of twelve months and could be extended for subsequent terms of twelve months upon mutual written agreement of the parties.
In consideration for services rendered under the 2011 Dahl Consulting Agreement, we issued Mr. Dahl two-year warrants to purchase 250,000 shares of our common stock at an exercise price of $0.125 in each of the months of April 2011 through March 2012.
In April 2012, we entered into a Consulting Agreement (the “2012 Dahl Consulting Agreement”) with Mr. Dahl, whereby Mr. Dahl was to provide certain services to us in seeking out financing and other advisory services. The 2012 Dahl Consulting Agreement had an initial term of twelve months and was not extended upon its expiration in April 2013.
In consideration for services rendered under the 2012 Dahl Consulting Agreement, we were to issue Mr. Dahl 2,000,000 shares of our common stock upon signing and 350,000 shares of our common stock for each of the months of April 2012 through March 2013. In March 2013, we issued 6,200,000 shares of our common stock to Mr. Dahl for services valued at $116,000, based on the estimated market value of the shares, in full payment of our obligation under the 2012 Consulting Agreement.
NOTE 14 – LEGAL MATTERS
On February 27, 2012, the Company was sued by Wayne Caldwell, a former employee claiming he was owed back wages (Wayne Caldwell v. Golden Phoenix Minerals, Inc., case number CV 12 – 00480, in the 2nd Judicial District Court, in and for the County of Washoe, State of Nevada). At a court ordered settlement conference, the parties reached a settlement whereby we agreed to pay Mr. Colwell the sum of $80,000 in satisfaction of all claims. Pursuant to the settlement agreement, we paid Mr. Colwell the sum of $20,000 and agreed to pay the balance of $60,000 prior to August 1, 2013. We paid Mr. Colwell $5,000 in September 2013, but have been unable to pay the remaining obligation.
On May 22 and 2013, the Company was sued by Pinnacle Minerals Corporation, a Florida corporation, seeking payments allegedly due on the two promissory notes discussed in Note 7 issued in connection with a membership interest purchase agreement entered into as of March 7, 2011, relating to a Peruvian mining venture. The case was filed in the United States District Court for the District of Nevada, as “Pinnacle Minerals Corporation v. Golden Phoenix Minerals, Inc., Case number 2:13 – CV – 00915 – MMD – NJK. We filed a motion to stay the litigation and compel arbitration, pursuant to a provision of the subject purchase agreement. Based on negotiations, and agreement and stipulation between the parties, this case was dismissed on July 22, 2013. The parties have agreed to submit the dispute to binding arbitration in Reno, Nevada. No date has been set for the arbitration, and no discovery or other proceedings have yet taken place. We are denying liability in the case and intend to vigorously defend the claims, as well as file a counterclaim and various third-party claims, all of which will be pursued through the arbitration proceedings.
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NOTE 15 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
During the nine months ended September 30, 2013 and 2012, we made no cash payments for income taxes.
During the nine months ended September 30, 2013 and 2012, we made cash payments for interest totaling $2,647 and $35,928, respectively.
During the nine months ended September 30, 2013, we had the following non-cash financing and investing activities:
· | Decreased accrued liabilities by $211,201, increased common stock by $22,200 and increased additional paid-in capital by $189,001 for common shares issued in payment of accrued consulting fees and exploration and evaluation expenses. |
During the nine months ended September 30, 2012, we had the following non-cash financing and investing activities:
· | Increased marketable securities and increased other comprehensive income by $139,200 for unrealized gain on marketable securities. |
· | Increased common stock and decreased additional paid-in capital by $2,481 for cashless exercise of warrants. |
NOTE 16 – RECENT ACCOUNTING PRONOUNCEMENTS
In April 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. Under the new standard, an organization will be required to prepare its financial statements using the liquidation basis of accounting when liquidation is “imminent.” Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). In addition, the new standard provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation method of accounting. The new standard is effective for entities that determine liquidation is imminent during annual periods beginning after December 15, 2013, and interim reporting periods therein. Entities are to apply the requirements prospectively from the day that liquidation becomes imminent, and early adoption is permitted. We are currently unable to determine the impact on our consolidated financial statements of the new standard should we be required to adopt it in the future.
NOTE 17 – SUBSEQUENT EVENTS
On November 5, 2013, we entered into a convertible promissory note with an institutional investor in the principal amount of $15,575, which bears interest at an annual rate of 8% and matures on August 7, 2014. The note has essentially the same terms and features as the convertible notes payable to an institutional investor described in Note 7.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
Except for historical information, the following Management’s Discussion and Analysis contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) our estimates of mineral reserves and mineralized material, (b) our growth strategies, (c) our expectations regarding property acquisitions or exploration plans, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for working capital, (g) our lack of operational experience and (h) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition” as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” described in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (the “SEC”) and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.
OVERVIEW
Golden Phoenix Minerals, Inc. (the “Company,” “Golden Phoenix,” “we,” “us” or “our”) was formed in Minnesota on June 2, 1997. On May 30, 2008, we reincorporated in Nevada. We are a mineral exploration and development company engaged in acquiring mineral properties with potential production and future growth through exploration discoveries. Pending requisite funding, our current growth strategy is focused on the expansion of our operations through the development of mineral properties into joint ventures or royalty mining projects. Our current efforts are focused on Nevada and Panama.
Because of lack of funds and scaling back our operations, we have allowed certain of our mineral property claims interests to lapse, and we have abandoned the projects to focus on those properties, which in the opinion of management, have the best potential for success. Our mineral properties consist of our 10% interest in the Santa Rosa, Panama gold project and options to acquire interests in the Mhakari and North Springs properties in Nevada. These exploration projects currently do not have proven or probable reserves.
As more fully described in the Notes to Condensed Consolidated Financial Statements, we have entered into agreements to acquire an 80% interest in the Vanderbilt Silver and Gold Project, the Coyote Fault Gold and Silver Project, and claims that are an extension to the Coyote Fault property, all located adjacent to the Mineral Ridge property near Silver Peak, Nevada and; rights to the North Springs Properties consisting of unpatented lode mining claims on BLM lands in Esmeralda County, Nevada, located near the operating Mineral Ridge gold project.
Effective July 23, 2012 and subsequently amended effective July 30, 2012, we entered into a Rescission and Release Agreement (the “Rescission Agreement”) with our majority partner in the Santa Rosa, Panama gold project whereby we were to sell our 15% interest in the Santa Rosa project. Only partial payments were made to us pursuant to the Rescission Agreement, and we now own a 10% interest in the Santa Rosa project. We intend to either participate as a 10% owner in the Santa Rosa project, or sell all or a part of our interest in project to a third party.
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GOING CONCERN UNCERTAINTY
Our condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, we have a history of operating losses since our inception in 1997, and have an accumulated deficit of $62,534,319 and a total stockholders’ deficit of $3,743,479 at September 30, 2013. Our only source of operating revenues in the recent past has been minimal rental income from our drilling equipment. We have sold or are currently offering for sale the assets of our drilling division, and will have no more revenues from this source.
As more fully described in these Notes to Condensed Consolidated Financial Statements and elsewhere in this quarterly report, we currently own or have entered into options and agreements for the acquisition of certain mineral properties. None of these mineral properties currently have proven or probable reserves. We will be required to raise significant additional capital to fund our operations and to complete the acquisition of the interests in and further the exploration, evaluation and development of our existing mineral properties and other prospects. There can be no assurance that we will be successful in raising the required capital or that any of these mineral properties will ultimately attain a successful level of operations.
Because of the negative impact of disputes and litigation on our fund raising efforts, including the foreclosure and sale of our interest in the Mineral Ridge LLC and the rescission of our joint venture in Panama, and other negative market factors, we have been unable to raise the capital necessary to continue our mineral property exploration and evaluation activities and fund our operations. We have obtained only limited convertible debt financing to partially fund certain general and administrative expenses. As a result, we have significantly scaled back our mineral property acquisition and development plans and reduced the level of our operations. There can be no assurance that we will be successful in our efforts to obtain additional financing, or that we will be successful in our efforts to continue to raise capital at favorable rates or at all. If we are unable to raise sufficient capital to meet our current obligations, we may be forced to further reduce or terminate operations and file for reorganization or liquidation under the bankruptcy laws. These factors and our negative working capital position together raise doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a variety of estimates and assumptions that affect: (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increases, these judgments become even more subjective and complex. We have identified certain accounting policies that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2012, and several of these critical accounting policies are as follows:
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Marketable Securities
Marketable securities consist of investments in common stock of two publicly held mining companies. The marketable securities are stated at market value, with market value based on market quotes. Unrealized gains and losses resulting from changes in market value are recorded as other comprehensive income, a component of stockholders’ equity in our consolidated balance sheet. Realized gains and losses resulting from the sale or disposition of marketable securities are reflected in net income or loss for the period. Estimated impairment losses that are determined to be other-than-temporary are included in net income or loss for the period.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over estimated useful lives ranging from 3 to 7 years.
Mine development costs are capitalized after proven and probable reserves have been identified. Amortization of mine development costs will be calculated using the units-of-production method over the expected life of the operation based on the estimated proven and probable reserves. As of September 30, 2013 and December 31, 2012, we had no mineral properties with proven or probable reserves and no amortizable mine development costs.
Mineral Property Acquisition Costs
Mineral property acquisition costs are recorded at cost and capitalized where an evaluation of market conditions and other factors imply the acquisition costs are recoverable. Such factors may include the existence or indication of economically mineable reserves, a market for the subsequent sale of the mineral property, the stage of exploration and evaluation of the property, historical exploration or production data, and the geographic location of the property. Once a determination has been made that a mineral property has proven or probable reserves that can be produced profitably, depletion of the capitalized acquisition costs will be computed at the commencement of commercial production on the units-of-production basis using estimated proven and probable reserves. As of September 30, 2013 and December 31, 2012, we had no capitalized mineral property acquisition costs.
Where an evaluation of market conditions and other factors results in uncertainty as to the recoverability of exploration mineral property acquisition costs, the costs are expensed as incurred and included in exploration and evaluation expenses.
Exploration and Evaluation Expenses
Exploration expenses relating to the search for resources suitable for commercial production, including researching and analyzing historic exploration data, conducting topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching and sampling are expensed as incurred.
Evaluation expenses relating to the determination of the technical feasibility and commercial viability of a mineral resource, including determining volume and grade of deposits, examining and testing extraction methods, metallurgical or treatment processes, surveying transportation and infrastructure requirements and conducting market and finance studies are expensed as incurred.
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Mineral Property Development Costs
Mineral property development costs relate to establishing access to an identified mineral reserve and other preparations for commercial production, including infrastructure development, sinking shafts and underground drifts, permanent excavations, and advance removal of overburden and waste rock.
When it is determined that commercially recoverable reserves exist and a decision is made by management to develop the mineral property, mineral property development costs are capitalized and carried forward until production begins. The capitalized mineral property development costs are then amortized using the units-of-production method using proven and probable reserves as the mineral resource is mined.
Proven and Probable Ore Reserves
On a periodic basis, management reviews the reserves that reflect estimates of the quantities and grades of metals at our mineral properties which management believes can be recovered and sold at prices in excess of the total cost associated with mining and processing the mineralized material. Management’s calculations of proven and probable ore reserves are based on, along with independent consultant evaluations, in-house engineering and geological estimates using current operating costs, metals prices and demand for the metals. Periodically, management obtains external determinations of reserves.
Reserve estimates will change as existing reserves are depleted through production, as well as changes in estimates caused by changing production costs and/or metals prices. Reserves may also be revised based on actual production experience once production commences. Declines in the market price of metals, as well as increased production or capital costs or reduced recovery rates, may render ore reserves uneconomical to exploit. Should that occur, restatements or reductions in reserves and asset write-downs in the applicable accounting periods may be required. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. No assurance can be given that the estimate of the amount of metal or the indicated level of recovery of these metals will be realized.
We currently have no proven or probable ore reserves.
Closure, Reclamation and Remediation Costs
Current laws and regulations require certain closure, reclamation and remediation work to be done on mineral properties as a result of exploration, development and operating activities. We periodically review the activities performed on our mineral properties and make estimates of closure, reclamation and remediation work that will need to be performed as required by those laws and regulations and make estimates of amounts that are expected to be incurred when the closure, reclamation and remediation work is expected to be performed. Future closure, reclamation and environmental related expenditures are difficult to estimate in many circumstances due to the early stages of investigation, uncertainties associated with defining the nature and extent of environmental contamination, the uncertainties relating to specific reclamation and remediation methods and costs, application and changing of environmental laws, regulations and interpretation by regulatory authorities, the country where the project is located, and the possible participation of other potentially responsible parties.
As of September 30, 2013 and December 31, 2012, we had no mining projects which had advanced to the stage where closure, reclamation and remediation costs were required to be accrued in our consolidated financial statements.
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Property Evaluations and Impairment of Long-Lived Assets
We review and evaluate the carrying amounts of our mineral properties, capitalized mineral property development costs and related buildings and equipment, and other long-lived assets when events or changes in circumstances indicate that the carrying amount may not be recoverable. Estimated future net cash flows, on an undiscounted basis, from a property or asset are calculated using estimated recoverable minerals (considering current proven and probable reserves and mineralization expected to be classified as reserves where applicable); estimated future mineral price realization (considering historical and current prices, price trends and related factors); operating, capital and reclamation costs; and other factors beyond proven and probable reserves such as estimated market value for the property in an arms-length sale. Reduction in the carrying value of property, plant and equipment, or other long-lived assets, with a corresponding charge to earnings, are recorded to the extent that the estimated future net cash flows are less than the carrying value.
Estimates of future cash flows are subject to risks and uncertainties. It is reasonably possible that changes in circumstances could occur which may affect the recoverability of our properties and long-lived assets.
Debt Issuance Costs
Costs incurred with closing certain debt are capitalized and amortized to interest expense through the life of the debt.
Derivative for Conversion Feature
We estimate the fair value of the derivative for the conversion feature of our Convertible Note using the Black-Scholes pricing model at the inception of the Convertible Note and at each reporting date, recording a derivative liability and a gain or loss on derivative liability as applicable.
Revenue Recognition
Revenue from the sale of precious metals is recognized when title and risk of ownership passes to the buyer and the collection of sales proceeds is assured.
Revenue from the rental of drilling equipment is recognized when the agreed upon rental period is completed and the collection of rental proceeds is assured.
Income Taxes
We recognize a liability or asset for deferred tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Deferred tax items mainly relate to net operating loss carry forwards and accrued expenses. These deferred tax assets or liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reviewed periodically for recoverability, and valuation allowances are provided when it is more likely than not that some or all of the deferred tax assets may not be realized. As of September 30, 2013 and December 31, 2012, we had fully reduced our net deferred tax assets by recording a 100% valuation allowance.
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Stock-Based Compensation and Equity Transactions
In accordance with ASC Topic 718, Compensation – Stock Compensation, we measure the compensation cost of stock options and other stock-based awards issued to employees and directors pursuant to stock-based compensation plans at fair value at the grant date and recognize compensation expense over the requisite service period for awards expected to vest.
Except for transactions with employees and directors that are within the scope of ASC Topic 718, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Additionally, in accordance with ASC Topic 505-50, Equity-Based Payments to Non-Employees, we have determined that the dates used to value the transaction are either: (1) the date at which a commitment for performance by the counter party to earn the equity instruments is established; or (2) the date at which the counter party’s performance is complete.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. Under the new standard, an organization will be required to prepare its financial statements using the liquidation basis of accounting when liquidation is “imminent.” Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). In addition, the new standard provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation method of accounting. The new standard is effective for entities that determine liquidation is imminent during annual periods beginning after December 15, 2013, and interim reporting periods therein. Entities are to apply the requirements prospectively from the day that liquidation becomes imminent, and early adoption is permitted. We are currently unable to determine the impact on our consolidated financial statements of the new standard should we be required to adopt it in the future.
RESULTS OF OPERATIONS
Sales
We had no rental income during the three months and nine months ended September 30, 2013 and rental income of $7,800 and $33,700 during the three months and nine months ended September 30, 2012, respectively. Our only source of operating revenues for the past several months has been the occasional rental of drilling equipment. We have sold or are currently offering for sale the assets of our drilling division, and will have no more revenues from this source.
Operating Costs and Expenses
Because of our lack of funding, we have significantly reduced the level of our operating costs and expenses during the three months and nine months ended September 30, 2013 compared to the comparable periods in 2012.
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Our exploration and evaluation expenses consisting of expenses for the following exploration mineral properties opportunities:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Santa Rosa | $ | - | $ | - | $ | - | $ | 64,516 | ||||||||
Mhakari Properties | 15,000 | - | 125,900 | - | ||||||||||||
North Springs Properties | 2,240 | - | 13,640 | - | ||||||||||||
General and other | - | 84,081 | - | 249,767 | ||||||||||||
Total | $ | 17,240 | $ | 84,081 | $ | 139,540 | $ | 314,283 |
Our exploration projects currently do not have proven or probable reserves. More detailed explanations of these mineral properties are provided in Note 3 to our Condensed Consolidated Financial Statements. We will be unable to advance the exploration, evaluation and development of our mineral properties until we can obtain the necessary funding. There can be no assurance that we will be successful in these efforts.
General and administrative expenses were $103,741 and $326,970 for the three months ended September 30, 2013 and 2012, and $407,876 and $1,644,959 for the nine months ended September 30, 2013 and 2012, respectively. General and administrative expenses include investor relations, salaries and wages of officers and office and accounting personnel, legal and professional fees, outside consulting fees, travel and stock-based compensation expense. General and administrative expenses in prior periods were at higher levels to support the acquisition and development of new exploration property projects and business opportunities.
Depreciation and amortization expense is not currently material to our consolidated financial statements and was $449 and $11,769 for the three months ended September 30, 2013 and 2012, and $5,160 and $46,715 for the nine months ended September 30, 2013 and 2012, respectively. The decrease in depreciation and amortization expense resulted from the sale and disposal of vehicles, office furniture and drilling equipment.
Other Income (Expense)
Interest and other income are currently not material to our consolidated financial statements, and totaled $0 and $124 for the three months ended September 30, 2013 and 2012, and $48 and $1,410 for the nine months ended September 30, 2013 and 2012, respectively.
Interest expense was $27,607 and $7,928 for the three months ended September 30, 2013 and 2012, respectively. This increase in interest expense resulted from the convertible debt financing entered into during June and August 2013. Interest expense was $45,015 and $517,701 during the nine months ended September 30, 2013 and 2012, respectively. The decrease in interest expense during the first nine months of the current year was due primarily to the inclusion in the nine months ended September 30, 2012 of interest on our senior, secured Gold Stream Facility that we entered into in September 2011 and which was repaid in April 2012.
We reported a gain on derivative liability of $35,251 for the three months ended September 30, 2013 and a loss on derivative liability of $22,043 for the nine months ended September 30, 2013 related to convertible notes payable to an institutional investor of $42,500 dated June 4, 2013 and of $32,500 dated August 22, 2013. We have estimated the fair value of the derivative for the conversion feature of the notes at the inception of the note and at September 30, 2013 using the Black-Scholes pricing model, resulting in the gain or loss on derivative liability. We had no such gain or loss for the three months and nine months ended September 30, 2012.
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We reported a foreign currency loss of $2,533 and foreign currency gain of $13,306 in the three months ended September 30, 2013 and 2012, respectively, and a foreign currency gain of $9,602 and a foreign currency loss of $58,661 in the nine months ended September 30, 2013 and 2012, respectively. The amount of the foreign currency gain or loss will fluctuate from period to period depending on the balance maintained in our Canadian bank account, our foreign investments, and changes in foreign exchange rates. As further discussed in the notes to our condensed consolidated financial statements, we have fully impaired our foreign investments, resulting in substantially less foreign currency gain or loss in the current year.
We reported a loss on disposition of property and equipment of $58,009 and a gain on disposition of property and equipment of $13,516 in the three months ended September 30, 2013 and 2012, respectively, and a loss on disposition of property and equipment of $58,009 and a gain on disposition of property and equipment of $13,077 for the nine months ended September 30, 2013 and 2012, respectively. Losses were incurred in the current year as we have sold or otherwise disposed of significant portions of our property and equipment.
We reported a gain on extinguishment of debt of $35,039 during the nine months ended September 30, 2013, resulting from favorable settlements with certain creditors. We had no gain on extinguishment of debt during the three months ended September 30, 2013 and 2012 or the nine months ended September 30, 2012.
We estimated an impairment loss on our marketable securities of $302,650 that we determined was other-than-temporary, and reported this loss for the three months and nine months ended September 30, 2012.
For the nine months ended September 30, 2012, we reported a gain on disposition of our interest in the Mineral Ridge LLC of $6,209,912, representing the total principal and accrued interest payable balance of our senior, secured indebtedness that was extinguished pursuant to the foreclosure and sale of this interest in LLC in April 2012.
In July 2012, we entered into a Rescission and Release Agreement, as amended, whereby the parties agreed to resolve their disputes and rescind the Santa Rosa, Panama joint venture agreement. We reported a gain on rescission of joint venture agreement of $843,695 in the three months and nine months ended September 30, 2012, comprised of the first scheduled payment to the Company of $350,000, net of certain fees, and the extinguishment of an outstanding loan for $500,000 payable to our joint venture partner.
LIQUIDITY AND CAPITAL RESOURCES
We have a history of operating losses since our inception in 1997, and had an accumulated deficit of $62,534,319 and a total stockholders’ deficit of $3,743,479 at September 30, 2013. At September 30, 2013, we had current assets of $6,249 and current liabilities of $3,755,225, resulting in a working capital deficit of $3,748,976. Included in current assets at September 30, 2013 was cash of $3,670.
We currently have no operating revenues, and as of September 30, 2013, our cash was not sufficient to fund our operating needs for the next twelve months. As further discussed above, and in the notes to our condensed consolidated financial statements, we have entered into agreements resulting in substantial obligations to acquire exploration properties and fund mineral property exploration and evaluation activities. We will be required to raise significant additional capital to complete the acquisition of the interests in and further the exploration, evaluation and development of these mineral properties. There can be no assurance that we will be successful in raising the required capital or that any of these mineral properties will ultimately attain a successful level of operations. Because of lack of funds and scaling back our operations, we have allowed certain of our mineral property claims interests to lapse, and we have abandoned the projects to focus on those properties, which in the opinion of management, have the best potential for success. If we are unable to meet the financial obligations related to our remaining mineral properties, we may forfeit our ownership rights or options to acquire them. In addition, our general and administrative and support expenses will increase over current levels as we move forward with our planned expansion and development activities.
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On January 24, 2012, we received a Notice of Default and Acceleration, and subsequently received supplemental Notices of Default and a Notice of Disposition of Collateral from Waterton under our senior, secured gold stream debt facility. We refuted all assertions of default. On April 30, 2012, our 30% interest in the Mineral Ridge LLC was foreclosed upon and sold to Waterton.
During 2011, we entered into an agreement to acquire a 60% interest in the Mina Santa Rosa gold mine located in Panama. However, effective July 23, 2012 and subsequently amended effective July 30, 2012, we entered into a Rescission and Release Agreement (the “Rescission Agreement”) with Silver Global to resolve outstanding disputes and rescind this agreement. In accordance with the terms of the Rescission Agreement, Silver Global was to return and pay to us a total of $4,100,000 in scheduled payments over twelve months, subject to a discount of $750,000 as consideration for timely payments and return to us for cancellation 25,000,001 shares of our common stock. We were to transfer our 15% ownership in the JV Company to Silver Global via release of our 15 shares of in the joint venture company common stock as payments are received by us from Silver Global. We received the first cash payment of $350,000 in August 2012 and the 25,000,001 shares of common stock were returned to us in October 12, 2012. However, Silver Global elected not to make the scheduled January 2013 payment of $1,000,000, forfeiting its right to the $750,000 discount and elected not to make further payments in July 2013 as scheduled in the Rescission Agreement. As a result, we currently own a 10% interest in the Santa Rosa project. We intend to either participate as a 10% owner in the Santa Rosa project, or sell all or a part of our interest to a third party.
As a result of these developments, our fund raising ability has been hampered, and we have scaled back our mineral property exploration and evaluation activities and reduced the level of our operations. We currently have no source of operating revenues. We recently obtained limited funding from convertible notes payable; however, we are dependent on the receipt of further cash payments from the Rescission Agreement or sources related to our 10% interest in the Santa Rosa project or from other sources to fund our operations.
Convertible Notes Payable to Institutional Investor
On June 4, 2013 and August 22, 2013, we entered into two convertible notes payable (previously defined as “Convertible Notes”) to an institutional investor for $42,500 and $32,500, respectively, which bear interest at an annual rate of 8% and mature on March 6, 2014 and May 27, 2014. The investor has the right, after the first 180 days of the notes, to convert the Convertible Notes and accrued interest in whole or in part into shares of our common stock at a price per share equal to 58% (representing a discount rate of 42%) of the average of the lowest three trading prices for our common stock during the ten trading day period ending one trading day prior to the date of the conversion notice.
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At any time for the period beginning on the date of the Convertible Notes and ending on the date which is 30 days following the date of the Convertible Notes, we may prepay the Convertible Notes upon payment of an amount equal to the outstanding principal multiplied by 110%, together with accrued and unpaid interest. The amount of the prepayment increases every subsequent 30 days to 115%, 120%, 125%, 130% and 135% of the outstanding principal, together with accrued and unpaid interest. After the expiration of 180 days following the date of the Convertible Notes, we will have no right of prepayment.
We have estimated the fair value of the derivative for the conversion feature of the Convertible Notes at inception and at September 30, 2013 using the Black-Scholes pricing model, resulting in a derivative liability of $97,043 at September 30, 2013. As of September 30, 2013, accrued interest payable on the Convertible Notes was $1,377.
Other Notes Payable
The two convertible notes payable to Sala-Valc S.A.C., a Peruvian corporation (“SV”), resulted from an Amendment to Mining Asset Purchase and Strategic Alliance Agreement related to mineral properties in Peru.
The two notes payable to Pinnacle Minerals Corporation (“Pinnacle”) resulted from an Amendment to Membership Interest Purchase Agreement whereby we purchased Pinnacle’s membership interest in Molyco, LLC, which owns or controls portions of mineral properties in Peru. Pinnacle has initiated legal action related to these unpaid obligations (see Note 14).
The parties involved in the mineral property projects in Peru were not able to finalize the transfer agreements to be filed with Peruvian governmental authorities to affect the transfer to us of the mineral properties in Peru. We have therefore discontinued our efforts in Peru, and the ultimate disposition of the convertible notes payable to SV and the notes payable to Pinnacle is dependent on our resolution of our dispute with SV and of the legal action initiated by Pinnacle. We are currently unable to predict the ultimate outcome of these matters.
During the year ended December 31, 2011, we incurred indebtedness in connection with the acquisition of interests in mineral properties or settlement agreements to restructure debt or other obligations related to our mineral property development activities.
Sala-Valc S.A.C. Effective as of October 7, 2011, we and Sala-Valc S.A.C (“SV”) entered into an Amendment to Mining Asset Purchase and Strategic Alliance Agreement dated September 30, 2011 (the “Amendment”), and a side letter agreement regarding the Amendment (the “Side Amendment,” and together with the Amendment the “Amendments”) in order to amend certain terms, conditions and provisions of a Mining Asset and Strategic Alliance Agreement dated June 1, 2011.
Pursuant to the Amendments, among other things, the strategic alliance provisions contemplated in the June 1, 2011 agreement were eliminated, resulting in our acquiring 100% interest in the mineral properties in Peru (the “Peru Properties”). In addition, the obligations due to SV were restructured (subject to and including a net smelter return royalty) to include two promissory notes payable to SV: (i) a convertible note in the principal amount of $500,000, with no interest to accrue thereon, which shall be repaid by conversion into restricted shares of the our common stock, at a conversion price of $0.10 per share, or 5,000,000 shares, such conversion right to vest as of January 1, 2012 or upon transfer of the Peru Properties, which note shall automatically convert on or before the maturity date of September 30, 2012; and (ii) a convertible note in the amount of $413,223, with no interest to accrue thereon, which shall be repaid by conversion into restricted shares of our common stock, at a conversion price of $0.10 per share, or 4,132,228 shares, such conversion right to vest as of January 1, 2012 or upon transfer of the Peru Properties, which note shall automatically convert on or before the maturity date of September 30, 2012. The parties involved in the Peru Properties were not able to finalize the transfer agreements to be filed with Peruvian governmental authorities to affect the transfer to us of the Peru Properties, and the ultimate disposition of the convertible notes payable to SV uncertain.
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Molyco. On October 31, 2011, we closed an agreement with Pinnacle Minerals Corporation (“Pinnacle”) and Salwell International, LLC (“Salwell”) pursuant to which we were to acquired Pinnacle’s 32.5% membership interest in Molyco, LLC (“Molyco”). Molyco owns or controls approximately 30,000 tons of the Molybdenum stockpile comprising a portion of the Porvenir property in Peru. The remaining interest in Molyco was to be transferred to us by Salwell as part of our agreement with SV, as described above. Pursuant to this agreement, we paid Pinnacle a cash payment of $250,000 and issued two non-interest bearing promissory notes as follows:
(i) Note 1 in the amount of $250,000 with two monthly payments of $15,000 in each of November 2011 and December 2011; one monthly payment of $30,000 in January 2012; two monthly payments of $20,000 in each of February 2012 and March 2012; and increasing to $30,000 per month thereafter until payment in full (with a balance of $190,000 at September 30, 2013); and
(ii) Note 2 in the amount of $250,000, such note to be convertible, and repaid based on conversion into 1,000,000 shares of Golden Phoenix common stock, which conversion right shall vest 12 months from the closing, subject to our first right of refusal to repurchase some or all of the shares at a per share price of $0.25, which repurchase right shall expire on the maturity date of the note of October 31, 2013.
In the year ended December 31, 2012, we made payments totaling $30,000 on Note 1. The parties involved in the Peru Properties were not able to finalize the transfer agreements to be filed with Peruvian governmental authorities to affect the transfer to us of the Peru Properties, and we discontinued making payments on the Pinnacle notes payable. As discussed in the notes to the condensed consolidated financial statements and elsewhere in this report, Pinnacle has initiated legal action related to the unpaid notes.
Net Cash Provided By or Used In Operating, Investing and Financing Activities
During the nine months ended September 30, 2013, we used net cash of $355,439 in operating activities as a result of our net loss of $632,954 and non-cash gain on extinguishment of debt of $35,039, partially offset by non-cash costs and expenses totaling $112,164, decrease in prepaid expenses and other current assets of $7,175, and increases in accounts payable of $55,300 and accrued liabilities of $137,915.
During the nine months ended September 30, 2012, we used net cash of $670,589 in operating activities as a result of net non-cash expenses of $5,979,026, partially offset by our net income of $4,216,825, a decrease in prepaid expenses and other current assets of $83,524, and increases in accounts payable of $795,589 and accrued liabilities of $212,499.
During the nine months ended September 30, 2013, we had net cash provided by investing activities of $8,000, comprised of proceeds from the disposition of property and equipment. During the nine months ended September 30, 2012, net cash provided by investing activities was $29,515, comprised of proceeds from the disposition of property and equipment of $32,250, partially offset by the purchase of property and equipment of $2,735.
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During the nine months ended September 30, 2013, net cash provided by financing activities was $63,405, comprised of proceeds from the issuance of debt of $75,000, partially offset by payment of debt issuance costs of $6,000 and payments of notes payable and long-term debt of $5,595. During the nine months ended September 30, 2012, net cash provided by financing activities of $789,521, comprised of net proceeds from the sale of common stock of $412,500 and proceeds from the issuance of warrants of $420,000, partially offset by payments of notes payable and long-term debt of $42,979.
Off-Balance Sheet Arrangements
As of September 30, 2013, we had no material off-balance sheet arrangements
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our principal executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2013. Based on that evaluation, our principal executive officer and chief financial officer concluded that the disclosure controls and procedures employed at the Company were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Change in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 27, 2012, the Company was sued by Wayne Caldwell, a former employee claiming he was owed back wages (Wayne Caldwell v. Golden Phoenix Minerals, Inc., case number CV 12 – 00480, in the 2nd Judicial District Court, in and for the County of Washoe, State of Nevada). At a court ordered settlement conference, the parties reached a settlement whereby we agreed to pay Mr. Colwell the sum of $80,000 in satisfaction of all claims. Pursuant to the settlement agreement, we paid Mr. Colwell the sum of $20,000 and agreed to pay the balance of $60,000 prior to August 1, 2013. We paid Mr. Colwell $5,000 in September 2013, but have been unable to pay the remaining obligation.
On May 22 and 2013, the Company was sued by Pinnacle Minerals Corporation, a Florida corporation, seeking payments allegedly due on the two promissory notes discussed in Note 7 issued in connection with a membership interest purchase agreement entered into as of March 7, 2011, relating to a Peruvian mining venture. The case was filed in the United States District Court for the District of Nevada, as “Pinnacle Minerals Corporation v. Golden Phoenix Minerals, Inc., Case number 2:13 – CV – 00915 – MMD – NJK. We filed a motion to stay the litigation and compel arbitration, pursuant to a provision of the subject purchase agreement. Based on negotiations, and agreement and stipulation between the parties, this case was dismissed on July 22, 2013. The parties have agreed to submit the dispute to binding arbitration in Reno, Nevada. No date has been set for the arbitration, and no discovery or other proceedings have yet taken place. We are denying liability in the case and intend to vigorously defend the claims, as well as file a counterclaim and various third-party claims, all of which will be pursued through the arbitration proceedings.
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Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
In July 2013, we issued a total of 7,000,000 shares of our common stock to Mhakari Gold Corp. for exploration and evaluation expenses valued at $44,800.
In July 2013, we issued 500,000 shares of our common stock to Lane Griffin and to Mountain Gold Claims LLC for exploration and evaluation expenses valued at a total of $6,400.
The issuance of the common stock was conducted in reliance upon the exemption from registration requirements provided by Section 4(2) of the Securities Act of 1933, as amended, and from various similar state exemptions.
Item 3. Defaults Upon Senior Securities
Not applicable for the three months ended September 30, 2013.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
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Item 6. Exhibits
Exhibit No. | Description |
3.1 | Articles of Incorporation of Golden Phoenix Minerals, Inc.(1) |
3.2 | Bylaws of Golden Phoenix Minerals, Inc.(1) |
3.3 | Amended and Restated Articles of Incorporation of Golden Phoenix, Minerals, Inc.(2) |
3.4 | Amended and Restated Articles of Incorporation of Golden Phoenix Minerals, Inc.(3) |
3.5 | Certificate of Amendment to Articles of Incorporation of Golden Phoenix Minerals, Inc. (4) |
3.6 | Amended and Restated Bylaws of Golden Phoenix Minerals, Inc.(3) |
4.1 | Specimen Common Stock Certificate of Golden Phoenix Minerals, Inc.(3) |
4.2 | Form of Warrant of Golden Phoenix Minerals, Inc.(5) |
4.3 | Form of Warrant of Golden Phoenix Minerals, Inc. – Lincoln Park Capital private placement, February 29, 2012(6) |
10.1 | Convertible Promissory Note to Asher Enterprises, Inc. dated August 22, 2013* |
31.1 | Certification of Principal Executive Officer Pursuant to Section 302.* |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302.* |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.* |
101.INS | XBRL Instance** |
101.SCH | XBRL Schema** |
101.CAL | XBRL Calculations** |
101.DEF | XBRL Definitions** |
101.LAB | XBRL Label** |
101.PRE | XBRL Presentation** |
*Filed herewith.
** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section
and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
(1) | Incorporated by reference from Form 10SB12G filed with the SEC on July 30, 1997. |
(2) | Incorporated by reference from Form SB-2/A filed with the SEC on June 29, 2007. |
(3) | Incorporated by reference from Form 8-K filed with the SEC on June 5, 2008. |
(4) | Incorporated by reference from Form 8-K filed with the SEC on December 8, 2010. |
(5) | Incorporated by reference from Exhibit A to Exhibit 10.1 of Form 8-K filed with the SEC on April 25, 2007. |
(6) | Incorporated by reference from Form 8-K filed with the SEC on March 7, 2012. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GOLDEN PHOENIX MINERALS, INC. | ||
Date: November 14, 2013 | By: | /s/ Donald Gunn |
Name: Donald Gunn | ||
Title: President and Chairman of Interim Governing Board, Principal Executive Officer | ||
Date: November 14, 2013 | By: | /s/ Dennis P. Gauger |
Name: Dennis P. Gauger | ||
Title: Chief Financial Officer |
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