SANTA FE GOLD CORPORATION Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Readers are cautioned that the following discussion contains certain forward-looking statements and should be read in conjunction with the "Cautionary Statement on Forward-Looking Statements" appearing at the beginning of this Annual Report. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in "Risk Factors" and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See "Financial Statements". Our actual future results may be materially different from what we currently expect.
Overview
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. If the Company becomes unable to continue as a going concern, it may be unable to realize the carrying value of its assets or to meet its liabilities as they become due. At the end of the Company's fiscal year endingJune 30, 2019 , the Company wrote off debt and related accrued interest aggregating$12,507,540 . The write off of debt was related to two finance facilities governed by and enforceable underBritish Columbia statutes. The Company retained legal services inBritish Columbia to research theBritish Columbia statutes of limitations on the collectability of the finance facilities. Legal counsel reviewed all related documents, records of proceedings and all records and documents deemed relevant to the two finance facilities. It was determined that the finance facilities were subject to the laws of the Providence ofBritish Columbia and the National laws ofCanada . The Company received a written legal opinion from legal counsel that any liability under the two finance facilities because of the Limitations Act (British Columbia ) and any relevant case law inBritish Columbia , were no longer enforceable. That is, because the statute of limitations had run for the two finance facility liabilities pursuant to the Limitations Act (British Columbia ) that no future claims can be commenced in the Providence ofBritish Columbia and therefore, the Company has no outstanding legal obligation on the two finance facilities.
The Company paid off a note payable settlement with a note holder and recorded a
forgiveness of debt aggregating
We have a total accumulated deficit of$93,478,670 atJune 30, 2019 . To continue as a going concern, we are dependent on continued fund raising and future cash flow from operations. However, currently we have no commitment in place from any party to provide additional capital and there is no assurance that such funding will be available, or if available, that its terms will be favorable or acceptable to us or that sufficient cash flow will be obtained in our 2020 fiscal year, to allow us to meet our obligations as the come due, or otherwise allow us to meet our business plan. All current funding is on a best-efforts basis, by the Company -------------------------------------------------------------------------------- 38
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Results of Operations
The following table sets forth selected Consolidated Statements of Operations data for the periods presented:
For the Year Ended June 30,
2017 (As
2019 2018 Restated)
Revenues $ - $ - $ -
Exploration and mine related 174,329 43,302 89,374
General and administrative 2,669,351 1,603,947 2,020,462
Impairment of asset 210,116 - -
Total expenses from operations 3,053,796 1,647,249 2,109,836
Loss from Operations (3,053,796) (1,647,249) (2,109,836)
Other Income (Expense):
(Loss) gain on debt extinguishment 12,620,165 (18,824) 4,416,668
Gain on trust debt extinguishment - - 464,763
Recovery (misappropriation) of
funds 458,427 (226,099) (971,099)
Miscellaneous income 638 - -
Foreign currency translation - - (71,181)
(Loss) on derivative instruments
liability - - (26,974)
Financing costs-commodity supple
agreement (588,082) (30,415) 291,166
Interest expense (902,648) (674,147) (1,012,298)
Total Other Income (Expense) 11,588,500 (949,485) 3,091,045
Net Profit (Loss) $ 8,534,704 $ (2,596,734) $ 981,209 Significant changes in our results of operations are more fully described below.
Fiscal Year Ended
Revenue
During the fiscal years endedJune 30, 2019 and 2018, the Company had no revenue during the fiscal years from an accounting perspective reported in this filing , although it continued analyzing mining opportunities during that period.
Operating Costs and Expenses
Our operating cost incurred in our fiscal year endedJune 30, 2019 , increased$1,406,547 from$1,647,249 in the fiscal year endedJune 30, 2018 to$3,053,796 for the fiscal year endedJune 30, 2019 . Details of the significant changes are as follows: Exploration and mine related costs: The increase in the current year of measurement aggregated$131,027 . The increase consisted mainly of initial startup costs incurred at theJim Crow Mine of$163,411 . General and administration increased$1,065,404 in the current year of measurement from$1,603,947 for the year endedJune 30, 2018 , to$2,669,351 for the year endedJune 30, 2019 . The increase was mainly a result increases in the following: option expense of$1,497,985 , legal fees of$146,432 and transfer agent fees of$22,952 . These increases were offset by decreases in the following: compensation costs of$83,964 and consulting fees of$418,854 .
Other Income (Expense)
Other income and (expense) for the fiscal year endedJune 30, 2019 , was$11,588,500 as compared to$(949,485) for the fiscal year endedJune 30, 2018 , an increase in other income of$12,537,985 . The net increase in other income for the current year of measurement is mainly comprised of the increases in the following components: gain on debt forgiveness of$12,620,165 and recovered misappropriated funds of$458,427 as compared to a loss in the prior year of measurement of$(226,099) . These increases were offset by increased expenses in financing costs-commodity supply agreement of$557,667 and interest expense of$228,501 . Subsequent to our fiscal year endedJune 30, 2017 , onOctober 1, 2018 , we disclosed in a Form 8-K that the board of directors formed a special committee onSeptember 26, 2018 , to investigate and analyze certain financial transactions in the aggregate amount of -------------------------------------------------------------------------------- 39
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approximately$1 million that occurred primarily betweenJuly 2016 andMarch 2018 involvingMr. Laws (our former chief executive officer). The special committee investigation determined thatMr. Laws currently owes the Company approximately$1,1,197,198 excluding penalty and accrued interest, of which$485,966 has been received by the Company and the Company is proceeding againstMr. Laws to collect the balance. The amount determined to be misappropriated for the fiscal year endedJune 30, 2018 and 2017, was$226,099 and$971,099 , respectively, exclusive of interest, penalties and future legal and forensic accounting services incurred.
Fiscal Year Ended
Revenue
During the fiscal years ended
Operating Costs and Expenses
Our operating cost incurred in our fiscal year endedJune 30, 2018 , decreased$462,587 from$2,109,836 in the fiscal year endedJune 30, 2017 (As Restated). Details of the significant changes are as follows.
Exploration and mine related costs: The decrease in the current year of
measurement aggregated
General and administration decreased from$2,020,462 for the year endedJune 30, 2017 (As Restated), to$1,603,947 for the year endedJune 30, 2018 . This decrease was mainly a result of decreased costs in consulting fees of$589,781 , legal fees of$15,983 , director fees of$15,000 , judgement costs of$21,454 and transfer agent fees of$9,403 . These decreases are offset by increases in compensation costs of$112,176 , audit and accounting fees of$90,803 and loss on wage conversion to equity of$24.824
Other Income (Expense)
Other income and (expense) for the fiscal year endedJune 30, 2018 , was$(949,485) as compared to$3,091,045 for the fiscal year endedJune 30, 2017 (As Restated), an increase in other expense of$4,040,530 . The net increase in other expense for the current year of measurement is mainly comprised of the following components: decreased gain on debt extinguishment of$4,440,492 , a decrease gain on trust debt forgiveness of$464,763 , and an increase loss on financing costs - commodity supply agreement of$321,581 . These increases in expense items were offset by decreases in the following: misappropriation of funds of$745,000 , loss on foreign currency translation of$71,181 , loss on derivative financial instruments of$26,974 and interest expense of$338,151 . Further information regarding the changes in the various components of Other Income (Expense) are discussed below. OnJune 30, 2016 , the total outstanding principle and accrued interest on the IGS Secured Convertible Notes totaled$3,545,940 in US dollars on our balance sheet. The loan and accrued interest are denominated in Australian dollars (A$). This reduced loss on foreign currency translation in the current year of measurement is the result of this loan obligation being paid off in fiscal year 2017. For the fiscal year endedJune 30, 2018 , financing costs - commodity supply agreement totaled an increase expense of$321,581 from the fiscal year endedJune 30, 2017 and resulted in an expense in the current fiscal year of$30,415 . The financing costs for commodity supply agreement relate directly to production for the period and the subsequent delivery of refined precious metals to Sandstorm. These financing costs are adjusted period-to-period based upon the total number of undelivered gold and silver ounces outstanding at the end of each period. The increase other expense in the current fiscal year is driven by an increase in precious metals prices. For the year endedJune 30, 2017 , the loss on derivative instruments liabilities totaled$26,974 . The Company had no gain or loss on derivative instrument liabilities the current year of measurement. The changes in derivative financial instruments are non-cash items and arise from adjustments to record the derivative financial instruments at fair values. These changes are attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments, warrants previously issued under our registered direct offerings, fluctuation in the market price of our common stock, which is a component of the calculation model, and the issuance of additional warrants resulting in derivative treatment. We use the Black-Scholes option pricing model to estimate the fair value of the derivative financial instruments. Because Black-Scholes uses our stock price, fluctuation in the stock prices will result in volatility to the earnings (losses) in future periods as we continue to reflect the derivative financial instruments at fair values. When required to arrive at the fair value of derivatives associated with the convertible note and warrants, aMonte Carlo model is utilized that values the Convertible Note and Warrant based on average discounted cash flow factoring in the various potential outcomes by a Chartered Financial Analyst ('CFA"). In determining the fair value of derivatives, the CFA assumed that the Company's business would be conducted as a going concern. The Company had no derivative instruments in the fiscal year endedJune 30, 2018 For the fiscal year endedJune 30, 2018 interest expense was$674,147 as compared toJune 30, 2017 (As Restated) of$1,012,298 a decrease of$338,151 . The decrease is mainly attributable to a decrease in loan discounts expensed as interest expense of$161,814 and -------------------------------------------------------------------------------- 40
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decreased interest on convertible debt of
Recent Equity Financings and Debt Settlements
Below summarizes equity financing and debt settlements in our fiscal years ended
For the Year Ended June 30,
2017 (As
2019 2018 Restated)
Restricted common stock sold to
accredited investors 25,399,720 51,590,344 81,681,038
Gross proceeds from equity
financings $ 1,661,980 $ 4,127,228 $ 2,708,168
Note proceeds 239,750 - -
Note proceeds from related party 61,848 - -
Cash payments on notes payable (210,000) (50,000) (284,783)
Cash used for working capital $ 1,753,578 $ 4,077,228 $ 2,423,385
Debt amount $ 12,620,165 $ 23,824 $ 4,684,740
Shares issued for settlement - (47,648) -
Gain on trust debt extinguishment - - 464,763
Write off balance of settled debt
in prior fiscal year - 5,000 -
Cash payment on negotiated debt - - (268,072)
Gain on debt extinguishment $ 12,620,165 $ (18,824) $ 4,881,431 Significant changes in our results of operations are more fully described below.
Liquidity and Capital Resources; Plan of Operation
As of
AtJune 30, 2018 and 2017 (As Restated), we were in arrears on payments totaling approximately$7.57 million and$7.37 million under a gold stream agreement (the "Gold Stream Agreement") with Sandstorm in the Santa Fe Gold Barbados subsidiary, and other cash debt approximating$10.86 million , and$7.93 million , respectively. In our fiscal year 2019 we were able to write of old debt that exceeded the statute of limitations that aggregated$12,620,165 . The Company retained legal services inBritish Columbia to research theBritish Columbia statutes of limitations on the collectability of the liabilities due under the finance facilities. Legal counsel reviewed all related documents, records of proceedings and all records and documents deemed relevant to the two finance facilities. It was determined that the finance facilities were subject to the laws of the Providence ofBritish Columbia and the laws ofCanada . The Company received a written legal opinion from legal counsel that the two researched finance facilities and any liabilities due thereunder, based on the applicable Limitations Act (British Columbia ) and relevant case law inBritish Columbia , were no longer enforceable. That is, the statute of limitations has run for the two finance facility liabilities pursuant to the Limitations Act (British Columbia ) relevant case law, therefore, no future claims can be commenced in the Providence ofBritish Columbia so the Company has no outstanding legal obligation on either of the two finance facilities. Subsequent to our fiscal year endedJune 30, 2019 , during the fiscal year endedJune 30, 2020 , the Company raised$2,080,000 from the sale of common stock to accredited shareholders for working capital to continue implementing the Company business plan. We have had no revenues since emerging from bankruptcy, and we are not currently profitable. We currently do not have sufficient capital to fund operations through our fiscal year endingJune 30, 2020 and will need to raise additional funding to implement our business strategy. Currently we are in the preliminary process of putting the Jim Crow mine into production, but there can be no assurance of any revenue from this mine. Even if we are successful in developing any of our properties, we expect to incur operating losses for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future. As the Company has no commitment for debt or equity financing, the Company will be reliant upon its own best efforts fund raising activities to provide sufficient working capital to -------------------------------------------------------------------------------- 41
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fund current and immediate future needs. There can be no assurance that the Company will be successful in its capital raising efforts, and the failure to raise needed capital will likely result in the curtailment or cessation of our business which would adversely affect investors.
Cash Flows from Investing Activities
The Company continues to build our asset base with capital expenditures. In fiscal 2019 net cash expenditures of$500,543 and consisted of the final payments on the Bullard's Peak/Alhambra mine acquisition of$500,000 ,$25,543 for mine equipment and a return of$25,000 on a joint venture investment. In fiscal 2018 we had cash expenditures were$2,735,116 and consisted of$2,500,000 payment on the Bullard's Peak/Alhambra mine acquisition, a$25,000 in a joint venture that was refunded in fiscal 2019 and payments of$210,116 towards theBritish Columbia placer mining claims which we impaired in fiscal 2019. There were no expenditures in fiscal 2017 (As Restated).
Cash Flows from Financing Activities
In fiscal 2019, 2018 and 2017 (As Restated), the Company received proceeds from stock subscriptions from accredited investors of$1,661,980 ,$4,127,228 and$2,708,168 . In fiscal 2019 the Company received funds advanced from two shareholders, one of which was a related party, aggregating$301,598 and the non-related party was repaid$40,000 . In fiscal 2019, 2018 and 2017 (As Restated), payments were made on other note payable of$170,000 , 50,000 and$284,783 , respectively.
Factors Affecting Future Operating Results
Currently we have no continuing commitment from any party to provide additional working capital, or if one becomes available, there is no certainty that its terms will be favorable or acceptable to the Company. Until positive cash flow is generated from operations, we will be dependent upon future working capital facilities or equity financing arrangements, to meet our expenses and to fund execution on our business plan.
Off-Balance Sheet Arrangements
During the fiscal years endedJune 30, 2019 , 2018 and 2017 (As Restated), we did not engage in any off-balance sheet arrangements as set forth in Item 303(a) (4) of the Regulation S-K.
Critical Accounting Policies
Our discussion and analysis of our consolidated financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses for each period. Critical accounting policies are defined, as policies that management believes are the most important to the portrayal of our consolidated financial condition and results of operations. These policies may require us to make difficult, subjective or complex judgments, commonly about the effects of matters that are inherently uncertain. Our significant accounting policies are described in the audited consolidated financial statements and notes thereto. See Note 2, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements for the fiscal yearJune 30, 2019 , 2018 and 2017 (As Restated), these describe our significant accounting policies which are reviewed by management on a regular basis.
We believe our most critical accounting policies relate to asset retirement
obligations, derivative instruments and variables used in the Black-Scholes
option pricing model and in the
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