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

4

SANTA FE GOLD CORPORATION

(Unaudited)

5

6

SANTA FE GOLD CORPORATION

December 31, 2016

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND GOING CONCERN

Santa Fe Gold Corporation, a Delaware corporation (the "Santa Fe" or "Company") is a U.S. copper, silver and gold exploration and mining company.

The accompanying unaudited financial statements and related notes present the Company’s consolidated financial position as of December 31, 2016 and June 30, 2016, the consolidated results of operations for the three and six months ended December 31, 2016 and 2015, consolidated cash flows for the six  months ended December 31, 2016 and 2015. The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended December 31, 2016, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2017. The accounting policies followed by the Company are set forth in Note 2 to the Company’s financial statements included in Form 10-K for the fiscal year ended June 30, 2016. These interim financial statements and notes thereto should be read in conjunction with the consolidated financial statements presented in the Company’s 2016 Annual Report on Form 10-K filed on November 14, 2017.

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.  

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 $227,708 for the six months ended December 31, 2016, and has a total accumulated deficit of $100,625,557 and a working capital deficit at December 31, 2016 of $19,256,388. The Company currently has no source of generating revenue.

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

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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 December 31, 2016, the Company was in default on payments of approximately $6.92 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm Gold Ltd. (“Sandstorm”).

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and Santa Fe Acquisitions Company, a New Mexico Limited Liability Company. 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 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 amounts of revenues and expenses during the reporting period. 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, and stock-based compensation which are discussed in the respective notes to the consolidated financial statements.

Fair Value Measurements

The carrying values of cash and cash equivalents, accounts payable and accrued liabilities approximated their related fair values as of December 31, 2016, and June 30, 2016, due to the relatively short-term nature of these instruments. The carrying value of the Company's convertible notes payable approximates the fair value based on the terms at which the Company could obtain similar financing and the 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.

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

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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 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.

Net Income (Loss) Per Share

Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated by dividing net income (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 three months ended December 31, 2015 and six months ended December 31, 2016 and 2015, the impact of outstanding stock equivalents has not been included as they would be anti-dilutive. For the three months ended December 31, 2016, diluted earnings per share is disclosed below:

A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share (“EPS”) computation is as follows:  

Dilutive potential common shares consist convertible notes. The number of stock options excluded from the calculation of diluted earnings per share for the three months ended December 31, 2016 was 475,000 and excluded warrants was 9,693,464, because their inclusion would have been 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 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.

Accounting Standards to be Adopted in Future Periods

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.

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NOTE 3 - ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31, 2016 and June 30, 2016:

NOTE 4 - 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 December 31, 2016.

Utilizing the two methods, the aggregate fair value of the derivative instruments liability was determined to be $360,725 as of December 31, 2016. The following assumptions were utilized in the Black-Scholes option pricing model: (1) risk free interest rate of 0.1631% to 1.27%, (2) remaining contractual life of 0.03 to 2.26 years, (3) expected stock price volatility of 104% to 463%, 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 $0.176 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 93%-99%.

Based upon the change in fair value, the Company has recorded a non-cash loss on derivative instruments for the six months ended December 31, 2016, of $54,237.

The table below shows the loss on the derivative instruments liability for the six months ended December 31, 2016.

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.

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NOTE 5 - COMPLETION GUARANTEE PAYABLE

At June 30, 2012, the Company calculated the completion guarantee payable provided by Amendment 1 noted on the Company’s June 30, 2016 10-K. 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 at December 31, 2016 and June 30, 2016, respectively, and are reported as completion guarantee payable and is due and in default due to the bankruptcy.

NOTE 6 - CONVERTIBLE NOTES PAYABLE

Senior Subordinated Convertible Notes

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 and have expired.

As of December 31 and June 30, 2016, the outstanding principal balance was $450,000 and accrued interest on the senior subordinated convertible notes, was $145,438 and $144,500, respectively and are in default. In December 2016 the court administered trust paid and aggregate $23,000 to the note holders and was applied against the accrued interest on the notes. In March 2017 the three accredited investors reached an agreement with the Company for an aggregate cash settlement of $13,500 on all the outstanding principles and accrued interest as payment in full. The settlement amount was paid by according to the terms of the settlement in April 2017.

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. The conversion price at December 31, 2016, was approximately $0.05 per share.

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

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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, 2016, amortization of loan discount was recognized as interest expense of $48,251 and during the six months ended December 31, 2016, amortization of loan discount recognized as interest expense was $36,295 and unamortized discount balance was $13,545 at December 31, 2016.On December 31 and June 30, 2016, the total outstanding principal balance on the IGS Secured Convertible Note totaled $2,818,179 and $2,903,316, respectively, and accrued interest was $540,789 and $642,624, respectively. The note is currently due and in default at December 31, 2016. In December 2016 the court administered trust paid $174,507 to the note holder and was applied against the accrued interest on the note. 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.

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. During the fiscal year ended June 30, 2016, amortization of loan discount was recognized as interest expense of $20,185.

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. During the fiscal year ended June 30, 2016, amortization of loan discount was recognized as interest expense of $60,973. During the fiscal year ended June 30, 2016, the investor converted principle and added interest charges aggregating $62,223 into 27,522,855 shares of restricted common stock.

During the six months ended December 31, 2015, the Company recorded $90,081 as resolution of derivative liability upon note conversions back into Additional Paid In Capital.

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. 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 for the fiscal year ended June 30, 2016. 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 charges was added to the note balance. At December 31, 2016 and June 30, 2016 the note balance was $83,333 and $93,333 respectively, and amortization of the loan discount was recognized as interest expense of $23,934 for the six months ended December31, 2016 and the unamortized loan discount balance as of December 31 and June 30, 2016, was $32,154 and $56,088, respectively.

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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 December 31, 2016, the third note tranche had  a conversion price of $0.01625. Subsequent to December 31, 2016, the note was not converted and was retired for $80,000 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 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.

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. During the fiscal year ended June 30, 2016, amortization of loan discounts on the two notes was recognized as interest expense of $66,388. During the fiscal year ended June 30, 2016, the investor converted the note principle and added interest charges of $60,192 under the first consideration 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 two note balances. At December 31 and June 30, 2016, the note balances were $-0- and $107,599, respectively and the unamortized loan discounts were $0 and $55,445, respectively. During the six months ended December 31, 2016, amortization of the loan discount recognized as interest expense was $55,445.        

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. During the six months ended December 31, 2016, the note was not converted and was retired for $93,000 in installments, the final installment made on September 6, 2016. The transaction resulted in recognition of a gain on extinguishment of debt of $14,599.

The components of the unsecured convertible notes payable are as follows:

NOTE 7 – 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 December 31, 2016 and is in default. Accrued interest on note at December 31, and June 30, 2016 is $49,603 and

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$47,402, respectively. In December 2016 the court administered trust paid $9,897 to the note holder and was applied against the accrued interest on the note.

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 at December 31 and June 30, 2016 and accrued interest of $53,291 and $59,238, respectively. In December 2016 the court administered trust paid $17,412 to the note holder and was applied against the accrued interest on the note. The Company has been unable to make its monthly payments since November 2013, currently is due and in default and the equipment has been returned to the vendor for sale and remains unsold at December 31, 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 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 December 31 and June 30, 2016. This amount is net of a break fee of $300,000 due to the Company from Tyhee. Accrued interest on note at December 31 and June 30, 2016, was $1,110,001 and $990,657, respectively is due and in default. In December 2016 the court administered trust paid $91,788 to the note holder and was applied against the accrued interest on the note.  

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The following summarizes notes payable:

NOTE 8 - FAIR VALUE MEASUREMENTS

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.  A slight change in unobservable inputs such as volatility can significantly have a significant impact on the fair value measurement of the derivatives liabilities.

 The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.

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The Company’s financial instruments consist of derivative instruments which are measured at fair value on a recurring basis. The derivatives are measured on their respective origination dates, at the end of each reporting period and at other points in time when necessary, such as modifications, using Level 3 inputs in accordance with GAAP. The Company does not report any financial assets or liabilities that it measures using Level 1 or 2 inputs. The fair value measurement of financial instruments and other assets as of December 31 and June 30, 2016 are as follows:

NOTE 9 - CONTINGENCIES AND COMMITMENTS

Chapter 11 Bankruptcy

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).  Santa Fe’s 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 will have no assets, but is still liable for all commitments and debts outstanding.  SFG Barbados, Lordsburg Mining Company and AZCO will be dormant and all the commitments and debts will stay with the respective companies and all debt is currently in default and due. The court set up a Trust fund that will be funded by the activities of the Summit mine for five (5) years and the trust funds will be distributed by an independent trustee to all credit holders on record.

Upon receiving the Certification of Counsel Regarding Satisfaction of Conditions in Debtors’ Motion to dismiss Chapter 11 Cases, on June 15, 2016, the Company received the Court Order Dismissing the Chapter 11 Case under the Bankruptcy Code.

In December 2016 the court administered trust paid $472,831to credit holders of the Company, and is recorded as a gain on trust debt extinguishment and payments were applied as follows:

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Office and Real Property Leases

On August 01, 2015, the Company moved the office to a single room located in Albuquerque, NM, at the home of the CFO for a monthly rent of $500 until the Company is required to lease increased office space due to additional personnel requirements.

Rental expense totaled $3,000 for the six months ended December 31, 2016 and 2015, respectively.

Title to Mineral Properties

Although the Company has taken steps, consistent with industry standards, to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

NOTE 10 - STOCKHOLDERS' DEFICIT

Stock Returned and Cancelled

On August 1, 2016, a shareholder returned 6,956,750 common shares to the Company for no value received by the shareholder and the shares were recorded at Par Value of $13,914.

On December 14, 2016, employees, a director and a consultant returned 15,956,748 shares to the Company in order to be able to raise more funds to acquire additional assets by the Company for no value received by the shareholders and the shares were recorded at Par Value of $31,914.

Issuance of Stock

During the six months ended December 31, 2016, the Company issued the following common stock:

The issuance of the restricted common shares during the six months ended December 31, 2016, were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof because such issuance did not involve a public offering.

Issuance of Warrants and Expiration

During the six months ending December 31, 2016, 18,962,250 warrants were issued and 750,000 warrants expired.

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Stock Options and the Amended and Restated Equity Incentive Plan

During six months ending December 31, 2016, no options were granted and 2,900,000 options were cancelled.

Stock option and warrant activity, both within the 2007 EIP Amended, the Restated Equity Incentive Plan and outside of these plans, for the six months ending December 31, 2016, are as follows:

Stock options and warrants outstanding and exercisable at December 31, 2016 are as follows:

As of December 31, 2016, the aggregate intrinsic value of all stock options and warrants vested and expected to vest was $240,000 and the aggregate intrinsic value of currently exercisable stock options and warrants was $240,000. The intrinsic value of each option share is the difference between the fair market value of the common stock and the exercise price of such option or warrant share to the extent it is "in-the-money". Aggregate intrinsic value represents the value that would have been received by the holders of in-the money options had they exercised their options on the last trading day of the quarter and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.049 closing stock price of the common stock on December 31, 2016.

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The total intrinsic value associated with options exercised during the six months ended December 31, 2016, was $0. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option or warrant holder to exercise the options.

NOTE 11 – RELATED PARTY TRANSACTIONS    

At December 31, 2016 and at June 30, 2016, the Company owed to related parties an aggregated amount of $269,787 respectively.

On August 1, 2015, the Company leased a home office space from the Company CFO for $500 a month for the corporate administrative office in Albuquerque, NM until such time growth requires a larger corporate administrative office.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

NOTE 12 - LEGAL PROCEEDINGS

All legal proceedings stayed with the filing of Chapter 11 bankruptcy. At the time of the bankruptcy filing several litigations were filed in several courts. Santa Fe believes that the following suits will be stayed pursuant to the Bankruptcy Code. After dismissal of the Chapter 11 filings, we have not been notified of any of the below cases if they will continue or not.

Boart Long year Company v. Lordsburg Mining Company, Case No. D-2-2-CV-2015- 06048, County of Bernalillo, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-721-CV-2015- 00058, County of Sierra, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-608-CV- 201500165

County of Quintero, NM. Series of collection cases by Boart Longyear Company, who obtained Utah judgment for equipment delivered to Lordsburg Mining Company

Santa Fe Gold Corporation v. Tyhee Gold Corp., Brian K. Briggs, SRK Consulting (US), Inc., and Bret Swanson, Case No: 14CV032866, District Court, Denver County, Colorado

Santa Fe is seeking damages for breach of the Confidentiality Agreement as well as for conversion of Santa Fe’s confidential information. Tyhee Gold Corp. has filed a counter-claim for tortuous interference with prospective contractual relationships with Koza Gold. At this time, there can be no determination of the outcome.

Wagner Equipment Co. v. Lordsburg Mining Company, Case No. D-2014-02372, County of Bernalillo, NM 28

Collection case by Wagner equipment, who obtained judgment for equipment delivered to Lordsburg Mining Company.

In October 2013, Lone Mountain Ranch, LLC, owner of the surface estate overlying our Ortiz gold property, filed a lawsuit against the Company and our lessor, Ortiz Mines, Inc. The lawsuit seeks to clarify Lone Mountain Ranch's rights and obligations under the split estate regime. Specifically, Lone Mountain Ranch seeks a declaratory judgment that it may participate in permit hearings, agency proceedings, and private activities related to the permitting of the Ortiz project without being in violation of common law duties to not interfere with development of the mineral estate. The Company conducted a strategic evaluation as whether or not to continue with the Ortiz Gold Project. Given the public opposition to the Ortiz Gold Project, Santa Fe has decided not to further pursue the Ortiz Gold Project. Lone Mountain Ranch LLC sued Ortiz Mines Inc against any mining activities on the property, and Santa Fe Gold was only a co-defender.  With the bankruptcy, we, SFG, were dismissed.

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We are in litigation with two vendors for claims for approximately $140,400 and $125,876, respectively against us. If the Company is unsuccessful in raising additional funding, we may not be able to pay resolve these lawsuits and our business may not continue as a going concern. In the event we cannot raise the necessary capital or we cannot restructure through negotiated modifications, we may be required to effect under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 or Chapter 7 of the U.S. Bankruptcy Code (“Chapter 11 or “Chapter 7”). See “Risk factors.” The claims were against Lordsburg Mining company, were stayed during the proceedings and all claims remained.  At this time, there can be no determination of the outcome.

The court set up a Trust fund that will be funded by the activities of the Summit mine for five (5) years and the trust funds will be distributed by an independent trustee to all credit holders on record.  Currently all debts at the time of the bankruptcy are currently due and in default. None of the claims have been reopened since June 2016.

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. Other than the above-described litigation, as of June 30, 2016, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on its financial statements in any given reporting period. However, in the opinion of Management, after consulting with legal counsel, the ultimate liability related to the current outstanding litigation is not expected to have a material adverse effect on its financial statements.

NOTE 13 – SUBSEQUENT EVENTS

Recent Issuances of Unregistered Securities

In the period from January 2017 through December 22, 2017, the Company sold an aggregate of 21,882,118 units. Each unit consisted of one common share and one common stock warrant. The warrants had a term of 5 years and an exercise price ranging from $0.001 to $0.10. All warrants were immediately exercised resulting in the issuance of an additional 21,882,118 common shares. The Company received aggregate proceeds of $2,259,503 from these sales and warrant exercises. In connection with this offering, the Company incurred placement fees consisting of a cash fee of 10% of the full combined dollar amount of units placed in the offering plus warrants exercisable for 10% of the shares and warrants included in the units placed with exercise prices ranging from $0.001 to $0.10. To date, no placement agent fee warrants have been issued. The Company incurred a cash fee amounting to $225,950 in connection with this raise.

In addition, between July 26, 2017 and January 12, 2018, the Company has raised an additional $3,721,781 for additional equity purchases from a private overseas investment company and a number of associated investors. The stock and warrant shares have not been issued at this time and the stock certificates and warrant shares (approximately 45,890,576 shares) will be issued at the same time at a varying price per share. In connection with this offering, the Company has incurred placement fees consisting of a cash fee of 10% of the full combined dollar amount of units placed in the offering plus warrants exercisable for 10% of the shares and

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warrants included in the units placed. To date, no placement agent fee warrants have been issued. The Company has incurred a cash fee amounting to $372,178 in connection with this raise.

Other Events

We contacted 19 creditors and note holders of the Santa Fe Gold and made an offer in compromise:  “the Company respectfully hereby offers a cash payment to you, in consideration of your discharge and release of any and all outstanding (non-trust) claims, in the amount of Three (3%) per cent of the present principal balance otherwise owed.” Six of the creditors did not accept our offer and thirteen did. All payments were made in accordance with the settlement terms in March 2017. The combined creditors balance was $343,902 and was settled for $10,734.  The outstanding notes settled were the: IGS note and interest that aggregated $3,563,662 and was settled for $88,282 and three note holders each had a note for $150,000  and with accrued interest of aggregating $153,688 and was settled for $13,500. In total $112,516 was disbursed for debt aggregating $4,511,252 and the Company recorded $4,398,735 as extinguishment of debt.

On October 22, 2014, the Company signed a $500,000 Convertible Note, from an accredited investor, from which we drew down tranches aggregating $175,000. The note holders converted a portion of the advances and default penalties to restricted common stock and at September 30, 2016, the notes and related default penalties had an aggregate outstanding balance of $93,333. In January 2017 the note holder agreed to cash settlement payment of $90,000 to satisfy the outstanding obligation and $3,333 was recorded as extinguishment of debt.

On February 2, 2017, an investor returned 18,000,000 shares to the Company and were returned to the transfer agent and cancelled and are deducted from the outstanding shares. The shares are to be re-issued at a later time and the obligation will be accounted for as a derivative liability at the fair value of the shares and marked to market at each balance sheet date.

On April 10, 2017 we reached a non-disclosure agreement with our prior CEO, Mr. Jordaan, about his outstanding back wages and amounts due for legal services rendered to the Company prior assuming the position of CEO. Mr. Jordaan resigned as CEO and from the board effective May 6, 2016.  

Between April 10, 2017 and December 28, 2017 Santa Fe Gold transferred $2.5 million to acquire properties for Santa Fe Gold and the staking of all the claims currently owned by Santa Fe Gold. The announcement was made on September 17, 2017 that we acquired 100% of Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company, which includes formerly optioned AG1 Silver Mine and all lands surrounding the project to include potential Porphyry Silver Discovery and all rights to same. These transactions are summarized below:

- On August 18, 2017, the Company signed the Bullard’s Peak Agreement and delivered an additional $100,000 towards the purchase price.

- On August 30, 2017, the Company delivered an additional $900,000 to Bullard’s Peak towards the purchase price under terms of the Agreement.

- On September 08, 2017, the Company delivered $500,000 to Bullard’s Peak towards the purchase price under terms of the Agreement.

- On September 14, 2017, the Company acquired 100% of Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company, pending two more payment to be delivered at the end October and November 2017.

- On October 13, 2017, the Company delivered $500,000 to Bullard’s Peak towards the purchase price under terms of the Agreement.

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- On January 2, 2018 we made the final payment of $500,000 to purchase the Bullard’s Peak Corporation.

Forward-Looking Statements

This Form 10-Q contains certain “forward-looking” statements as such term is defined by the Securities and Exchange Commission in its rules, regulations and releases, which represent the Company’s expectations or beliefs, including but not limited to, statements concerning the Company’s strategy, operations, economic performance, financial condition, resource drilling strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. This Form 10-Q contains forward-looking statements, many assuming that the Company secures adequate financing and is able to continue as a going concern, including statements regarding, among other things: our ability to continue as a going concern;

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The Company does not intend to undertake to update the information in this Form 10-Q if any forward-looking statement later turns out to be inaccurate.

The following discussion summarizes the results of our operations for the three and six month periods ending December 31, 2016 and 2015, but with the knowledge that Santa Fe Gold with all its subsidiaries filed for Bankruptcy - Chapter 11 in August 2015.

Basis of Presentation and Going Concern

The consolidated unaudited 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. As a result of these circumstances, management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern as it is currently structured.

The future of the Company is discussed in the 10-K filings for the fiscal year ended June 30, 2016.

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.

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 and these shareholders subsequently purchased stock for cash so we could proceed with our vision.

Operating Results for the Three Months Ended December 31, 2016 and 2015

Sales, net

During the three months ended December 31, 2016 and 2015, the Company had no revenue in the periods of measurement. There were no operations during the periods of measurement and from August 26, 2015 to June 15, 2016, we were in Chapter 11 status.

Operating Costs and Expenses

Our operating cost incurred in three months ended December 31, 2016, decreased $891,562 from $1,399,859 in the three months ended December 31, 2015  to $508,297 for the current period of measurement. The decrease in operating costs in the current period of measurement is attributable a decrease in depreciation of $430,831 as all assets included in the bankruptcy filing were sold on February 26, 2016. Reorganizational costs for the three months ended December 31, 2016, decreased $538,390 as no subsequent reorganizational costs were incurred after the dismissal of the bankruptcy case on June 15, 2016. Exploration and mine related costs decreased $148,319 as a result of deceased property taxes of $128,432 as all properties included in the bankruptcy filing were sold on February 26, 2016. The decreases were offset by an increase in general and administrative of $225,978 and is a result increased consulting fees of $386,885, audit fees of $25,000, and offset by decreases in wages of $87,393, medical and dental of $7,810, insurance of $21,171, legal fees of 10,570 and bankruptcy fees of $91,559.

Other Income (Expense)

Other income (expense) for three months ended December 31, 2016, was $1,410,963 as compared to $(664,096) for three months ended December 31, 2015, an increase in other income of $2,0075,059. The net increase in other income for the current period measurement is mainly comprised of the following components: increased gains on

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trust debt extinguishment of $472,831, foreign currency translation of $336,008, financing costs – commodity supply agreements of $445,252 and derivative instruments liabilities of $323,798 and decreased interest charges of $497,170 which is as a result of debt eliminated in the bankruptcy sale that occurred on February 26, 2016.

For the three months ended December 31, 2016, the gain on derivative financial instruments totaled $326,994 as compared a gain of $3,196 for the comparable period 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 associated 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 three months ended December 31, 2016, interest expense decreased $497,170 in the current period of measurement.

The decrease in interest is mainly a result of a decrease in interest bearing debt associated with the Waterton loan of $7,755,685 which was eliminated in the asset sale to Waterton on February 26, 2016.

For the three months ended December 31, 2016, financing costs – commodity supply agreements had an increased gain of $445,252 from the comparable period of measurement, which had a gain of $209,779. 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 in the prior period of measurement. The current period of measurement only includes Sandstorm as the Waterton financing costs – commodity supply agreement liability, was eliminated in the asset sale to Waterton on February 26, 2016.  The 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 gain in the current period of measurement is driven by a decrease in precious metals prices.

Operating Results for the Six Months Ended December 31, 2016 and 2015

Sales, net

During the six months ended December 31, 2016 and 2015, the Company had no revenue in the current period of measurement and $6,250 in the prior period of measurement. There were no operations during the periods of measurement and from August 26, 2015 to June 15, 2016, we were in Chapter 11 status.

Operating Costs and Expenses

Our operating cost incurred in six months ended December 31, 2016, decreased $1,625,127 from $2,485,025 in the six months ended December 31, 2015  to $859,898 for the current period of measurement. The decrease in operating costs in the current period of measurement is attributable a decrease in depreciation of $874,317 as all assets included in the bankruptcy filing were sold on February 26, 2016. Reorganizational costs for the six months ended December 31, 2016, decreased $755,593, as no subsequent reorganizational costs were incurred after the dismissal of the bankruptcy case on June 15, 2016. Exploration and mine related costs decreased $245,354 as a mainly result of deceased property taxes of $174,615 as all properties included in the bankruptcy filing were sold on February 26, 2016 and a decrease in royalties of $25,550. The decreases were offset by an increase in general and administrative of $250,137 and is a result increased consulting fees of $603,953, increased audit fees of $65,000 and offset by decreases in miscellaneous operating costs of $124,745, wages of $161,205, medical and dental of $13,982, travel costs of $32,543,insurance of $21,171, and bankruptcy fees of $91,559.

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Other Income (Expense)

Other income (expense) for six months ended December 31, 2016, was $632,190 as compared to $117,986 for six months ended December 31, 2015, an increase in other income of $514,204. The net increase in other income for the current period measurement is mainly comprised of the following components: increased gains on trust debt extinguishment of $472,831, gain on debt extinguishment of $14,599, a gain on financing costs – commodity supply agreements of $216,058 and decreased interest charges of $1,013,482, which is as a result of debt eliminated in the bankruptcy sale that occurred on February 26, 2016. These income increases were offset by a decrease in derivative instruments liabilities gain of $1,216,006 and a decrease gain on foreign currency translation of $61,218.

For the six months ended December 31, 2016, the loss on derivative financial instruments totaled $54,237 as compared a gain of $1,161,769 for the comparable period 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 associated 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 six months ended December 31, 2016, interest expense decreased $1,013,482 in the current period of measurement.

The decrease in interest is mainly a result of a decrease in interest bearing debt associated with the Waterton loan of $7,755,685

which was eliminated in the asset sale to Waterton on February 26, 2016.

For the six months ended December 31, 2016, financing costs – commodity supply agreements had an increased gain of $648,540 from the comparable period of measurement, which had a gain of $432,482. 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 in the prior period of measurement. The current period of measurement only includes Sandstorm as the Waterton financing costs – commodity supply agreement liability, was eliminated in the asset sale to Waterton on February 26, 2016.  The 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 gain in the current period of measurement is driven by a decrease in precious metals prices.

Liquidity and Capital Resources; Plan of Operation

The Company and our Chapter 11 Subsidiaries received bankruptcy court confirmation of the dismissal on June 15, 2016, and subsequently emerged from bankruptcy. 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 becomes available, there is no certainty that its terms will be favorable or acceptable to the Company to continue its current business plan.

On July 19, 2016 a new company was formed: Santa Fe Acquisition LLC (“SFA”) with Tom Laws, our CEO, as the signer, for the sole purpose of acquiring assets for Santa Fe Gold (“SFG”). On September 25, 2017, with an effective date of July 23, 2016, the CEO assigned ownership of SFA to Santa Fe Gold whereby SFG became to sole member of SFA resulting in SFA becoming a wholly owned subsidiary of SFG.  All major purchases were made through the SFA Company for the benefit of SFG, with the funding provided by SFG.     

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During the six months ending December 31, 2016, the Company proceeded to implement its initial plan to emerge from the bankruptcy proceedings. The Company raised $448,980 from the sale of common stock and the exercise of attached warrants. The funds were used as working capital to implement the Company business plan. As part of the plan, we paid off two convertible notes with a balance of $107,599 for $93,000 in cash payments and recorded a gain on extinguishment of debt of $14,599.

Between September 14, 2016 and December 31, 2016, we secured claims 44 claims and paid $8,328 for BLM filing fees, these claims have a 5% royalty attached. We will continue to seek additional claims with other existing mines for which we may have to pay royalties or establish a partnership if an agreement is reached.

On December 9, 2016, the Company retained International Monetary ("IM") as its Investment Banking & Strategic Advisory firm to provide capital resources, structure financing, proprietary investor relations services, advice on maximizing growth and valuation, M&A advisory and counsel to the Company's management on other strategic decisions. IM is to receive 6 installment payments of $6,000 and 2% of the Company’s common stock on a fully diluted basis amounting to 5,665,360 shares issued at the time of signing the contract at a market value of $286,667. In addition, IM is entitled to additional common shares amounting to 2% of the Company’s common stock on a fully diluted basis six month from the date of the agreement.

Not required for small companies.

Evaluation of Disclosure Controls and Procedures

During the three months ended December 31, 2016, our management, with the participation of the Chief Executive Officer and interim Chief Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of December 31, 2016, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed in our reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. This was due to the following material weakness:

Due to the Company’s continuing financial condition, the Company had limited personnel which resulted in a lack of segregation of duties and a lack of formal reviews at multiple levels.

Inherent Limitations over Internal Controls

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:

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Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.  

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

All legal proceedings stayed with the filing of Chapter 11 bankruptcy. At the time of the bankruptcy filing several litigations were filed in several courts. Santa Fe believes that the following suits will be stayed pursuant to the Bankruptcy Code. After dismissal of the Chapter 11 filings, we have not been notified of any of the below cases if they will continue or not.

Boart Long year Company v. Lordsburg Mining Company, Case No. D-2-2-CV-2015- 06048

County of Bernalillo, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-721-CV-2015- 00058

County of Sierra, NM;

Boart Longyear Company v. Lordsburg Mining Company, Case No. D-608-CV- 201500165

County of Quintero, NM. Series of collection cases by Boart Longyear Company, who obtained Utah judgment for equipment delivered to Lordsburg Mining Company

Santa Fe Gold Corporation v. Tyhee Gold Corp., Brian K. Briggs, SRK Consulting (US), Inc., and Bret Swanson, Case No: 14CV032866, District Court, Denver County, Colorado

Santa Fe is seeking damages for breach of the Confidentiality Agreement as well as for conversion of Santa Fe’s confidential information. Tyhee Gold Corp. has filed a counter-claim for tortuous interference with prospective contractual relationships with Koza Gold. At this time, there can be no determination of the outcome.

Wagner Equipment Co. v. Lordsburg Mining Company, Case No. D-2014-02372

County of Bernalillo, NM 28 Collection case by Wagner equipment, who obtained judgment for equipment delivered to Lordsburg Mining Company.

In October 2013, Lone Mountain Ranch, LLC, owner of the surface estate overlying our Ortiz gold property, filed a lawsuit against the Company and our lessor, Ortiz Mines, Inc. The lawsuit seeks to clarify Lone Mountain Ranch's rights and obligations under the split estate regime. Specifically, Lone Mountain Ranch seeks a declaratory judgment that it may participate in permit hearings, agency proceedings, and private activities related to the permitting of the Ortiz project without being in violation of common law duties to not interfere with development of the mineral estate. The Company conducted a strategic evaluation as whether or not to continue with the Ortiz Gold Project. Given the public opposition to the Ortiz Gold Project, Santa Fe has decided not to further pursue the Ortiz Gold Project. Lone Mountain Ranch LLC sued Ortiz Mines Inc against any mining activities on the property, and Santa Fe Gold was only a co-defender.  With the bankruptcy, we, SFG, were dismissed.

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We are in litigation with two vendors for claims for approximately $140,400 and $125,876, respectively against us. If the Company is unsuccessful in raising additional funding, we may not be able to pay resolve these lawsuits and our business may not continue as a going concern. In the event we cannot raise the necessary capital or we cannot restructure through negotiated modifications, we may be required to effect under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 or Chapter 7 of the U.S. Bankruptcy Code (“Chapter 11 or “Chapter 7”). See “Risk factors.” The claims were against Lordsburg Mining company, were stayed during the proceedings and all claims remained. At this time, there can be no determination of the outcome.  

The court set up a Trust fund that will be funded by the activities of the Summit mine for five (5) years and the trust funds will be distributed by an independent trustee to all credit holders on record.  Currently all debts at the time of the bankruptcy are currently due and in default. None of the claims have been reopened since June 2016.

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. Other than the above-described litigation, as of June 30, 2016, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on its financial statements in any given reporting period. However, in the opinion of Management, after consulting with legal counsel, the ultimate liability related to the current outstanding litigation is not expected to have a material adverse effect on its financial statements.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our annual report for 2015, although we may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with on Form 10-K for our year fiscal ended June 30, 2016, in addition to the other information included in this quarterly report. If any of the risks described actually occurs, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall.

Except as set forth herein, Santa Fe Gold and all its subsidiaries, filed for bankruptcy protection under Chapter 11 in the state of Delaware, Case # 15-11761-MFW on August 26, 2015 and on June 15, 2016, the case was dismissed on June 15, 2016 , and the related risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 to the SEC on November 14, 2017.

Sold an aggregate of 1,149,750 shares of restricted common stock to two accredited investors for cash proceeds of $45,990 and issued an aggregate of 1,149,750 shares of restricted common stock for the exercise of warrants to two accredited investors for cash proceeds of $45,990.

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On December 13, 2016, the board issued 5,665,360 shares of restricted common stock for consulting services at a value of $286,667 on the date of issuance.   

On December 20, 2016, the board issued 200,000 shares of restricted common stock for consulting services at a value of $11,000 on the date of issuance.   

The issuance of the restricted common shares during the six months ended December 31, 2016, were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a) (2) thereof because such issuance did not involve a public offering. The cash proceeds were utilized for working capital by the Company.

With the filing of bankruptcy protection on August 26, 2015 all securities are in default and all but Waterton remain after the dismissal of the proceedings on June 15, 2016.

None required.

None.

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(a)The following exhibits are filed as part of this report: 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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