History and Organization

Santa Fe Gold Corporation (“Santa Fe”, "the Company”, “our” or “we”) is a U.S. mining company, incorporated in 1991 in the state of Delaware. Our general business strategy is to acquire explore, develop and to create shareholder value. Santa Fe Gold Corporation (SFG) selected on August 26, 2015 to file for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and the case was dismissed on June 15, 2016.  The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the process. As we emerged from the bankruptcy, we were a management team of two with no assets.

Significant Developments

Waterton

On June 30, 2013, the Company signed a Waiver of Default Letter (the “Letter”) with Waterton Global Value, L.P. (“Waterton”) wherein the Company agreed to sell, convey, assign and transfer certain accounts receivable as consideration for a waiver for non-payment to Waterton under the Credit Agreement. Waterton may revoke the waiver at any time and note the Company in default under the Credit Agreement. The transfer of the accounts receivable to Waterton were to be treated as payment towards outstanding interest payable amounts with any remaining transfer of receivables to be treated as a payment towards other indebtedness under the Credit Agreement, including principal on the note. The measurement of receivables transferred is subject to revaluation in accordance with mark-to-market price adjustments and final settlement of the invoices. The valuation of receivables under the Letter was $1,053,599 at June 30, 2013. Under terms of the Letter, interest payable was reduced by $116,693 and the principal portion of the note was reduced by $768,263, while the remaining $168,643 has been recorded as financing costs in interest expense at June 30, 2013. On September 30, 2013, the valuation of receivables sold under the Letter was finalized at $1,018,056. Accordingly, final valuation adjustments were made to increase the principal portion of the note outstanding by $29,145 and to decrease financing costs by $6,398. During the current fiscal year ended additional adjustments were made to the outstanding obligation by Waterton which included various Agreement penalties. The outstanding principal balance after these adjustments at June 30, 2015 was $7,755,685 and accrued interest was $4,565,466 and at June 30, 2016 was $-0- with the 363 Asset Sale to Waterton in February 2016.  See ITEM 7: Liquidity and Capital Resources; Plan of Operation.

Recent Developments

Canarc Bridge Loan

On July 15, 2014, Santa Fe entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Canarc Resource Corp., a British Columbia, Canada Corporation whose common shares are listed on the TSX Exchange under the symbol CCM

5

(“Canarc”). In connection with the Share Exchange Agreement the Debtors and Carnac entered into that certain interim financing facility pursuant to which Canarc advanced the Company $200,000 and an additional advance of $20,000. The loan bears interest at a rate of 1% a month and was due and payable upon the closing of a gold bond financing by the Debtors or January 15, 2015, if the gold bond financing did not close. The financing failed to close and the entire amount of the loan is outstanding and in default at June 30, 2016.

On October 22, 2014 the Company signed a $500,000 Convertible Note with an accredited investor with a 10% original issue discount (“OID) component. The Company drew down net cash Consideration of $175,000 on the facility. The Company may repay the Consideration at any time on or before 120 days from the Effect Date of the draw down and there would be no interest due on the consideration. If the Company does not repay a Consideration on or before 120 days from its Effective Date, a one- time interest charge of 12% shall be applied to the principal sum. At June 30, 2016, the investor had converted note principle, interest and penalties aggregating $155,556 into 30,238,933 shares of common stock. The remaining outstanding balance of $93,333 was retired in January 2017 for $93,000.

On January 20, 2015 the Company signed a $250,000 Convertible Note with an accredited Investor with a 10% original issue discount (“OID) component. The Company drew down consideration of $100,000 on the facility. The Consideration on the Note has a Maturity date of two years from payment of each Consideration. A one- time interest charge of 12% is applied to the principal sum on the on the date of the Consideration. The Note principal and interest shall be paid at Maturity date or sooner as provided within the Note and conversion provisions. At June 30, 2016, the investor had converted note principle, interest and penalties aggregating $60,192 into 18,007,333 shares of common stock. The remaining outstanding balance of $107,599 at June 30, 2016, was retired in January 2017 for $93,000.

On August 26, 2015, the Company filed for Chapter 11 Bankruptcy protection in Delaware in order to secure the existing assets from creditor actions. Case No. 15-11761 (MFW).  Jakes Jordaan, Santa Fe’s former CEO, filed in the Affidavit in Support of the first day motion (full affidavit can be researched in the Delaware court filings. Case# 15-11761 MFW on August 26, 2015) that we have only one remaining option (plan) to have an orderly sale of all assets to satisfying qualified debt without any plan for the thereafter and he began working with Canaccord Genuity Inc. (“Canaccord”) as our investment banker to assist with these efforts. The “asset sale” took place in February 2016 and left Santa Fe Gold and Subsidiaries without any assets and with remaining debt.

After the dismissal of the bankruptcy case, the Company has no assets, but is liable for all commitments and debts that remain outstanding.  After the dismissal, the Company will divest itself from all subsidiaries and will keep only Santa Fe Gold, the parent company active.  Santa Fe Gold Barbados, The Lordsburg Mining Company and AZCO will be dormant and all the commitments and debts will stay with the respective companies. The court set up a Trust fund that will be funded by the activities of the Summit mine for five years and the trust funds will be distributed by an independent trustee to all credit holders of record.

In connection with the prepetition negotiations of the restructuring support agreement, Waterton Global Value LP (“Waterton”), holders of the Company’s senior notes agreed to provide the Company and the Chapter 11 Subsidiaries a debtor in possession credit facility (the “DIP Credit Agreement"). The DIP Credit Agreement provided for a multi draw term loan of which $2,037,595 was advanced, which became available to the Company upon the satisfaction of certain milestones and contingencies. Waterton also initially advanced a Bridge loan of $200,000 and also charged a structuring fee of $32,203. Pursuant to the Plan the borrowings under the Bridge loan and DIP Credit Agreement, at the option of the lenders to the DIP Credit Agreement, are part of the purchase price of all assets in the “363 Asset Sale”.

Santa Fe Gold failed to provide a plan of Reorganization with the filing of protection under the Bankruptcy Codes; the significant transactions that occurred upon emergence from bankruptcy were as follows:

The approximately $ 30 million of indebtedness outstanding on account of the Company’s senior notes and unsecured claims were reinstated.  

Waterton, Santa Fe Gold’s major secured creditor provided $2,320,958 in incremental payments between August 28, 2015 and March 29, 2016 plus a Bridge loan in the amount of $200,000 in borrowings under the Company's DIP Credit  

Agreement. An overpayment of a tranche for $$283,363 was returned to Waterton. For the three months ended December 2015, the Company utilized $665,993 for legal expenses related to the Chapter 11 court filings, $236,058 for employee wages and benefits and $5,380 for related travel costs by our former CEO. For three months ended March 2016 to the Company utilized $433,449 for legal expenses related to the Chapter 11 court filings, $179,386 for employee wages and benefits and $10,049 for related travel costs by our former CEO. In the three month ended June 30, 2016, we utilized $242,630 for legal expenses related to the Chapter 11 court filings 2,630) and $46,162 for employee wages and benefits.

6

After the bankruptcy dismissal then remaining funds from the DIP funding was used to pay final legal costs and fund the trust.

The courts established a GUC Trust Agreement in April 2016 with Gavin/Solmones as Trustee for the benefit of all creditors less Waterton Global. A profit interest is attached to the Summit mine (formerly owned by Santa Fe Gold and its subsidiaries) with the sole benefit for the Creditors holding unsecured claims filed by each creditor with the courts.  

The Olson estate returned 6,956,750 shares on November 16, 2015, into the Treasury for no consideration. The shares were added back into the Treasury subsequent our fiscal year ended June 30. 2016, by our transfer agent upon completion of necessary documentation provided by the estate. There was no Treasury Stock as of June 30, 2016.

On June 5, 2016, the board awarded consultant 1,000,000 shares of restricted common stock to assist in reviving the Company out of the bankruptcy.

On June 5, 2016, the Company granted 15,956,748 shares to employees for their effort to keep the Company functioning. On December 12, 2016 the same staff members returned 15,956,748 shares to the treasury in order to be able to raise more funds to acquire additional assets.

363 Asset Sale

On February 26, 2016, Waterton completed the acquisition of substantially all of the Company’s assets pursuant to an Asset Purchase Agreement dated February 26, 2016.

Waterton, as the only successful bidder for Santa Fe’s assets, eliminated all pre-petition agreements, all amounts of loans, interest and gold stream agreements that was owed to them prior to the filings of the chapter 11 and also the DIP funding that was put in place during the proceedings for all assets belonging to Santa Fe and its subsidiaries. All assets were free and clear of liens, claims, mortgages, pledges and interest of any kind without limitation in the transfer. The sale is a binding and valid transfer with all rights, title and interest in the acquired assets. At the time of the agreement all debt owed to Waterton is eliminated, but all other liabilities to unsecured lenders stay in effect.

The table below summarizes the carrying value of the assets sold and the liabilities disposed in the 363 Asset Sale as of asset transfer on February 26, 2016: 

Emergence from Voluntary Reorganization under Chapter 11 Proceedings

The Company and our Chapter 11 Subsidiaries received bankruptcy court confirmation of the dismissal on June 15, 2016, and subsequently emerged from bankruptcy. The DIP funding, discussed above, allowed the Company to survive the time during bankruptcy and at the end of the bankruptcy turned over any remaining funds to the attorneys and the trust. The only funds available for the future administrative costs were prepaid insurance funds from which we received a refund on June 08, 2016 of $44,926 and on August 22, 2016 received $4,135.  The Company upon emergence resorted to selling equity for cash so as to proceed on reviving the Company. Currently we have no continuing commitment from any party to provide necessary additional working capital, or if one

7

becomes available, there is no certainty that its terms will be favorable or acceptable to the Company to continue its current business plan.

Competitive Business Conditions

Many companies are engaged in the acquisition, exploration, development and mining of mineral properties. We are at a disadvantage with respect to those competitors whose technical staff and financial resources exceed our own. Although the Company survived the bankruptcy with no assets or cash, we decided to start increasing stock value by using equity funding to acquire claims and restart our business.   

Government Regulations and Permits

In connection with mining, milling and exploration activities, we are subject to extensive federal, state and local laws and regulations governing the protection of the environment, including laws and regulations relating to protection of air and water quality, hazardous waste management and mine reclamation as well as the protection of endangered or threatened species.

Reclamation

We generally will be required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping and revegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts would be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies. As soon as we have a mining operation, we will be required to arrange and pledge certificates of deposits for reclamation with the state regulatory agencies. At this time no reclamation cost are calculated or carried forward.

Government Regulation

Our mining operations and exploration activities are subject to various national, state, provincial and local laws and regulations in the United States, and the State of New Mexico, which govern mining, milling, prospecting, development, production, exports, taxes, labor standards, occupational health, and waste disposal, protection of the environment, mine safety, hazardous substances and other matters. There are no current orders or directions relating to us with respect to the foregoing laws and regulations.

Environmental Regulation

All future projects are subject to various federal, state and local laws and regulations governing protection of the environment. These laws are continually changing and, in general, are becoming more restrictive. Our policy is to conduct business in a way that safeguards public health and the environment. We believe that our operations will be conducted in material compliance with applicable laws and regulations.

Changes to current local, state or federal laws and regulations in the jurisdictions where we will operate could require additional capital expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.

Employees

As of June 30, 2016, we had two employees. In addition, we use consultants with specific skills to assist with various aspects of our project evaluation, business plan, due diligence and corporate governance.

Office Facilities

Our principal executive offices are located at 3544 Rio Grande Blvd. NW, Albuquerque, NM 87107. Our telephone number is (505) 255-4852.

Gold Price History

Not applicable at this time

Seasonality

 We have no properties at this time that is subject to material restrictions on our operations due to seasonality.

Available Information

We make available, free of charge, on or through our Internet website, at www.santafegold.com, our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to

8

Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934. Our Internet website and the information contained therein or connected thereto are not intended to be, and are not incorporated into this annual report on Form 10-K.

The Company operates in a rapidly changing environment that involves numerous risks and uncertainties. Stockholders should carefully consider the risks described below before purchasing the Company’s common shares. The occurrence of any of the following events could harm the Company. If these events occur, the trading price of the Company’s common shares could decline, and shareholders may lose part or even all of their investment. This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operation, contains forward looking statements that may be materially affected by numerous risk factors, including those summarized below:

Risk Factors Related to Our Business and Operations

We are dependent upon production of precious metals and industrial minerals from to being acquired properties and have incurred substantial losses since our inception in 1991, and may never be profitable.

Since our inception in 1991, we have not been profitable. As of June 30, 2016, our total accumulated deficit was approximately $102.4 million. In November 2013, we suspended mine and mill operations at our Summit mine and Banner mill due to operating losses, and a lack of operating capital. On August 26, 2015 Santa Fe Gold filed for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and that case was dismissed on June 15, 2016.  The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the process of the 363 Asset Sale.

Our current management team is acquiring new claims funded by equity sales and is evaluating a number of favorable options to facilitate the processing of current and future mineralized ore production.

To become profitable, we must identify acceptable mineralization at potential sites and either develops properties ourselves or locates and enters into agreements with third party operators. We may suffer significant additional losses in the future and may never be profitable. There can be no assurance we will receive significant revenue from operations in the foreseeable future, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. 

If the Company is unsuccessful raising additional funding, its business may not continue as a going concern. Even if the Company does find additional funding sources, it may be required to issue securities with greater rights than those currently possessed by holders of its common shares or on terms less favorable than the Convertible Gold Note financing. The Company may also be required to take other actions that may lessen the value of its common shares or dilute its common shareholders, including borrowing money on terms that are not favorable to the Company or issuing additional equity securities. If the Company experiences difficulties raising money in the future, its business and liquidity will be materially adversely affected.

Our independent registered public accounting firm has included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended June 30, 2016.

As a result of these factors, as well as adverse industry conditions, our independent registered public accounting firm has included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended June 30, 2016. The presence of the going concern explanatory paragraph may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors and employees and could make it challenging and difficult for us to raise additional debt or equity financing, all of which could have a material adverse impact on our business, results of operations, financial condition and future prospects.

A substantial or extended decline in gold and silver prices would have a material adverse effect on the value of our assets, on our ability to raise capital and could result in lower than estimated economic returns.

The value of our assets, our ability to raise capital and our future economic returns are substantially dependent on the prices of gold and silver. The gold and silver price fluctuates on a daily basis and is affected by numerous factors beyond our control. Factors tending to influence gold prices include:

gold sales or leasing by governments and central banks or changes in their monetary policy, including gold inventory management and reallocation of reserves;  

speculative short positions taken by significant investors or traders in gold;  

the relative strength of the U.S. dollar;  

expectations of the future rate of inflation;  

interest rates;  

9

changes to economic activity in the United States, China, India and other industrialized or developing countries;  

geopolitical conflicts;  

changes in industrial, jewelry or investment demand;  

changes in supply from production, disinvestment and scrap; and  

Forward sales by producers in hedging or similar transactions.  

A substantial or extended decline in the gold or silver price could:

negatively impact our ability to raise capital on favorable terms, or at all;  

jeopardize the restart and development of our Summit silver-gold project;  

reduce the potential for future revenues from gold projects in which we have an interest;  

reduce funds available to us for exploration with the result that we may not be able to further advance any of our projects; and  

reduce the market value of our assets.  

In addition to environmental regulations, we are subject to a wide variety of laws and regulations directly and indirectly relating to mining that often change and could adversely affect our business.

We are subject to extensive United States federal, state and local laws and regulations related to mine prospecting, development, transportation, production, exports, taxes, labor standards, occupational health and safety, waste disposal, protection and remediation of the environment, mine safety, hazardous materials, toxic substances and other matters. These laws and regulation frequently change. New laws and regulations or more stringent enforcement of existing ones could have a material adverse impact on us, causing a delay or reduction in production, increasing costs and preventing an expansion of mining activities.

Delaware law and our Articles of Incorporation may protect our directors from certain types of lawsuits. Delaware law provides that our directors will not be liable to our stockholders or to us for monetary damages for all but certain types of conduct as directors of the Company.

Our Articles of Incorporation permit us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

Risks Related to our Common Stock

Our common stock is thinly traded, and there is no guarantee of the prices at which the shares will trade. 

Trading of our common stock is conducted on the OTCQB Marketplace operated by the OTC Markets Group, Inc., or “OTCQB,” under the ticker symbol “SFEG.”  Not being listed for trading on an established securities exchange has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of the Company.  This may result in lower prices for your common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.  Historically, our common stock has been thinly traded, and there is no guarantee of the prices at which the shares will trade, or of the ability of stockholders to sell their shares without having an adverse effect on market prices.

Because our common stock is currently a “penny stock,” it may be difficult to sell shares of our common stock at times and prices that are acceptable. 

Our common stock is a “penny stock.” Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser’s written agreement to the purchase. The penny stock rules may make it difficult for you to sell your shares of our common stock. Because of these rules, many brokers choose not to participate in penny stock transactions and there is less trading in penny stocks. Accordingly, you may not always be able to resell shares of our common stock publicly at times and prices that you feel are appropriate.

The sale of our common stock by selling stockholders may depress the price of our common stock due to the limited trading market that exists.

Due to a number of factors, including the lack of listing of our common stock on a national securities exchange, the trading volume in our common stock has historically been limited. Trading volume over the last 3 months, ending June 30, 2017, has averaged approximately 174,500 shares per day. As a result, the sale of a significant amount of common stock by selling shareholders may depress the price of our common stock and the price of our common stock may decline.

10

Completion of one or more new acquisitions could result in the issuance of a significant amount of additional common stock, which may depress the trading price of our common stock.

Acquisition of one or more additional mineral properties, conceptually, could result in the issuance of a significant amount of common stock. Such issuance could depress the trading price of our common stock.

Our stock price may be volatile and as a result you could lose all or part of your investment. In addition to volatility associated with OTC securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: 

changes in the worldwide prices for gold or silver;  

disappointing results from our exploration or development efforts;  

failure to meet our revenue or profit goals or operating budget;  

decline in demand for our common stock;  

downward revisions in securities analysts’ estimates or changes in general market conditions;  

technological innovations by competitors or in competing technologies;  

investor perception of our industry or our prospects; and  

general economic trends.  

In addition, stock markets have experienced extreme price and volume fluctuations, and the market prices of securities generally have been highly volatile. These fluctuations commonly are unrelated to operating performance of a company and may adversely affect the market price of our common stock. As a result, investors may be unable to resell their shares at a fair price.

A small number of existing shareholders own a significant portion of our common stock, which could limit your ability to influence the outcome of any shareholder vote.

Our executive officers and directors, together with our three largest shareholders, beneficially own approximately 15.7% of our common stock as of the date of this report. Under our Articles of Incorporation and Delaware law, the vote of a majority of the shares outstanding is generally required to approve most shareholder action. As a result, these individuals and entities will be able to influence the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Articles of Incorporation or proposed mergers or other significant corporate transactions.

We have never paid dividends on our common stock and we do not anticipate paying any in the foreseeable future.

We have not paid dividends on our common stock to date, and we may not be in a position to pay dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Further, our initial earnings, if any, will likely be retained to finance our growth. Any future dividends will depend upon our earnings, our then-existing financial requirements and other factors and will be at the discretion of our Board of Directors.

None.

The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the chapter 11 bankruptcy proceedings and were transferred to Waterton in the 363 Asset Sale. As of June 30, 2016, no assets were acquired by Santa Fe. Before the end 2016 we are planning to have approximately 40 claims in our possession in a historically good precious metal producing area in southern New Mexico. In 2017 our plan is to acquire an additional 100 claims more in the same vicinity and start production ramp up late in the year or the first quarter of 2018.

Current Legal Proceedings

Santa Fe is involved in various legal actions in the ordinary course of our business. We do not believe it is feasible to predict or determine the outcome or resolution of the above litigation proceedings, or to estimate the amounts of, or potential range of, loss with respect to those proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these proceedings could include judgments against us or settlements that could require substantial payments by us, which could have a material impact on the Company’s financial position, results of operations and cash flows.

11

We are not aware of any material legal proceedings to which any of our officers or any associate of any of our officers is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

We are not aware of any of our officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401 of Regulation S-K.

On August 26, 2015 Santa Fe filed for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) in Delaware. At the time of the bankruptcy filing several litigations were filed in several courts. Santa Fe believes that these suits will be stayed pursuant to the Bankruptcy Code. After the dismissal of the filings we were left without assets and none of the filings has been reinstated as of this reporting date.

None

Market Information

Our common stock trades over-the-counter and is quoted on the OTC Bulletin Board under the symbol “SFEG.” The table below sets forth the high and low bid prices for our common stock as reflected on the OTC Bulletin Board for the last two fiscal years. Quotations represent prices between dealers, do not include retail markups, markdowns or commissions, and do not necessarily represents at which actual transactions were affected.

OTCBB

We were delinquent in the filing of our financial statements for the year ended June 30, 2003, and consequently the Securities Commissions of Ontario and British Columbia issued cease trade orders for trading of our common stock by Canadian residents, which cease trade orders are still in effect. We believe that less than 2% of our common stock is recorded as held by Canadian residents as of June 30, 2016.

Holders of Common Equity

As of June 30, 2016, we had 189,842,914 common shares outstanding, the high and low sales prices of our common stock on the OTC Bulletin Board were $.0146 and $0.0001, respectively, for fiscal 2016 and we had approximately 790 holders of record of our common stock.

Penny Stock Rules

Due to the price of our common stock, as well as the fact that we are not listed on NASDAQ or a national securities exchange, our stock is characterized as “penny stock” under applicable securities regulations. Our stock therefore is subject to rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks. The broker or dealer proposing to effect a transaction in a penny stock must furnish his customer a document containing information prescribed by the SEC and obtain from the customer an executed acknowledgment of receipt of that document. The broker or dealer must also provide the customer with pricing information regarding the security prior to the transaction and with the written confirmation of the transaction. The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction and with the written confirmation of the trade. The broker or dealer must also send an account statement to each customer for which he has executed a transaction in a penny stock each month in which such security is held for the

12

customer’s account. The existence of these rules may have an effect on the price of our stock, and the willingness of certain brokers to effect transactions in our stock.

Transfer Agent

Colonial Stock Transfer Co. is the transfer agent for our common stock. The principal office of Colonial Stock Transfer Co. is located at 66 Exchange Place, Salt Lake City, Utah 84111 and its telephone number is (801) 355-5740.

Dividend Policy

We have never declared or paid dividends on our common stock. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for expansion.

Performance Graph

Not required.

Recent Sales of Unregistered Securities

On October 22, 2014, the Company signed a $500,000 and $250,000 Convertible Note, from two accredited investors, from which we drew down tranches aggregating $275,000.  By August 31, 2016 the note holders converted 46,446,266 shares of the advances to common stock and at August 31, 2016, the notes and related penalties had an aggregate outstanding balance of $200,932. In September 2016 the note holders agreed to take cash settlements aggregating $183,000 to satisfy the outstanding obligations.

On July 31, 2015, the board awarded to a financial consultant 1,000,000 shares of restricted common stock to assist in financing activities for the Company.

On June 5, 2016, the board awarded consultant 1,000,000 shares of restricted common stock to assist in reviving the Company out of the bankruptcy.

On June 5, 2016, the Company granted 14,217,561 shares to employees and 1,739,187 shares to financial consultant for their effort to keep the Company functioning. On December 12, 2016 the same staff members and financial consultant returned 15,956,748 shares to the treasury in order to be able to raise additional funds to acquire assets for the Company.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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

During our current fiscal year ended June 30, 2016, Santa Fe Gold Corporation (SFG) elected on August 26, 2015 to file for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and the case was dismissed on June 15, 2016.  

The results of operations in the past reflected a continued under-capitalization of our projects which required additional funding to be able to achieve full project performance and sustained potential profitability. We currently are dependent on additional financing to resume any mining operations and to continue our exploration efforts in the future if warranted. After the dismissal of the Chapter 11 filings, we had no funds or assets to continue our operation.  We solicited some of our shareholders and presented our vision for Santa Fe Gold to them and subsequently purchased stock for cash so we could proceed with our vision.  

13

On August 26, 2015, the Company filed for Chapter 11 Bankruptcy protection in Delaware in order to secure the existing assets from creditor actions. Case No. 15-11761 (MFW).  Jakes Jordaan, Santa Fe’s former CEO filed in his Affidavit in Support of the first day motion (full affidavit can be researched in the Delaware court filings. Case# 15-11761 MFW on August 26, 2015) that we have only one remaining option (plan) to have an orderly sale of all assets to satisfying qualified debt without any plan for the thereafter and he began working with Canaccord Genuity Inc. (“Canaccord”) as our investment banker to assist with these efforts. The “asset sale” took place in February 2016 and left Santa Fe Gold and Subsidiaries without any assets but with all debt.

After the dismissal of the bankruptcy case, the Company had no assets, but is still liable for all commitments and debts outstanding.  After the dismissal, the Company will divest itself from all subsidiaries and will keep only Santa Fe Gold, the parent company active.  SFG Barbados, Lordsburg Mining Company and AZCO will be dormant and all the commitments and debts will stay with the respective companies. The court set up a Trust fund that will be funded by the activities of the Summit mine for five years and the trust funds will be distributed by an independent trustee to all credit holders on record.

In connection with the prepetition negotiations of the restructuring support agreement, Waterton Global, holders of the Company’s senior notes agreed to provide the Company and the Chapter 11 Subsidiaries a debtor in possession credit facility (the “DIP Credit Agreement"). The DIP Credit Agreement provided for a multi draw term loan and net draws of $2,037,595 were received, which became available to the Company upon the satisfaction of certain milestones and contingencies. Upon emergence from bankruptcy, the Company had drawn down the entire $2,037,595 available. The Company used the funding to satisfy mainly legal expenses related to the Chapter 11 court proceedings, employee wages and benefits, and travel for the CEO. Remaining funds from the DIP funding after the dismissal was used to pay final legal fees and to fund the trust.

Pursuant to the Plan, the borrowings under the DIP Credit Agreement, at the option of the lenders to the DIP Credit Agreement, are part of the purchase price of all assets in the 363 Asset Sale. Santa Fe retained all debt not associated with the 363 asset sale and lost all assets in the process.

Santa Fe Gold failed to provide a Plan of Reorganization with the filing of protection under the Bankruptcy Codes; the significant transactions that occurred upon emergence from bankruptcy were as follows:

The approximately $ 30 million of indebtedness outstanding on account of the Company’s senior notes and unsecured claims were reinstated.  

The courts established a GUC Trust Agreement in April 2016 with Gavin/Solmones as Trustee for the benefit of all creditors less Waterton Global. A profit interest is attached to the Summit mine (formerly owned by Santa Fe Gold and its subsidiaries) with the sole benefit for the Creditors holding unsecured claims filed by each creditor with the courts.  

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.

We have a total accumulated deficit of $100,397,849 at June 30, 2016. To continue as a going concern, we are dependent on continued fund raising. 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.

Liquidity and Capital Resources; Plan of Operation

As of June 30, 2016, we had cash of $2,815 as compared to $69,305 at June 30, 2015, and we had a working capital deficit of $19,920,306 and had an accumulated deficit of $100,397,849.

At June 30, 2016, we were in arrears on payments totaling approximately $6.8 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm in the Santa Fe Gold Barbados subsidiary.

Results of Operations

Fiscal Year Ended June 30, 2016 Compared to Fiscal Year Ended June 30, 2015

Sales, net

During the fiscal year, there was miscellaneous sale of $6,250 as compared to the fiscal year ended June 30, 2015 of $66,884. There were no operations during the current fiscal year and from August 2016 to June 2016 we were in Chapter 11 status.

14

Operating Costs and Expenses

Our operating cost incurred in our fiscal year ended June 30, 2016, decreased $2,380,603 from $6,060,328 in the fiscal year ended June 30, 2015 to $3,679,725 for the end of the current year.. Details of the major changes are as follows.

Exploration and mine related costs: The decrease in the current year of measurement aggregated $876,758. The decrease mainly consisted of write off the Mogollon Option for $876,509 in the fiscal year ended June 30, 2015.

Depreciation and amortization: In the fiscal year ended June 30, 2016, depreciation and amortization decreased $791,578 as a result of the 363 Asset Sale on February 26, 2016, at which time depreciation ceased.  

Loss on disposition of assets: We incurred a loss in our fiscal year ended June 30, 2015 of $616,428 and none in the current  

             year of measurement.

Other Income (Expense)

Other income and (expense) for the fiscal year ended June 30, 2016, was $(1,160,761) as compared to $(3,587,681) for the fiscal year ended June 30, 2015, a decrease in other expenses of $2,426,920. The net decrease in other expenses for the current year of measurement is mainly comprised of the following components: increased gain on debt extinguishment of $758,110, a decrease in interest expense of $2,599,094 and an increase in gain on derivative instruments liabilities of $1,429,392. These increases were offset by an increased loss recognized on financing costs – commodity supply agreements of $1,606,053 and a decrease in the gain on foreign currency translation of $685,937. Further information regarding the changes in the various components of Other Income (Expense) is discussed below. The increased gain on debt extinguishment of $758,110 is a result of the bankruptcy proceedings disallowing accrued royalties of $797,683 and were written off.

On June 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 gain in foreign currency translation is the result of a decrease in the US$ relative to the A$ during the current fiscal year ended on the outstanding balances in the current fiscal year.

For the fiscal year ended June 30, 2016, financing costs – commodity supply agreements totaled an increase of $1,606,053 from the prior year period of measurement and resulted in a loss of $677,996 in the fiscal year ended June 30,2016.. The financing costs for commodity supply agreements relate directly to production for the period and the subsequent delivery of refined precious metals to Sandstorm and Waterton. 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 in the current fiscal year is driven by an increase in precious metals prices.

For the year ended June 30, 2016, the gain on derivative financial instruments totaled $1,068,664 as compared a loss of $360,728 for the comparable fiscal year ended. 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, a Monte 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 the derivatives the CFA assumed that the Company’s business would be conducted as a going concern.

For the fiscal year ended June 30, 2016, interest expense totaled $2,405,030 as compared to $5,004,124 for the comparable prior fiscal year. The decrease is mainly attributable to no additional penalty charges by Waterton relative to the Credit Agreement in the current year of measurement and the elimination of the debt on February 26, 2016, in the 363 Asset Sale to Waterton.

Non-GAAP Measures

Throughout this report, we have provided information prepared or calculated in accordance with U.S. GAAP, in addition to various non-U.S. GAAP (“Non-GAAP”) performance measures. Since our Non-GAAP performance measures do not have any standardized meaning prescribed by U.S. GAAP, they may not be comparable to similar measures presented by other companies. Accordingly these measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.

Production Statistics, Sales Statistics, and Cash Costs

15

Presented below are selected key operating measures for our Summit underground mine and Banner mill processing facility for the years ended June 30, 2016 and June 30, 2015. In the presentation of our production statistics, we utilize the terms ‘contained metals’ and ‘payable metals’. Contained metals represent the number of ounces before metallurgical losses, primarily recoveries, and payable metals deductions levied by a smelter. Payable metals represent the number of ounces after metallurgical losses, primarily recoveries, and payable metals deductions levied by a smelter. Payable metals sold represent the final number of ounces which are used to record sales.

     We suspended all mining operations in early November 2013 and placed the mine and mill on a care and maintenance program.

PRODUCTION STATISTICS

16

CASH COST STATISTICS

Factors Affecting Future Operating Results

Currently we have no other 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.

Off-Balance Sheet Arrangements

Stock option holders have the right to exercise stock options on a cashless basis, whereby the stock option holders can exercise their stock options without cash payments to us whereby we will issue that number of stock of common shares based upon the difference between the market price of the common shares at the time of exercise and the exercise price of the stock options being exercised.

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 in the 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 year June 30, 2016, describes 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-Sholes option pricing model, estimates utilized, impairment of assets, revenue recognition, accounts receivable, depreciation of equipment and mine development costs, and stock-based compensation.

Our exposure to market risks includes, but is not limited to, the following risks: changes in interest rates and equity and commodity price risks. We do not use derivative financial instruments as part of an overall strategy to manage or hedge market risk.

Interest Rate Risk

We had approximately US $5.8 million indebtedness under our credit facilities at June 30, 2016. The annual interest rates is 10.0% on $450,000 for our senior subordinated convertible notes, 6% on our A$3,900,000 convertible notes and 24% on $1,745,092 bridge loan. We also have a $200,000 bridge loan with an annual interest rate at 12%. Interest rates on our debts are specified and fixed and do not fluctuate.

17

Equity Price Risk

We have in the past sought and will likely in the future seek to acquire additional funding by sale of common stock and other equity instruments. Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to issue shares of common stock or other equity at an acceptable price to meet future funding requirements.

The fair value our stock options, warrants and derivative utilizing the Black-Scholes option pricing model and is subject to the volatility of the market price of our common stock. Such fluctuations would affect stock-based compensation and its effect on earnings (losses).

18

SANTA FE GOLD CORPORATION

 CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Years ended June 30, 2016 and 2015

19

SANTA FE GOLD CORPORATION

TABLE OF CONTENTS                                               

20

Board of Directors and Stockholders

Santa Fe Gold Corp.

We have audited the accompanying consolidated balance sheets of Santa Fe Gold Corp. and its subsidiaries (collectively, the “Company”) as of June 30, 2016 and June 30, 2015, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2016 and June 30, 2015, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 2 and 17 to the consolidated financial statements, the Company filed for Chapter 11 bankruptcy and substantially all of the assets of the Company have been sold. The Company is also in default with certain covenants of its credit facility and convertible notes. As a result, substantially all of the Company’s debt is currently due and payable. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2.

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

November 14, 2017

21

The accompanying notes are an integral part of the consolidated financial statements.

22

The accompanying notes are an integral part of the consolidated financial statements.

23

The accompanying notes are an integral part of the consolidated financial statements.

24

(Continued)

25

The accompanying notes are an integral part of the consolidated financial statements.
 

26

NOTE 1 – NATURE OF OPERATIONS

Santa Fe Gold Corporation (the “Company”, “our” or “we”) is a U.S. mining company incorporated in Delaware in August 1991. Our general business strategy is to acquire, explore, develop and mine mineral properties. The Company elected on August 26, 2015, to file for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and that case was dismissed on June 15, 2016. The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the process. As the Company emerged from the bankruptcy we had a management team of two with no assets. The Company is in the process of raising equity funds to acquire new mining claims, a potential processing plant or arrangements with a processing plant in an acceptable geographic location to potential new mining claims.  

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Going Concern

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

The Company has incurred a loss of $4,834,236 for the fiscal year ended June 30, 2016, and has a total accumulated deficit of $100,397,849 and a working capital deficit at June 30, 2016 of $19,920,306. The Company currently has no source of generating revenue. The prior operations were suspended all mining operations and placing the mine and mill on a care and maintenance program in November 2013 for lack of working capital.

On August 26, 2015 Santa Fe filed for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) in Delaware. With the dismissal of our bankruptcy case in June 15, 2016, all assets of the Company were sold. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. 

To continue as a going concern, the Company is dependent on continued capital financing for project development, repayment of various debt facilities and payment of current operating expenses until the Company has acquired new mining claims and an acceptable source to process the mineralized ore to generate revenue. We have no commitment from any party to provide additional working capital and there is no assurance that any funding will be available as required, or if available, that its terms will be favorable or acceptable to the Company.

On June 30, 2016, the Company was in default on payments of approximately $6.8 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm Gold Ltd. (“Sandstorm”).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Azco Mica, Inc., a Delaware corporation, The Lordsburg Mining Company, a New Mexico corporation and Santa Fe Gold Barbados Corporation, a Barbados corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain items in these consolidated financial statements have been reclassified to conform to the current year’s presentation.

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported

27

amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates under different assumptions or conditions.

Significant estimates are used when accounting for the Company’s carrying value of mineral properties, fixed assets, depreciation and amortization, accruals, derivative instrument liabilities, taxes and contingencies, asset retirement obligations, revenue recognition, and stock-based compensation which are discussed in the respective notes to the consolidated financial statements.

Fair Value of Financial Instruments

The carrying values of cash, miscellaneous receivables, accounts payable and accrued liabilities approximated their related fair values as of June 30, 2016, and 2015, due to the relatively short-term nature of these instruments.

Cash and Cash Equivalents

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash balances. Restricted cash is excluded from cash and is included in other assets.

Other Receivable

As of June 30, 2016 the Company has no receivables and at June 30, 2015 had a $34,833 other receivable for a refund of insurance.

Property, Equipment and Mine Development

Property and Equipment

Property and equipment are carried at cost. Maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. Expenditures for new property or equipment and expenditures that extend the useful lives of existing property and equipment are capitalized and recorded at cost. Upon retirement, sale or other disposition, the cost and accumulated amortization are eliminated and the gain or loss is included in operations. Depreciation is taken over the estimated useful lives of the assets using the straight-line method. The estimated useful lives of the property and equipment are shown below. Land is not depreciated.

All property and equipment on the Company’s books was sold with the 363 Asset Sale in February 2016.

Mine Development

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure in an underground mine. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as exploration expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at obtaining additional information on the ore body or converting non-reserve mineralization to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of costs applicable to sales.

Mine development is amortized using the units-of-production method based upon estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore body. Currently, with no claims or mines in our possession, no development costs are incurred.

28

All mine development on the Company’s books was sold with the 363 Asset Sale in February 2016.

Idle Equipment

No equipment remained in the Company’s possession after the 363 Asset Sale on February 2016.

Mineral Properties

Mineral properties are capitalized at their fair value at the acquisition date, either as an individual asset purchase or as part of a business combination. When it is determined that a mineral property can be economically developed as a result of establishing reserves, subsequent mine development are capitalized and are amortized using the units of production method over the estimated life of the ore body based on estimated recoverable tonnage in proven and probable reserves.

The Company’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. The Company has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material

No mineral properties remained in the Company’s possession after the 363 Asset Sale in February 2016.

Impairment of Long-Lived Assets

We re-evaluated the carrying value of the mine equipment, mine improvements and mineral properties in connection with filing of Chapter 11 in August 2015 subsequent to our current fiscal year ended.  It was determined in our audit that impairment was not required for our fiscal years ended June 30, 2015 and 2016, for mine equipment, mine development costs and mineral properties.  

No equipment, mine improvements and mineral properties remained in the Company’s possession after the 363 Asset Sale in February 2016.

Restricted Cash

Restricted cash is maintained in connection with requirements for reclamation of projects and bonding requirements for the Company’s weighmaster scale. All Reclamation Bonds are transferred to Waterton after the 363 Asset Sale in February 2016.  

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.

Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized as a one day derivative loss, in order to initially record the derivative instrument liabilities at their fair value.

The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

When required to arrive at the fair value of derivatives associated with the convertible note and warrants, a Monte 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 the derivatives the CFA assumed that the Company’s business would be conducted as a going concern.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument

29

are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

Reclamation Costs

Reclamation obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to accretion expense. The asset retirement cost is capitalized as part of the asset’s carrying value and depreciated over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The reclamation obligation is based on when spending for an existing disturbance will occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site in accordance with ASC guidance for reclamation obligations. No reclamation costs are recorded at the end of fiscal 2016 due to the obligation being released as part of the 363 Asset Sale in February 2016.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred physically, the price is fixed or determinable, no related obligations remain and collectability is probable.

Sales of all metals products sold directly to the Company’s metals buyers, including by-product metals, are recorded as revenues upon a buyer either taking physical delivery of the metals product in the case of siliceous flux material or upon the buyer receiving all required documentation necessary to take physical delivery of the metals product in the case of concentrate (generally at the time the product is loaded onto a shipping vessel at the originating port and the bill of lading is generated).

Revenues for metals products are recorded at current market prices at the time of delivery and are subsequently adjusted to the current market prices existing at the end of each reporting period. Due to the period of time existing between delivery and final settlement with the buyer, the Company estimates the prices at which sales will be settled. Changes in metals prices between delivery and final settlement will result in adjustments to revenues previously recorded.

Sales of metals products are recorded net of charges from the buyer for treatment, refining, smelting losses, and other negotiated charges. Charges are estimated upon shipment of product based on contractual terms, and actual charges do not vary materially from estimates. Costs charged by smelters include a metals payable fee, fixed treatment and refining costs per ton of product.

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. A valuation allowance is recorded when it is more likely than not that deferred tax assets will be unrealizable in future periods. As of June 30, 2016 and 2015, the Company has recorded a valuation allowance against the full amount of its net deferred tax assets. The inability to foresee taxable income in future years makes it more likely than not that the Company will not realize its recorded deferred tax assets in future periods.

Net Loss Per Share

Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation. For the years ended June 30, 2016 and 2015, the impact of outstanding stock equivalents has not been included as they would be anti-dilutive.

Stock-Based Compensation

In connection with terms of employment with the Company’s executives and employees, the Company occasionally issues options to acquire its common stock. Awards are made at the discretion of the Board of Directors. Such options may be exercisable at varying exercise prices and generally vest over a period of six months to a year.

The Company accounts for share based compensation on the grant date fair value of the award. The Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and

30

interest rates, and to allow for actual exercise behavior of option holders. The compensation cost is recognized over the expected vesting period. Share based payments to nonemployees are valued at the earlier or a commitment date or completion of services.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASC updated No. 2014-09, Revenue from Contracts with Customers (Topic 606 (ASU 2014-09). Under the amendments in this update, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update are effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is not permitted. The new standard is required to be applied either retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of applying the update recognized at the date of initial application. The Company has not yet selected a transition method, and has not determined the impact, if any, that the new standard will have on its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2015. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and should not be reflected in the estimate of the grant-date fair value of the award. This adoption of this standard does not have an effect on the Company’s reported financial position or results of operations.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2016. This update contains amendments that clarify the principles for management’s assessment of an entity’s ability to continue as a going concern. Management has not determined if the adoption of this standard will have an effect on the Company’s reported financial position or results of operations.  

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.  This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019.  ASU No 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The adoption of this standard will not have a material impact on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. As a result of the adoption, stock-based compensation excess tax benefits or tax deficiencies will be reflected in the consolidated statement of operations within the provision for income taxes rather than in the consolidated balance sheet within additional paid-in capital. The amount of the impact to the provision for income taxes will depend on the difference between the market value of share-based awards at vesting or settlement and the grant date fair value. The amendment is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

In November 2016, the FASB has issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), which provides guidance on how restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its Consolidated Statements of Cash Flows.

In May 2017, FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the various types of changes which would trigger modification accounting for share-based payment awards. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, which would be the Company's fiscal year ending March 31, 2019. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. While the Company does not expect the adoption of ASU 2017-09 to have a material effect on its business, the Company is still evaluating any potential impact that adoption of ASU 2017-09 may have on its financial position, results of operations or cash flows.

31

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.

NOTE 3 – MINERAL PROPERTIES

Mineral properties were comprised of acquisition costs related to properties in New Mexico and Arizona, as shown below as of June 30, 2016 and 2015:

All mineral properties were part of the 363 Asset Sale on February 26, 2016. See Note 17 – 363 Asset Sale.

NOTE 4 - PROPERTY, EQUIPMENT AND MINE DEVELOPMENT

Property, equipment, and mine development consists of the following at June 30, 2016 and 2015:

All property, plant and equipment were part of the 363 Asset Sale on February 26, 2016. See Note 17 – 363 Asset Sale.

During fiscal year ended June 30, 2015, we recognized a loss on equipment disposal of $616,428. The loss was attributable to equipment returned to a vendor for sale with a loss recognized of $670,761 and was offset by a gain on the sale of idle equipment with a zero value of $54,333. During the fiscal years ended June 30, 2016 and 2015, depreciation and amortization expense was $1,134,112 and $1,925,690, respectively.

NOTE 5 - ACCRUED LIABILITIES

Accrued liabilities consist of the following at June 30, 2016 and 2015:

The decrease in accrued royalties is a result of the bankruptcy proceedings disallowing accrued royalties $797,683 and the amount was written off as a gain on extinguishment of debt. The bankruptcy proceedings also disallowed accrued expenses to a royalty holder aggregating $23,367 and the amount was written off as a gain on extinguishment of debt

32

NOTE 6 - DERIVATIVE INSTRUMENT LIABILITIES

The fair market value of the derivative instruments liabilities were determined utilizing the Black-Scholes option pricing model for warrants and certain convertible notes and to arrive at the fair value of derivatives associated with certain other convertible notes, a Monte Carlo model was utilized that values the Convertible Notes based on average discounted cash flow factoring in the various potential outcomes. In determining the fair value of the derivatives it was assumed that the Company’s business would be conducted as a going concern at June 30, 2016.

Utilizing the two methods, the aggregate fair value of the derivative instruments liability was determined to be $306,488 as of June 30, 2016. The following assumptions were utilized in the Black Scholes option pricing model: (1) risk free interest rate of 0.01% to 1.01%, (2) remaining contractual life of 0.13 to 3.77 years, (3) expected stock price volatility of 171% to 307%, and (4) expected dividend yield of zero. The following assumptions were utilized in the Monte Carlo model: (1) features in the note that were analyzed and incorporated into the model included the conversion feature with the reset provisions, (2) redemption provisions and the default provisions, (3) there are four primary events that can occur; payments are made in cash; payments are made with stock; the Holder converts the note; or the Company defaults on the note,(4) stock price of $0.0009 to $0.1760 was utilized, (5)  notes convert with variable conversion prices based on the lesser range from of $0.0425  or $0.125 or a fixed rate of 60% or 65% of  either the low 20 or 25 TD, depending on the lender and (6) annual volatility for each valuation period was based on the historic volatility of the Company of 391%.

Based upon the change in fair value, the Company has recorded a non-cash gain on derivative instruments for the year ended June 30, 2016, of $1,068,664.

The table below show the loss on the derivative instruments liability for the years ended June 30, 2016 and 2015. 

Year Ended June 30, 2016

Year Ended June 30, 2015

The entire amount of derivative instrument liabilities are classified as current due to the fact that settlement of the derivative instruments could be required within twelve months of the balance sheet date.

NOTE 7 – COMPLETION GUARANTEE PAYABLE

At June 30, 2012, the Company calculated the completion guarantee payable provided by Amendment 1. Based upon the provisions of the Agreement and the related completion guarantee test, incremental financing charges totaling $504,049 were recognized in Other Expenses and accrued at June 30, 2012. These accrued charges, combined with the remaining uncredited liability totaled $3,359,873 and $3,300,287, net of unamortized discount of $nil and $59,586, at June 30, 2016 and 2015, respectively, and are reported as completion guarantee payable. Amortized discounts of $59,586 were expensed as interest expense during the current fiscal year.

NOTE 8 –CONVERTIBLE NOTES PAYABLE

Senior Subordinated Convertible Notes

33

On October 30, 2007, the Company completed the placement of 10% Senior Subordinated Convertible Notes of $450,000. The notes were placed with three accredited investors for $150,000 each and bear interest at 10% per annum. The notes had term of 60 months at which time all remaining principal and interest was due. Interest accrued for 18 months from the date of closing. Interest on the outstanding principal balance was payable in quarterly installments commencing on the first day of the 19th month following the transaction closing. In connection with the transaction, the Company issued a five year warrant for each $2.50 invested, for a total of 180,000 warrants, each warrant giving the note holder the right to purchase one share of common stock at a price of $1.25 per share. All issued warrants have expired. At the option of the holders of the convertible notes, the outstanding principal and interest was convertible at any time into shares of the Company’s common stock at conversion price of $1.25 per share. The notes were to be automatically converted into common stock if the weighted average closing sales price of the stock exceeded $2.50 per share for ten consecutive trading days. The shares underlying the notes are to be registered on request of the note holders, provided the weighted average closing price of the stock exceeds $1.50 per share for ten consecutive trading days.

On October 31, 2012, the notes with the three accredited investors became due and payable. On January 15, 2013, the maturity dates for the convertible senior subordinated notes aggregating $450,000 were extended for a period of two years from the original maturity date. Additionally, the convertible price of the notes was reduced to $0.40 and the automatic conversion price of $2.50 was reduced to $0.80. In connection with the extension of the notes, 562,500 warrants were issued with a strike price of $0.40 and term of two years from the original maturity dates. All issued warrants have expired.

At June 30, 2016 and 2015, the outstanding principal balance and accrued interest on the senior subordinated convertible notes, was $450,000 and $450,000, and $144,500 and $98,749, respectively, and classified as current. The notes are currently due and in default.

Convertible Secured Notes

In October and November 2012, the Company received advances totaling A$3,900,000 (A$ - Australia dollars), representing cash proceeds of $3,985,000, from International Goldfields Limited (ASX: IGS) in fulfillment of an important condition of the Binding Heads of Agreement dated October 8, 2012 between the Company and IGS. The funds were advanced by way of two secured convertible notes. The convertible notes bear interest at a rate of 6% per annum, have a three-year term, and were secured by the Company’s contractual rights to the Mogollon property. The Company has the right to prepay the notes at any time without any premium or penalty. Should the Company fail to repay the notes on the maturity date or should an event of default occur, then IGS may choose to have the outstanding amounts repaid in the Company’s shares at a conversion rate equal to the daily volume weighted average sales price for the twenty trading days immediately preceding the date of conversion.

On June 30, 2016 and 2015, the total outstanding principal balance on the IGS Secured Convertible Note totaled $2,903,316 and $2,985,606, respectively, and accrued interest was $642,624 and $479,396, respectively. The note is currently due and in default at June 30, 2016.

On October 31, 2015,  the note became convertible and the CFA computed an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial carrying value of the embedded conversion option was $98,091. During the year ended June 30, 2015 amortization of loan discount was recognized as interest expense of $48,251 and the unamortized discount was $49,840 at June 30, 2016.

IGS never submitted a conversion notice and in March 2017 reached an agreement with the Company for a cash settlement of $88,283 on the outstanding principle and accrued interest as payment in full. The settlement amount was paid by wire transfer in April 2017.

Convertible Unsecured Notes

On October 22, 2014, the Company signed a $500,000 Convertible Note with an accredited investor and received a consideration of net proceeds $75,000, net an original issue discount (“OID) of $8,333. The Consideration on the Note has a Maturity date of two years from the Effective Date and has a 10% OID component attached to it. The Company may repay the Consideration at any time on or before 120 days from the Effect Date and there would be no interest due on the Consideration. If the Company does not repay a Consideration on or before 120 days from its Effective Date, a one- time interest charge of 12% shall be applied to the principal sum. If the Company does not pay a Consideration prior to the 120-day period, the Company may not make further payments on this Note prior to Maturity Date without written approval from the Investor. The Investor may pay additional Consideration to the Company in such amounts and at such dates as the Investor may choose in its sole discretion. During the fiscal year ended June 30, 2015, the investor converted note principle of $68,900 into 1,800,000 shares of restricted common stock. During the fiscal year ended June 30, 2016, the investor converted the balance of the note principle and added interest charges of $24,433 into 916,078 shares of restricted common stock.

34

The original consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative loss of $78,529 in the period ending December 31, 2014. During the fiscal years ended June 30, 2016 and 2015, amortization of loan discounts was recognized as interest expense of $20,185 and $54,815, respectively.

On February 25, 2015, a second consideration tranche of $50,000 was delivered under this Convertible Note under the same terms and conditions, net of and OID charge of $5,556. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative loss of $105,556 in the period ending March 31, 2015. During the fiscal years ended June 30, 2016 and 2015, amortization of loan discounts was recognized as interest expense of $60,973 and $1,250, respectively. During the fiscal year ended June 30, 2016, the investor converted principle and added interest charges aggregating $62,223 converted into 27,522,855 shares of restricted common stock.

On June 24, 2015, a third Consideration tranche of $50,000 was delivered under this Convertible Note under the same terms and conditions, net of and OID charge of $5,556. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative loss of $90,395 in the period ending June 30, 2015. During the fiscal years ended June 30, 2016, $6,666 was added to the note principle and note discount and amortization of the loan discount was recognized as interest expense of $5,541 and $593, for the fiscal years ended June 30, 2016 and 2015, respectively. No note conversions were made on the note during the fiscal years ended June 30, 2016 and 2015. During fiscal year ended June 30, 2016, $31,111 in default t charges was added to the note balance. At June 30, 2016 and 2015 the note balance was $93,333 and $55,556, respectively and the unamortized loan discount was $56, 088 and $54,963, respectively.

The conversion price with this investor is the lesser of $0.0425 or 65% of the lowest trade price in the 25 trading days previous to the conversion date. At June 30, 2016, the three note tranches had aggregated outstanding principal, discounts and accrued interest of $93,333, and a conversion price of $0.00035. Subsequent to June 30, 2016 the note was not converted and was retired for $90,000 in installments, the final installment made on January 25, 2017.

On January 20, 2015 the Company signed a $250,000 Convertible Note with an accredited Investor and received on January 20, 2015, a consideration of net proceeds $50,000, net of an OID of $5,556. The consideration on the Note has a Maturity date of two years from payment of each consideration and has a 10% OID component attached to it. A one- time interest charge of 12% is applied to the principal sum on the on the date of the consideration. The Note principal and interest shall be paid at Maturity date or sooner as provided within the Note and conversion provisions. The Investor may pay additional consideration to the Company in such amounts and at such dates as the Investor may choose in its sole discretion. The initial carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative loss of $228,200, in the period ending March 31, 2015.

On June 9, 2015, a second Consideration tranche of $50,000 was delivered under this Convertible Note under the same terms and conditions, net of an original issue discount (“OID) of $5,556. The tranche consideration contains an embedded conversion option and is separated from the Note and accounted for as a derivative instrument at fair value and discount to the Note and is expensed over the life of the Note under the effective interest method. The initial carrying value of the of the embedded conversion option exceeded the net proceeds received and created a day one derivative loss of $54,270 in the period ending June 30, 2015. During the fiscal years ended June 30, 2016 and 2015, amortization of loan discounts on the two notes was recognized as interest expense of $66,388 and $2,220, respectively. During the fiscal year ended June 30, 2016, the investor converted the note principle and added interest charges of $60,192 into 18,007,333 shares of restricted common stock. During the fiscal year ended June 30, 2016, penalties and default charges of $43,347 were added to the note balances. At June 30, 2016 and 2015, the note balances were $107,599 and $124,444, respectively and the unamortized loan discounts were $55,886 and $122,224, respectively.

During the twelve month period, a total of $146,848 of principle and added interest charges were converted into a total of 46,446,266 shares of restricted common stock.

The conversion price with this investor is the lesser of $0.125 or 60% of the lowest trade price in the 25 trading days previous to the conversion date. At June 30, 2016, the two note tranches had aggregated outstanding principal $107,599 and had a conversion price of $$0.0003. Subsequent to June 30, 2016, the note was not converted and was retired for $93,000 in installments, the final installment made on September 6, 2016.

35

The components of the convertible notes payable are as follows:

NOTE 9 – SENIOR SECURED GOLD STREAM CREDIT AGREEMENT

On December 23, 2011, the Company and its subsidiaries entered into a Senior Secured Gold Stream Credit Agreement (the “Credit Agreement”) with Waterton. The Credit Agreement provided for two $10 million tranches and a $5 million revolving working capital facility. On December 23, 2011, the Company closed the first $10 million tranche of the Credit Agreement. The second $10 million tranche was earmarked for fund but was not drawn down. On February 26, 2016, the note balance was $7,755,685 and accrued interest was $5,746,404 and these amounts were eliminated with the 363 Asset Sale where Waterton received all the assets of the Company for all debt and any other agreement obligations as agreed on in the bankruptcy filings in August 2015.

Debtor in Possession Financing

In connection with the prepetition negotiations of the restructuring support agreement, Waterton Global Value LP (“Waterton”), holders of the Company’s senior notes agreed to provide the Company and the Chapter 11 Subsidiaries a debtor in possession credit facility (the “DIP Credit Agreement"). The DIP Credit Agreement provided for a multi draw net term loan of which a net $2,037,595 was advanced, which became available to the Company upon the satisfaction of certain milestones and contingencies. Waterton also initially advanced a Bridge loan of $200,000 and also charged a structuring fee of $32,203. Pursuant to the Plan the borrowings under the Bridge loan and DIP Credit Agreement, at the option of the lenders to the DIP Credit Agreement, are part of the purchase price of all assets in the “363 Asset Sale”.  Net advances under the DIP Credit Agreement at February 26, 2016, were  $2,237,595 along with the accrued interest and fees aggregating $101,421and were eliminated with the 363 Asset Sale where Waterton received all the assets of the Company for all debt and any other agreement obligations as agreed on in the bankruptcy filings in August 2015.

NOTE 10 – NOTES PAYABLE

Pursuant to Share Exchange Agreement (the "Share Exchange Agreement") with Canarc Resource Corp., a British Columbia, Canada corporation whose common shares are listed on the TSX Exchange under the symbol CCM ("Canarc") on July 15, 2014, the Company and Carnac entered into an interim financing facility pursuant to which Canarc advanced a $200,000 loan to the Company and a $20,000 merger advance.. The loan bears interest at a rate of 1% a month and is due and payable upon the closing of a gold bond financing by the Company or January 15, 2015, if the financing does not close. The financing did not close under this Agreement and this amount is outstanding at June 30, 2016 and 2015 and is in default. Accrued interest on note at June 30, 2016 and 2015 is $47,402 and $23,334, respectively.  

On June 1, 2012, the Company entered into an installment sales contract for $593,657 to purchase certain equipment. The term of the agreement is for 48 months at an interest rate of 5.75%, with the equipment securing the loan. The balance owed on the note was $398,793 and $398,793 at June 30, 2016 and 2015, respectively and accrued interest of $59,238 and $36,307, respectively. The Company has been unable to make its monthly payments since November 2013, is currently in default and the equipment has been returned to the vendor for sale and remains unsold at June 30, 2016.

In conjunction with the Merger Agreement, Tyhee and the Company entered into a Bridge Loan Agreement, pursuant to which Tyhee was obligated to advance up to $3 million to the Company in accordance with the terms thereof. Tyhee advanced the Company only $1,745,092 under the Bridge Loan as of June 30, 2014. The Bridge Loan bears an annual interest rate of 24%. At this time the Company and Tyhee are in disagreement as to the due date of the Bridge Loan. Tyhee has provided the Company with purported notice of default under the Bridge Loan Agreement. The Company has numerous claims against Tyhee resulting from the Merger Agreement, Tyhee’s failure to fund the total $3 million under the Bridge loan Agreement and Tyhee’s allocation of the proceeds from

36

the Bridge Loan Agreement. At June 30, 2014, the Company recorded merger expenses that are due to Tyhee of $269,986 and is included in Accrued Liabilities at June 30, 2016 and 2015. This amount is net of a break fee of $300,000 due to the Company from Tyhee. Accrued interest on note at June 30, 2016 and 2015 was $990,657 and $570,687, respectively.  

The following summarizes notes payable, including the Senior Secured Gold Stream Credit Agreement, at: