Santa Fe Gold CORP - Quarter Report: 2017 December (Form 10-Q)

*The balance sheet at June 30, 2017 (As Restated) has been derived from the audited consolidated financial statement at that date.

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

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SANTA FE GOLD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited)

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

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

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SANTA FE GOLD CORPORATION

December 31, 2017

(Unaudited)

NOTE 1 – COMPANY AND NATURE OF OPERATIONS

Santa Fe Gold Corporation, a Delaware corporation (the "Santa Fe”, "Company", “our” or “we”) 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, 2017 and June 30, 2017 (As Restated), the consolidated results of operations for the three and six months ended December 31, 2017 and 2016 (As Restated), consolidated cash flows for the six months ended December 31, 2017 and 2016 (As Restated). 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 six months ended December 31, 2017, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018. 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, 2019. These interim financial statements and notes thereto should be read in conjunction with the consolidated financial statements presented in the Company’s 2019 Annual Report on Form 10-K filed on July 15, 2020.

Nature of Operations

Santa Fe Gold Corporation 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.

Upon the Company emerging from the bankruptcy with a management team of two and no assets, we developed a business plan to raise 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.

On August 18, 2017, the Company signed the Bullard’s Peak Agreement and delivered $100,000 towards the purchase price. The Agreement is to purchase Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company and acquire 100% of the issued and outstanding capital stock for a cash purchase price in the aggregate amount of $3,000,000, and paid with installments stated in the Bullard’s Peak Agreement.

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 recorded a loss of $3,051,288 for the six months ended December 31, 2017, and has a total accumulated deficit of $102,467,928 and a working capital deficit at September 30, 2017 of $16,706,523. 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 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.

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At December 31, 2017, the Company was in defaults on payments of approximately $7.64 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm Gold Ltd. (“Sandstorm”), other notes payable principle aggregating approximating $2.38 million, accrued liabilities of approximately $2.47 million and accounts payable approximating $3.03 million.

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.

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.

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, 2017 and June 30, 2017 (As Restated), 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 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.

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When required to arrive at the fair value of derivatives associated with the convertible note and warrants, a Black Sholes and a Monte Carlo model are utilized that values the Convertible Note and Warrants 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, 2017 and six months ended December 31, 2017 and 2016, the impact of outstanding stock equivalents has not been included as they would be anti-dilutive.

A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share computation (“EPS”) for the three months ended December 31, 2016 is as follows:

Dilutive potential common shares consist of 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.

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

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 stock-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. Stock based payments to nonemployees are valued at the earlier or a commitment date or completion of services. The Company had stock-based compensation of $196,000 for the six months ending December 31, 2017, and $466,172 for the six months ended December 31, 2016 (As Restated).

Accounting Standards to be Adopted in Future Periods

In May 2014, the FASB issued ASC updated No. 2014-09, Revenue from Contracts with Customers (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,

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In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with a term of more than one year. Accounting by lessors will remain similar to existing U.S. GAAP. Subsequent accounting standards updates have been issued, which amend and/or clarify the application of ASU 2016-02. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and early adoption is permitted. The Company has not adopted Topic 842 as of the filing of this 10-Q and at this time the new standard will not have an impact on our consolidated financial statements until a significant lease agreement is entered.

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 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 June 30, 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. 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.

In August 2018, ASU No. 2018-13 was issued to modify and enhance the disclosure requirements for fair value measurements. This update is effective in fiscal years, including interim periods, beginning after December 1, 2020, and early adoption is permitted.  The Company is currently evaluating this guidance and the impact on its Consolidated Financial Statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force, 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 – DEPOSIT ON MINERAL PROPERTY

On August 18, 2017, the Company signed the Bullard’s Peak Agreement and delivered $100,000 towards the purchase price. The Agreement is to purchase Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company and acquire 100% of the issued and outstanding capital stock for an initial cash purchase price of $3,000,000, to be paid with installments stated in the Bullard’s Peak Agreement. Additional installments were made as follows through the end of the current reporting period towards the purchase price:      

- August 30, 2017, the Company delivered $900,000;

- September 8, 2017, the Company delivered $500,000 and

- October 13, 2017, the Company delivered $500,000.

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NOTE 4 – ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31, 2017 and June 30, 2017 (As Restated):

NOTE 5 – COMPLETION GUARANTEE PAYABLE

At June 30, 2012, the Company calculated the completion guarantee payable provided by Amendment 1 under the Gold Stream Agreement with Sandstorm. See NOTE 9- CONTINGENCIES AND COMMITMENTS, Commodity Supply Agreement.   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, 2017 and June 30, 2017 (As Restated), respectively, and are reported as completion guarantee payable. Accrued interest on the completion guarantee payable at December 31, 2017 and June 30, 2017 (As Restated) was $970,164 and $881,967, respectively. Interest expense on the obligation n for the six months ended December 31, 2017 and 2016 (As Restated) was $88,197, respectively.

NOTE 6 - SHARES SUBJECT TO MANDATORY REDEMPTION BY RELATED PARTY

On August 9, 2017, a related party returned a certificate for 20,000,000 shares of common stock and was issued a new certificate for 2,000,000 shares on the same date. The related party loaned the 18,000,000 shares to the Company to raise additional working capital until the Company increased the authorized common shares of the Company. The related party has set no specified return date after the increased share authorization and may make the election at their discretion. The value of the 18,000,000 shares is determined according to ASC 480, “Distinguishing Liabilities from Equity”. On the return date of the shares to the Company the shares were valued at the market value. On each subsequent period measurement closing, the shares will be valued at the current market price and any increase in valuation from the initial valuation will be recorded as a designated interest expense. Any decrease in valuation from the initial valuation will be recorded to Addition Paid in Capital as the obligation is to a related party of the Company. The initial valuation on August 9, 2017 was $1,762,200 and at December 31, 2017 was $3,240,000 and resulted in an interest charge of $1,440,000 for the six months ended December 31, 2017.

Upon return of the loaned shares to the related party, the obligation of associated theses shares will be eliminated and a corresponding entry made to Common Stock and Additional Paid in Capital.

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 an initial compounded rate of 1% a month and was 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 the accrued compounded interest at that date was added to the principle and the interest rate was increased to 14% per annum on the outstanding balance per the Share Exchange Agreement.

In December 2016 the court administered trust paid $9,897 to the note holder and was applied against the accrued interest on the note and was recorded as a gain on trust debt forgiveness. The principal and accrued interest outstanding at December 31, 2017 is past due and in default. The principle balance and merger advance outstanding at December 31, 2017 and June 30, 2017 (As Restated) was $232,522, respectively. Accrued interest on note at December 31, 2017 and June 30, 2017 (As Restated) was $78,221 and $63,222, respectively. Interest expense for the six months ended December 31, 2017 and 2016 (As Restated) was $14,999 and $23,486, respectively.

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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, 2017 and June 30, 2017 (As Restated). This amount is net of a break fee of $300,000 due to the Company from Tyhee. Accrued interest on note at December 31, 2017 and June 30, 2017 (As Restated), was $1,528,823 and $1,308,578, respectively, is due and in default. Interest expense on the note for the six months ended December 31, 2017 and 2016 (As Restated) was $220,245 and $211,132, respectively. In December 2016 the court administered trust paid $91,788 to the note holder and was applied against the accrued interest on the note and recorded as a gain on trust debt forgiveness.  

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.

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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.

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, 2017 and June 30, 2017 (As Restated) are as follows:

NOTE 9 – CONTINGENCIES AND COMMITMENTS

Commodity Supply Agreement  

In December 2009, the Company entered into a definitive gold stream agreement (the “Gold Stream Agreement”) with Sandstorm to deliver a portion of the life-of-mine gold production (excluding all silver production) from the Company’s Summit silver-gold mine. Under the agreement the Company received advances of $4,000,000 as an upfront deposit, plus continue to receive future ongoing payments equal to the lesser of: $400 per ounce or the prevailing market price, (the “Fixed Price”) for each ounce of gold delivered pursuant to the agreement for the life of the mine. The Company purchases and delivers refined gold in order to satisfy the requirements of the Gold Stream Agreement and receives the Fixed Price per ounce in cash from Sandstorm. The difference between the prevailing market price and the Fixed Price per ounce for gold delivered is credited against the upfront deposit of $4,000,000 until the obligation is reduced to zero. Future ongoing payments for gold deliveries will continue at the Fixed Price per ounce with no additional credits or advances to be received from Sandstorm. In certain circumstances, including failure to meet minimum production rates, interruption in production due to permitting issues and customary events of default, the agreement may be terminated. In such event, the Company may be required to return to Sandstorm any remaining uncredited balance of the original $4,000,000 upfront deposit. See NOTE 5 - COMPLETION GUARANTY PAYABLE. Gold production subject to the agreement includes 50% of the first 10,000 ounces of gold produced, and 22% of the gold thereafter. The net cost of delivering refined gold along with other related transactional costs corresponding to the Gold Stream Agreement are recorded in Other Expenses as Financing Costs - Commodity Supply Agreements.

Under the Gold Stream Agreement, the Company has a recorded obligation at December 31, 2017 and June 30, 2017 (As Restated), of 3,709 ounces of undelivered gold valued at approximately $3.3 and $3.1 million, respectively, in accrued liabilities net of the Fixed Price of $400 per ounce to be received upon delivery. The Summit silver-gold mine property referred to in this Gold Stream Agreement was sold in the 363 Asset Sale as of asset transfer on February 26, 2016.

Share Obligation to Related Party

On August 9, 2017, a related party returned a certificate for 20,000,000 shares of common stock and was issued a new certificate for 2,000,000 shares on the same date. The related party loaned the 18,000,000 shares to the Company to raise additional working capital until the Company increased the authorized common shares of the Company. The related party has set no specified return date after the increased share authorization and may make the election at their discretion. See NOTE 6 – SHARES SUBJECT TO MANDATORY REDEMPTION BY RELATED PARTY for additional disclosures.

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Office and Real Property Leases

On August 1, 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, 2017 and 2016, 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.

Prior Corporate Officer

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. Mr. Jordann was still considered a related party until the final settlement payment was made. The Company owed to related parties an aggregated amount of at December 31, 2017 and June 30, 2017(As Restated), $0 and $230,527,  respectively and is included in accounts payable and accrued wages at June 30, 2017 (As Restated).  All claims by Mr. Jordaan were settled in the agreement with the final payment of $230,527 on September 21, 2017.

NOTE 10 - STOCKHOLDERS' DEFICIT

Stock Returned and Cancelled

On July 28, 2017, a shareholder returned a certificate for 20,000,000 common shares to the Company for no value received by the shareholder and the investor was issued 2,000,000 shares on a new certificate. The net 18,000,000 cancelled 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. The net 18,000,000 shares returned were recorded at Par Value of $36,000.and Additional Paid in Capital of $1,726,200.

Issuance of Stock

During the six months ended December 31, 2017, the Company sold the following common stock:

The issuance of the restricted common shares during the six months ended December 31, 2017, 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.

Subscribed Capital

Issuance of Warrants and Expiration

During the six months ended December 31, 2017, the Company issued 22,649,442 warrants with the sales of stock subscriptions and  22,649,442 were exercised and 5,023,434 warrants expired. During the six months ended December 31, 2017, the Company granted to a consultant, 100,000 five-year warrants at $0.15 with a Black Scholes valuation on the date of grant of $12,983.

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Stock Options and the Amended and Restated Equity Incentive Plan

During six months ended December 31, 2017, no options were granted and 235,000 options expired. 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 ended December 31, 2017, are as follows:

Stock options and warrants outstanding and exercisable at December 31, 2017 are as follows:

As of December 31, 2017, the aggregate intrinsic value of all stock options and warrants vested was $1,043,600. 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 $0.18 closing stock price of the common stock on December 31, 2017.

The total intrinsic value associated with options exercised during the six months ended December 31, 2017, 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.

The Equity Incentive Plan from 2007 expired on July 24, 2017 and was not renewed.

NOTE 11 – RELATED PARTY TRANSACTIONS

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

Boonyin Investments is a foreign investor who deposited $2,841,166 and received 35,514,571 shares of common stock with an average price of $0.08 during the six months ended December 31, 2017.

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In order to expedite purchases of equipment and associated expenses in Silver City on behalf of the Company, SFG deposited funds into Mr. Laws certified public accounting practice account until a new bank account was opened at Wells Fargo.  Company expenses and purchases of equipment were done in that account. During the fiscal year 2017 an aggregate of $926,000 was deposited  to Mr. Laws account or was paid out of the corporate account at Mr. Law’s direction. At the end of the 2017 fiscal year Mr. Laws submitted expenditures on behalf of the Company totaling $1,009,099. Subsequent to the 2017 fiscal year ended, the board directors of the Company appointed a special committee which determined the funds expended by Mr. Laws were misappropriated in the initial amount of $1,197,198 and a deposit of $38,000 was valid and refunded to the Company in a subsequent period. Of this amount, the $500,000 deposit that was to be made on the Alhambra Acquisition was subsequently determined never made to the sellers. See NOTE 14 – SUBSEQUENT EVENTS, Misappropriated Funds and Entry into a Material Definitive Agreement.

Prior to becoming a staff member of the Company, Mr. Laws our CEO, received a consulting fee and converted on January 1, 2018, to a full staff member. During the fiscal year ended June 30, 2017, Mr. Laws received consulting fees of $125,000.

A director and former chief executive officer of the Company, Mr. Thomas H. Laws, entered into a Secured Promissory Note and Security Agreement in the principal amount of $930,000 in favor of the Company on September 19, 2018, bearing interest at the annual rate of 4% and maturing September 30, 2018 (“Secured Promissory Note”). The Company requested former chief executive to execute the Secured Promissory Note as a result of the misuse of Company funds.

The board of directors formed a special committee on September 26, 2018, to investigate and analyze (i) certain June 2016 through March 2018 financial transactions initially determined at $1,197,198 involving our former chief executive officer, and (ii) corporate governance and compliance with federal securities laws. It is expected that this special committee investigation will be completed in as timely a manner as possible. Additional amounts resulting from analyzing transactions, penalties and interest, will be added to the initial secured promissory note under provisions in the Security Agreement.

As of filing of this report, the Company has determined that Mr. Laws owes the Company $1,165,297, net of funds recovered from Mr. Laws of $485,966. This amount does not include any penalties or interest as provided in the secured promissory note and security agreement signed by Mr. Laws.

The board of directors has requested Mr. Laws to resign as a director and received Mr. Law’s resignation on January 9, 2019. No interim chief executive officer has been named to date to replace Mr. Laws. Mr. Brian Adair has been named chairman of the board.

An individual consultant, who is instrumentally helpful to the Company in raising funds and is compensated on consulting basis, as disclosed in NOTE 15 – SUBSEQUENT EVENTS, Recent Issuances of Unregistered Securities. During the six months ended December 31, 2017, received consulting fees totaling $319,330.

On August 9, 2017, a related party shareholder returned a certificate for 20,000,000 common shares to the Company for no value received by the shareholder and the investor was issued 2,000,000 shares on a new certificate. The net 18,000,000 cancelled shares are to be re-issued at a later time and the obligation will be accounted for under ASC 480, “Distinguishing Liabilities from Equity” at the fair market value of the shares and marked to market at each balance sheet date. On April 4, 2018, the investor became a director of the Company. See NOTE 6 – SHARE OBLIGATION TO RELATED PARTY for additional disclosures.

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 were stayed with the filing of Chapter 11 bankruptcy.

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; and Boart Longyear Company v. Lordsburg Mining Company, Case No. D-608-CV- 201500165, County of Quintero, NM.  There are a series of collection cases by Boart Longyear Company, a company that obtained Utah judgments for equipment delivered to Lordsburg Mining Company in the aggregate amounts of $158,480 and has an interest rate of 5.25% per annum. The Company accrued back interest on judgement during the quarter ended December 31, 2016 (As Restated), of $13,860 and recorded $21,454 in legal fees awarded in the judgement. In December 2016 the court administered trust paid $6,287 to Bogart Longyear and was applied against the accrued interest on the obligation and was recorded as a gain on trust debt forgiveness. During the six months ended December 31, 2017, the Company accrued interest on the obligation of $4,194. Accrued interest on the obligation at December 31, 2017 and June 30, 2017 (As Restated) was $15,893 and $11,698 respectively.

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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. On July 31, 2017, this case was dismissed with prejudice.

Wagner Equipment Co. v. Lordsburg Mining Company, Case No. D-2014-02372, County of Bernalillo, NM 28 is a collection case by Wagner equipment, who obtained judgment for equipment delivered to Lordsburg Mining Company in the amount of $115,789 and has a rate of interest of 8.75% per annum. The Company accrued back interest on judgement during the quarter ended December 31, 2016 (As Restated), of $26,875. In December 2016 the court administered trust paid $4,591 to Wagner equipment and was applied against the accrued interest on the obligation and was recorded as a gain on trust debt forgiveness. During the six months ended December 31, 2017, the Company accrued interest on the obligation of $5,107. Accrued interest on the obligation at December 31, 2017 and June 30, 2017 (As Restated) was $32,416 and $27,308, respectively.

The bankruptcy court set up a Trust fund that will be funded by the activities of the Summit mine for five (5) years for five years from reopening 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 December31, 2017, 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.

Recent Issuances of Unregistered Securities

In the period from January 2018 through June 30, 2018, the Company sold stock subscriptions for an aggregate of 3,145,730 units. Each unit consisted of one restricted common share at $0.08 per shares and one common stock warrant. The warrants had a term of 5 years and an exercise price of $0.08. All warrants were immediately exercised resulting in the issuance of an additional 3,145,730 restricted common shares. The Company received aggregate proceeds of $503,317 from these sales and warrant exercises. During the period August 2018 through August 5, 2020, ten existing accredited shareholders purchased and aggregate of 53,959,243 restricted common shares for $3,451,980. In addition, our chairman also purchased 10,392,858 restricted common shares for $675,000. The issuance of the restricted common shares, were issued in reliance upon the exemption under Regulation S of the Securities Act, and in reliance on the exemption provided by Section 4(a)(2) of the Securities Act for the offer and sale of securities not involving a public offering. In connection with the placements, the Company incurred consulting fees of $319,330.

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During the period April 2018 and August 5, 2020, the Company issued 5,686,018 restricted shares of common stock for consulting services at an aggregated market value of $562,774 on the date of issuance. The issuance of the restricted common shares, were exempt from registration requirements of the Security Act of 1933, as amended, pursuant to Section 4(a)2, thereof because such issuance did not involve a public offering.

On May 8, 2018, the Company converted $23,824 of accrued salary for the Company CFO into 476,484 shares of restricted common stock at a market value of $47,648 on the date on conversion and recorded a loss on debt conversion of $23,824.

Alhambra Acquisition

Pursuant to a stock purchase agreement dated August 2017, the Company will acquire all the capital stock of Bullard’s Peak Corporation (which owns five patented claims and 82 unpatented claims in the Black Hawk district of New Mexico) from Black Hawk Consolidated Mines Company for a purchase price of $3,000,000, and the capital stock of Bullard’s Peak Corporation and the mining claims collateralize the full purchase price payment.  The Company granted the seller a 2% net smelter return in perpetuity.  The net smelter return is the greater of (i) all monies the Company receives for or from any and all ore removed from the property comprising the mining claims whether for exploration, mining operations or any other reason, and (ii) the fair market value of removed ore from the property comprising the mining claims.  Title to the claims will be transferred upon receipt by seller of the full purchase price.  In August 2018, the Company was informed that the seller terminated the stock purchase agreement. Pursuant to an amendment to the stock purchase agreement in October 2018, the Company paid the seller $100,000 and the seller rescinded the August 2018 election to terminate the stock purchase agreement and waived all then existing events of default and any additional interest, late fees, and other damage claims due to the Company’s prior breaches of the stock purchase agreement. On October 31, 2018, the Company paid the seller an additional $100,000.  The balance of the purchase price of $350,365 (which includes $50,365 of expenses that the Company agreed to reimburse seller) is required to be paid: (i) $100,000 on or before November 30, 2018 and (ii) $250,365 on or before December 31, 2018.  If any payment is not timely paid, all rights of the Company under the stock purchase agreement shall become automatically null and void and seller shall retain all monies paid as liquidated damages for the Company’s breach, and seller shall have no further obligations to the Company, including but not limited to, any obligation to transfer the capital stock of Bullard’s Peak Corporation to the Company pursuant to the terms of the stock purchase agreement. We paid $100,000 in November 2018 with respect to the Alhambra Silver Mine acquisition and owed a balance of approximately $250,000 on December 31, 2018, to complete the acquisition. Lack of funding on December 31, 2018 resulted in us entering into a third amendment pursuant to which we paid $65,000 on January 2, 2019, a late fee payment on February 1, 2019 of $50,000, a $100,000 on February 28, 2019, and the final payment of $100,365 was paid on April 2, 2019, for the total acquisition cost of $3,115,365.

In February 2018, the Company filed for a permit to start operations at the Bullard’s Peak property. The permit was awarded on March 7, 2018. As of the filing of this report, no operations have commenced.

British Columbia Properties

On November 30, 2017, the Company entered into substantially identical agreements with Fortune Graphite, Inc. and Worldwide Graphite Producers, Ltd. to acquire a total of four placer claims for aggregate consideration of Can$400,000 and the issuance of 10,000,000 shares of Company common stock.  Title to these claims remained in trust with the sellers until payment in full.  To date, the Company has paid to the sellers’ consideration of Can$205,000.  The Company disclosed in a Form 8-K filing on November 20, 2018 that it had been notified that it was in default with respect to these two November 2017 agreements and that

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New Mexico Mine Claims

The Company acquired the Malone Mine claims, Playa Hidalgo Placer claims and the Pinos Altos claims for an aggregate of $500.  In August of each calendar year, the Company is required to renew these claims at a price of $165 per claim.

Purchase agreement for New Mexico Mining Properties

The Company entered into a purchase agreement with a mining operator in January 2019 to purchase two properties in western New Mexico, the Billali Mine, and the Jim Crow Imperial Mine.  The purchase price for all rights and interests to be conveyed is $2,500,000 for the Billali Mine and $7,500,000 for the Jim Crow Imperial Mine, with aggregate consideration for both definitive agreements payable as follows per Amendment Three that is effective as of May 1, 2020:

*$500,000 paid to date as of the filing date; 

*buyer to pay $50,000 monthly commencing   July 1, 2020, and continuing for the next subsequent 19 months; 

*commencing 30 days after the last payment above, and continuing for the for an additional 48 subsequent payments, buyer to make each 30 days  a payment in the amount of  $175,000; 

*after the final payment above and 30 days thereafter, the buyer will make the final payment of $100,000 completing the  purchase. 

*each payment made hereunder will be allocated twenty-five per cent (25%) to the Billali and seventy-five percent (75%) to the Jim Crow, Imperial. 

The Agreement has a 5% net smelter return (NSR) royalty on the nine patented Lode Claims with a royalty limit up to $650,000, and a 3% NSR thereafter.

Title and all rights and interest in the properties will be conveyed under the agreements upon completion of the payments of the purchase prices of the properties.

Canarc Agreement

A forbearance agreement by and among Santa Fe and Canarc Resource Corp. (“Canarc”) was entered into and effective as of February 12, 2018. Canarc loaned Santa Fe $220,000 in 2014. The funding requirements were not attained and the loan became due on January 15, 2015.  The Company agreed with Canarc to make four installment payments as follows: (i) $25,000 on February 14, 2018; (ii) $25,000 on June 30, 2018; (iii) $85,000 on October 1, 2018; and (iv) $85,000 on December 31, 2018.  All payments were made on a timely basis. With the final payment completed, Canarc forgave $12,522 of principal and accrued interest on the note payable of approximately $100,103 per the terms of the agreement and the Company recorded a gain on debt extinguishment of approximately $112,625 in the quarter ended December 31, 2018.

Miscellaneous

On March 8, 2018, the board decided in a special meeting that all options awarded to Erich Hofer, Frank Mueller are declared void and all options should be removed from the financial reporting, excepting prior valid historical options issued for director services.  At a later time, the board will revisit the awards based on the recommendation by the President of the Company for the staff members who were essential in reviving the Company from bankruptcy.

In April 2018, the board appointed Brian Adair Chairman of the Audit Committee.

In April 2018, the Company entered into an engagement with a financial advisory group for an initial four-month term and renewable under mutual agreement. The fees were $2,000 monthly and 50,000 shares of restricted common stock to be issued one

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During the period October 2018 to June 30, 2020, the CFO of the Company and an outside party, loaned the Company an aggregate of $381,787, evidenced by demand unsecured notes payable at an annual rate of interest of 6% and have no stated due dates. At the time of filing this report, the outside party had been paid back $80,000 of their loaned funds and the CFO of the Company has converted the balance of loaned funds and accrued interest thereon into restricted common stock.  

On December 18, 2019, Mr. Daniel Gorski, our consultant geologist, was appointed to our board of directors.

Effective July 7, 2020, the Company retained a new Chief Financial Officer and the prior Chief Financial Officer was reassigned to oversee all mining operations as they come on line in our fiscal 2021 year.

Change of Auditors

On July 13, 2018, the Company elected to change auditors and MaloneBailey, LLP was replaced with TAAD, LLP.

Engagement of Mining Consultant

The Company has entered into an at-will consulting agreement with Daniel E. Gorski in November 2018 to provide consulting services to the Company with respect to its proposed mining operations, at the rate of $5,000 per month in cash and $5,000 per month in Company common stock.  Mr. Gorski is owed an additional $30,000 from work performed for the Company during the period March 2018 through August 2018 prior to his engagement.  

Items Voted upon at the Company Shareholders Meeting

The Company held a shareholder meeting on January 11, 2019, in Albuquerque, New Mexico, and a majority of our shareholders voted to (i) amend our certificate of incorporation to increase the authorized shares of common stock that we have authority to issue from 300,000,000 shares to 550,000,000 shares and (ii) remove Thomas Laws as a director.

Resignation of Board members

Longtime Board member Erich Hofer resigned effective December 28, 2018, and Tom Laws resigned effective January 9, 2019 (just prior to the shareholder meeting on January 11, 2019 in which the shareholders voted to remove him as a director).

Misappropriation of Funds and Entry into a Material Definitive Agreement

As disclosed in the Company’s Form 8-K filed on October 1, 2018, a director and former chief executive officer of the Company, Mr. Thomas H. Laws, entered into a secured promissory note and security agreement in the principal amount of $930,000 in favor of the Company on September 19, 2018, bearing interest at the annual rate of 4% and maturing September 30, 2018 (“Secured Promissory Note”).  The Company requested the former chief executive to execute the Secured Promissory Note and security agreement as a result of the matters discussed below, prior to the completion of the special committee investigation. The security interests include certain real estate and a Cessna model 182G airplane. The Secured Promissory Note also contains late fee and default provisions under the deeds of trust, Security Agreement and other agreements.

The Company is in process of restating the previously issued consolidated financial statements for, and financial information relating to, the fiscal year ended June 30, 2017.

Subsequent review of these transactions for the fiscal year ended June 30, 2017, resulted in a restatement of assets and operating costs in the amount of $971,099 and charged to the former chief executive officer.

Mr. Laws was terminated as the at-will chief executive officer of the Company on September 24, 2018.  Currently no interim chief executive officer has been named to replace Mr. Laws.  

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In November 2018, Santa Fe filed a complaint in Luna County District Court, State of New Mexico, requesting a $930,000 money judgment against Mr. and Mrs. Laws, in addition to foreclosing on the mortgage Mr. and Ms. Laws granted to Santa Fe on real property to secure the promissory note located in Luna County, New Mexico. 

In November 2018, Santa Fe filed a similar complaint in Grant County District Court, State of New Mexico, as Mr. and Mrs. Laws and XYZ Ranch Estates, LLC granted Santa Fe a deed of trust and a mortgage, respectively, on several pieces of real property in Grant County, New Mexico. Mr. Laws also granted Santa Fe a security agreement on an airplane located in Grant County, New Mexico.  The complaint in Grant County requested a money judgment in the amount of $930,000 against Mr. and Mrs. Laws, in addition to a request to foreclose on the assets pledged to us located in Grant County, New Mexico. 

Extinguishment of Debt

Based upon a legal opinion from our British Columbia legal consul, the Company at June 30, 2019,  wrote off of two financing facilities under British Columbia law where the statute of limitations had run out pursuant to the Limitations Act (British Columbia) and that no future claims can be commenced in the Providence of British Columbia and the Company has no outstanding legal obligation on the finance facilities. The Company also paid off a negotiated settlement under a Forbearance Agreement during our fiscal year ended June 30, 2019, and wrote off the remaining obligation balance.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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;

•exploration for minerals is highly speculative and involves greater risk than many other businesses; as such, most exploration programs fail to result in the discovery of economic mineralization; 

•our mineralized material calculations at various projects are only estimates and are based principally on historic data; 

•actual capital costs, operating costs, production and economic returns may differ significantly from those that we have anticipated; 

•exposure to all of the risks associated with restarting and establishing new mining operations, if the  

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development of one or more of our mineral projects is found to be economically feasible;

•title to some of our mineral properties may be uncertain or defective; 

•land reclamation and mine closure may be burdensome and costly; 

•significant risk and hazards associated with mining operations; 

•we will require additional financing in the future to develop a mine at any other projects; 

•the requirements that we obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may be opposed by local environmental group; 

•our anticipated needs for working capital; 

•our ability to secure financing; 

•claims and legal proceedings against us; 

•our lack of necessary financial resources to complete development of our projects and the uncertainty of our future financing plans; 

•our exposure to material costs, liabilities and obligations because of environmental laws and regulations (including changes thereto) and permits; 

•changes in the price of silver and gold; 

•extensive regulation by the U.S. government as well as state and local governments; 

•our projected sales and profitability; 

our business growth strategies;

•anticipated trends in our industry; 

the lack of commercial acceptance of our product or by-products;

•problems regarding availability of materials and equipment; 

•failure of equipment to process or operate in accordance with specifications, including expected throughput, which could prevent the production of commercially viable output; and 

•our ability to seek out and acquire high quality gold, silver and/or copper properties. 

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 the six months ending December 31, 2017 and 2016 (As Restated), but with the knowledge that Santa Fe Gold with all its subsidiaries filed for Bankruptcy - Chapter 11 in August 2015 and the case was dismissed from bankruptcy on June 15, 2016.

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, 2017.

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.

The Company has recorded a loss of $3,051,288 for the six months ended December 31, 2017, and has a total accumulated deficit of $102,467,928 and a working capital deficit at December 31, 2017 of $16,706,523. The Company currently has no source of generating revenue.

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

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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, 2017, the Company was in default on payments of approximately $7.63 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm Gold Ltd. (“Sandstorm”) and other notes payable principle aggregating $2,376,406 and accrued interest on the notes of $1,683,266.

Sales, net

During the three months ended December 31, 2017 and 2016 (As Restated), the Company had no revenue in the periods of measurements.

Operating Costs and Expenses

Decrease in exploration and mine related costs were due mainly due a decrease in property tax expense in the current period of measurement of $38,000.

Other Income (Expense)

Other income (expense) for three months ended December 31, 2017, was $(1,697,098) as compared to $1,360,368 for three months ended December 31, 2016 (As Restated), an increase in other expense of $3,057,466. The net increase in other expense for the current period measurement is mainly comprised of the following components: increased losses on misappropriation of funds of $47,454, financing costs – commodity supply agreement of $684,333 and interest on mandatory redemption shares by related party of $1,440,000. Other income in the current period of measurement had decreases comprised of the following components: foreign currency translation of $210,695; gain on derivative instruments of $326,994, gain on trust debt extinguishment of $472,831 and a reduction in interest expense of $124,841.

For the three months ended December 31, 2017, there were no derivative financial instruments or related derivative gain or loss and in the current reporting period. The prior reporting period had a gain of $326,994 on derivative instruments. 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.

The interest on mandatory redemption shares by related party of $1,440,000 is a result of each subsequent period measurement closing, the shares will be valued at the current market price and any increase in valuation from the initial valuation will be recorded as a designated interest expense. Any decrease in valuation from the initial valuation will be recorded to Addition Paid in Capital as the obligation is to a related party of the Company.

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The decrease in interest expense for the current period of measurement was $124,841, and is mainly a result of a decrease in loan discounts expensed as interest expense of $55,568 and no convertible debt interest in the current period of measurement.

Operating Results for the Six Months Ended December 31, 2017 and 2016 (As Restated)

Sales, net

During the six months ended December 31, 2017 and 2016 (As Restated), the Company had no revenue in the periods of measurements.

Operating Costs and Expenses

Our operating cost incurred in six months ended December 31, 2017, increased $130,700 from $864,552 in the six months ended December 31, 2016 (As Restated),  to $995,252 for the current period of measurement. The increase in operating costs in the current period of measurement is attributable increased general and administrative of $136,077.

The increases in general and administrative in the current period of measurement are mainly attributable to wages of $32,353, accounting and financial reporting of $20,608, consulting of $77,380 and legal of $27,324.  The increases were offset by a decrease in director fees of $15,000.

Other Income (Expense)

Other income (expense) for six months ended December 31, 2017, was $(2,056,036) as compared to $552,632 for six months ended December 31, 2016 (As Restated), an increase in other expense of $2,608,668. The net increase in other expense for the current period measurement is mainly comprised of the following components: increased losses on misappropriation of funds of $24,245, financing costs – commodity supply agreement of $829,360 and interest on mandatory redemption shares by related party of $1,477,000 and an offset in a reduction of a loss on derivative instruments of $54,237. Other income in the current period of measurement had decreases comprised of the following components: foreign currency translation of $101,554, gain on debt extinguishment of $14,599, gain on trust debt extinguishment of  $472,831 and a reduction in interest expense of $257,484.

For the six months ended December 31, 2017, there were no derivative financial instruments or related derivative gain or loss and in the current reporting period. The prior reporting period had a loss of $54,237 on derivative instruments. 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, 2017, financing costs – commodity supply agreements had an increased loss of $829,360 from the comparable period of measurement, which had income of $648,540. The financing costs for commodity supply agreements relate directly to production delivery of refined precious metals to Sandstorm in the prior period of measurement. 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 increased in the current period of measurement is driven by an increase in precious metals prices.

The interest on mandatory redemption shares by related party of $1,477,800 is a result of each subsequent period measurement closing, the shares will be valued at the current market price and any increase in valuation from the initial valuation will be recorded as a designated interest expense. Any decrease in valuation from the initial valuation will be recorded to Addition Paid in Capital as the obligation is to a related party of the Company.

The decrease in interest expense for the current period of measurement was $257,484, and is mainly a result of a decrease in loan discounts expensed as interest expense of $116,115 and no convertible debt interest in the current period of measurement.

Liquidity and Capital Resources; Plan of Operation

As of December 31, 2017, we had cash of $853,343 and we had a working capital deficit of $16,706,523.

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At December 31, 2017, the Company was in defaults on payments of approximately $7.64 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm Gold Ltd. (“Sandstorm”), other notes payable principle aggregating approximating $2.38 million, accrued liabilities of approximately $2.47 million and accounts payable approximating $3.03 million.

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.     

During the six months ending December 31, 2017, the Company continued to implement its initial plan to emerge from the bankruptcy proceedings. The Company raised $3,623,912 from the sale of common stock subscriptions and the exercise of attached warrants. The funds were used as working capital to implement the Company business plan.

On August 18, 2017, the Company signed the Bullard’s Peak Agreement and delivered $100,000 towards the purchase price. The Agreement is to purchase Bullard’s Peak Corporation and Black Hawk Consolidated Mines Company and acquire 100% of the issued and outstanding capital stock for a cash purchase price in the aggregate amount of $3,000,000, to be paid with installments stated in the Bullard’s Peak Agreement. As of December 31, 2017, we have paid to the seller $2.000,000. Title to the claims and transfer of the issued and outstanding  shares will be transferred upon receipt by seller of the full purchase price. The final payment was made on April 2, 2019 and the final purchase price with related costs was $3,115,365.  

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.

Evaluation of Disclosure Controls and Procedures

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. A significant weakness existed that our then current Chief Executive Officer, also a CPA, insisted on maintaining various original detail financial records at his office and not the corporate office. The lack of not receiving these original documents and related reviews, resulted in a subsequent reporting period the Company uncovering a misappropriation of Company funds by the then current Chief Executive Officer.

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”).

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standard to: 1) approve all Company expenditures, 2) approve and sign contractual obligations, 3) reconcile bank accounts and other general ledger accounts, and 4) many other similar rudimentary controls applied as best practice.

However, we have concluded that due to the Company’s small size and limited personnel available to perform control functions, and the weakness described above, the Company was precluded from applying adequate segregation of duties in financial transactions. The Company has taken steps to assure all original financial documents are received and maintained at the corporate office. The material weaknesses described are common to companies of our similar size and staffing in our industry. We expect these material weakness conditions to continue for the foreseeable future, or until Company growth results in additional personnel to perform segregated financial functions.

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 nine months ended December 31,2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II     

OTHER INFORMATION

All legal proceedings were stayed with the filing of Chapter 11 bankruptcy.

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; and Boart Longyear Company v. Lordsburg Mining Company, Case No. D-608-CV- 201500165, County of Quintero, NM.  There are a series of collection cases by Boart Longyear Company, a company that obtained Utah judgments for equipment delivered to Lordsburg Mining Company in the aggregate amounts of $158,480 and has an interest rate of 5.25% per annum. The Company accrued back interest on judgement during the quarter ended December 31, 2016 (As Restated), of $13,860 and recorded $21,454 in legal fees awarded in the judgement. In December 2016 the court administered trust paid $6,287 to Bogart Longyear and was applied against the accrued interest on the obligation and was recorded as a gain on trust debt forgiveness. During the six months ended December 31, 2017, the Company accrued interest on the obligation of $4,194. Accrued interest on the obligation at December 31, 2017 and June 30, 2017 (As Restated) was $15,893 and $11,698 respectively.

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. On July 31, 2017, this case was dismissed with prejudice.

Wagner Equipment Co. v. Lordsburg Mining Company, Case No. D-2014-02372, County of Bernalillo, NM 28 is a collection case by Wagner equipment, who obtained judgment for equipment delivered to Lordsburg Mining Company in the amount of $115,789 and has a rate of interest of 8.75% per annum. The Company accrued back interest on judgement during the quarter ended December 31, 2016 (As Restated), of $26,875. In December 2016 the court administered trust paid $4,591 to Wagner equipment and was applied against the accrued interest on the obligation and was recorded as a gain on trust debt forgiveness. During the six months ended December 31, 2017, the Company accrued interest on the obligation of $5,107. Accrued interest on the obligation at December 31, 2017 and June 30, 2017 (As Restated) was $32,416 and $27,308, respectively.

The bankruptcy court set up a Trust fund that will be funded by the activities of the Summit mine for five (5) years for five years from reopening 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.

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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.

The Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) have each initiated investigation into the Company and certain other individuals, resulting from the Laws transactions and related misappropriation of funds described herein.  The SEC has obtained a formal order to investigate the Company.  The DOJ investigation is still preliminary. These types of investigations are expensive, time-consuming for management, and unpredictable – often resulting in other aspects of the Company’s operations becoming subject to regulatory scrutiny.  These investigations are ongoing and no prediction can be made regarding the timing or outcome of such matters including remedial action pursued against the Company and others, including its officers and directors.   

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 December31, 2017, 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.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our annual report on Form 10-K for our year fiscal ended June 30, 2019, although we may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings. 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.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company on November 6, 2017, approved the issuance of 2,000,000 shares of restricted common stock for consulting fees with a value of $196,000 on the contract date and these shares will be issued upon the shareholder approved increase in the Company’s authorized common shares on January 11, 2019.

The issuance of the restricted common shares during the three months ended December 31, 2017, 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. In connection with transactions referenced

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above other than issuances to the Company’s officers, directors, employees and consultants for services, the Company obtained representations that (i) such investor was an “accredited investor” within the meaning of Rule 501 of Regulation D, (ii) such investor was acquiring the securities for its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (iii) such investor understands that the purchased securities or shares underlying such securities are subject to transfer restrictions under the Securities Act and any applicable state securities laws, (iv) such investor has knowledge and experience in financial and business matters such that such investor is capable of evaluating the merits and risks of an investment in us, and (v) such investor has considered the risk factors contained in SEC filings.  In connection with sales of our equity securities for cash during the period ending December 31, 2017, finder’s fees were paid on sales made to existing shareholders where such fees were disclosed and such existing shareholders had already made their subsequent purchase decisions prior to investing. These sales were made fees paid in a manner consistent with the SEC’s Paul Anka No Action Letter (Issued July 24, 1991). That is, (a) the finder did not have involvement in negotiating or structuring transactions with investors (they had already made the decisions to purchase based on their own criteria, no sales material was provided by the finder with the sole exception of a blank subscription agreement that the finder was provided by the Company and that was forwarded along with the per share price to the investor as a courtesy); (b) the finder did not value or opine as to the Company’s common stock’s value and did not participate in negotiating on behalf of the investor or the Company; (c) the finder was not in the business of brokering transactions and its activity, as a finder, was isolated to helping the Company and (d) although fees were paid in connection with the sales of the Company’s common stock, this was disclosed on the subscription agreements and the other items were as limited or more limited than those that were present that gave rise to the SEC’s Paul Anka No-Action Letter. (Id.)  Further, not only did the investors have a pre-existing relationship with the finder but in the Anka No-Action Letter none of the prospective investors was an existing shareholder.

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.

ITEM 5. OTHER INFORMATION

None.

(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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