U.
S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
|
|
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 30, 2010
|
|
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from _______ to _______
Commission
file number 000-14319
STANDARD
GOLD, INC.
(Exact
Name of Small Business Issuer as Specified in its Charter)
|
COLORADO
|
|
84-0991764
|
|
(State
or Other Jurisdiction of
|
|
(I.R.S.
Employer Identification Number)
|
|
Incorporation
or Organization)
|
|
|
900 IDS
CENTER, 80 SOUTH EIGHTH STREET, MINNEAPOLIS, MINNESOTA 55402-8773
(Address
of Principal Executive Offices)
(Issuer’s
Telephone Number, Including Area Code)
(Former
Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate
by check mark whether the Registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes
x
No
¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x
(Do not check if a smaller reporting company)
Indicate
by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
¨
No
x
As of
August 12, 2010, there were 23,190,649 shares of the Registrant’s common stock,
par value $.001, outstanding.
STANDARD
GOLD, INC.
FORM
10-Q
TABLE
OF CONTENTS
JUNE
30, 2010
|
|
|
|
Page
|
|
|
|
|
|
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements
|
|
4
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets -
|
|
|
|
|
As
of June 30, 2010 and December 31, 2009
|
|
4
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations -
|
|
|
|
|
For
the three months and six months ended
|
|
|
|
|
June
30, 2010 and June 30, 2009
|
|
5
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows -
|
|
|
|
|
For
the six months ended
|
|
|
|
|
June
30, 2010 and June 30, 2009
|
|
6
|
|
|
|
|
|
|
|
Notes
to the Condensed Consolidated Financial Statements
|
|
7
|
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of
|
|
|
|
|
Financial
Condition and Results of Operations
|
|
17
|
|
|
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
|
20
|
|
|
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
22
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
|
22
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
22
|
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
22
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
|
22
|
|
|
|
|
|
|
|
Signatures
|
|
23
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form
10-Q contains certain statements which are forward-looking in nature and are
based on the current beliefs of our management as well as assumptions made by
and information currently available to management, including statements related
to the uncertainty of the quantity or quality of probable ore reserves, the
fluctuations in the market price of such reserves, general trends in our
operations or financial results, plans, expectations, estimates and beliefs. In
addition, when used in this Form 10-Q, the words “may,” “could,” “should,”
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict” and
similar expressions and their variants, as they relate to us or our management,
may identify forward-looking statements. These statements reflect our judgment
as of the date of this Form 10-Q with respect to future events, the outcome of
which is subject to risks. We have attempted to identify, in context,
certain of the factors that we believe may cause actual future experience and
results to differ materially from our current expectations, which may have a
significant impact on our business, operating results, financial condition or
your investment in our common stock, as described in Part I, Item 1A entitled
“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,
2009.
Readers
are cautioned that these forward-looking statements are inherently uncertain.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein.
We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, your attention is directed to any further disclosures made on related
subjects in our subsequent periodic reports filed with the Securities and
Exchange Commission on Forms 10-K, 10-Q and 8-K.
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
PART
I – FINANCIAL INFORMATION
Item
1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance
Sheets
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,716
|
|
|
$
|
450,887
|
|
|
Prepaid
expenses
|
|
|
157,117
|
|
|
|
—
|
|
|
Total
current assets
|
|
|
158,833
|
|
|
|
450,887
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
1,491,326
|
|
|
|
1,536,408
|
|
|
Mineral
properties and development costs
|
|
|
5,660,726
|
|
|
|
5,660,726
|
|
|
Debt
issuance costs, net
|
|
|
18,380
|
|
|
|
23,392
|
|
|
Total
Assets
|
|
$
|
7,329,265
|
|
|
$
|
7,671,413
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Deficit
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Convertible
note payable, current portion
|
|
$
|
300,000
|
|
|
$
|
150,000
|
|
|
Current
portion of long-term notes payable
|
|
|
900,000
|
|
|
|
600,000
|
|
|
Due
to Wits Basin Precious Minerals Inc (majority shareholder)
|
|
|
72,200
|
|
|
|
51,921
|
|
|
Accounts
payable
|
|
|
104,564
|
|
|
|
46,101
|
|
|
Accrued
interest
|
|
|
321,052
|
|
|
|
71,630
|
|
|
Accrued
expenses
|
|
|
501,156
|
|
|
|
383,315
|
|
|
Total
current liabilities
|
|
|
2,198,972
|
|
|
|
1,302,967
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
note payable, long-term portion
|
|
|
174,923
|
|
|
|
314,923
|
|
|
Long-term
note payable (majority shareholder)
|
|
|
1,100,000
|
|
|
|
1,400,000
|
|
|
Long-term
note payable, net of discount
|
|
|
6,187,883
|
|
|
|
6,189,768
|
|
|
Total
liabilities
|
|
|
9,661,778
|
|
|
|
9,207,658
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
deficit:
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $1 par value, 50,000,000 shares authorized:
|
|
|
none
issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common
stock, $.001 par value, 100,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
|
23,190,649
and 22,840,649 shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
at
June 30, 2010 and December 31, 2009, respectively
|
|
|
23,191
|
|
|
|
22,841
|
|
|
Additional
paid-in capital
|
|
|
6,066,364
|
|
|
|
5,141,714
|
|
|
Accumulated
deficit during exploration stage
|
|
|
(8,422,068
|
)
|
|
|
(6,700,800
|
)
|
|
Total
shareholders’ deficit
|
|
|
(2,332,513
|
)
|
|
|
(1,536,245
|
)
|
|
Total
Liabilities and Shareholders’ Deficit
|
|
$
|
7,329,265
|
|
|
$
|
7,671,413
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
Condensed
Consolidated Statements of Operations
(unaudited)
|
|
|
|
|
|
|
|
|
September 28,
2004
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(inception)
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
to June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
926,705
|
|
|
|
14,582
|
|
|
|
1,216,329
|
|
|
|
30,520
|
|
|
|
1,818,395
|
|
|
Exploration
expenses
|
|
|
84,277
|
|
|
|
21,515
|
|
|
|
157,683
|
|
|
|
48,997
|
|
|
|
5,627,814
|
|
|
Depreciation
and amortization
|
|
|
21,820
|
|
|
|
26,431
|
|
|
|
45,082
|
|
|
|
52,862
|
|
|
|
258,263
|
|
|
Loss
on disposal of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,362
|
|
|
Total
operating expenses
|
|
|
1,032,802
|
|
|
|
62,528
|
|
|
|
1,419,094
|
|
|
|
132,379
|
|
|
|
7,716,834
|
|
|
Loss
from operations
|
|
|
(1,032,802
|
)
|
|
|
(62,528
|
)
|
|
|
(1,419,094
|
)
|
|
|
(132,379
|
)
|
|
|
(7,716,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
18
|
|
|
|
—
|
|
|
|
295
|
|
|
|
—
|
|
|
|
1,691
|
|
|
Interest
expense
|
|
|
(156,788
|
)
|
|
|
(148,921
|
)
|
|
|
(304,354
|
)
|
|
|
(239,348
|
)
|
|
|
(1,014,722
|
)
|
|
Foreign
currency gain (loss)
|
|
|
213,343
|
|
|
|
(478,217
|
)
|
|
|
1,885
|
|
|
|
(347,321
|
)
|
|
|
307,797
|
|
|
Total
other income (expense)
|
|
|
56,573
|
|
|
|
(627,138
|
)
|
|
|
(302,174
|
)
|
|
|
(586,669
|
)
|
|
|
(705,234
|
)
|
|
Loss
from operations before income taxes
|
|
|
(976,229
|
)
|
|
|
(689,666
|
)
|
|
|
(1,721,268
|
)
|
|
|
(719,048
|
)
|
|
|
(8,422,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net
loss
|
|
$
|
(976,229
|
)
|
|
$
|
(689,666
|
)
|
|
$
|
(1,721,268
|
)
|
|
$
|
(719,048
|
)
|
|
$
|
(8,422,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
23,022,517
|
|
|
|
18,500,000
|
|
|
|
22,955,472
|
|
|
|
18,500,000
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
Condensed
Consolidated Statements of Cash Flows
(unaudited)
|
|
|
Six Months Ended June 30,
|
|
|
September 28,
2004
(inception) to
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,721,268
|
)
|
|
$
|
(719,048
|
)
|
|
$
|
(8,422,068
|
)
|
|
Adjustments
to reconcile net loss to cash flows used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
45,082
|
|
|
|
52,862
|
|
|
|
258,263
|
|
|
Amortization
of imputed interest and discounts on long-term debt
|
|
|
10,000
|
|
|
|
183,212
|
|
|
|
603,868
|
|
|
Amortization
of prepaid consulting fees related to issuance of warrants and common
stock
|
|
|
150,000
|
|
|
|
—
|
|
|
|
150,000
|
|
|
Amortization
of debt issuance costs
|
|
|
5,012
|
|
|
|
—
|
|
|
|
7,519
|
|
|
Compensation
expense related to stock options
|
|
|
600,000
|
|
|
|
—
|
|
|
|
600,000
|
|
|
Loss
(gain) on foreign currency
|
|
|
(1,885
|
)
|
|
|
347,321
|
|
|
|
(307,797
|
)
|
|
Loss
on disposal of miscellaneous assets
|
|
|
—
|
|
|
|
—
|
|
|
|
12,362
|
|
|
Issuance
of equity securities by Wits Basin (majority shareholder) for exploration
expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
334,950
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(7,117
|
)
|
|
|
—
|
|
|
|
(7,117
|
)
|
|
Accounts
payable
|
|
|
58,463
|
|
|
|
(2,708
|
)
|
|
|
104,564
|
|
|
Accrued
expenses
|
|
|
367,263
|
|
|
|
64,189
|
|
|
|
966,298
|
|
|
Net
cash used in operating activities
|
|
|
(494,450
|
)
|
|
|
(74,172
|
)
|
|
|
(5,699,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
(143,628
|
)
|
|
Net
cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
(143,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(491,106
|
)
|
|
Cash
proceeds from issuance of common stock, net
|
|
|
25,000
|
|
|
|
—
|
|
|
|
1,071,672
|
|
|
Advances
from (payments to) Wits Basin (majority shareholder)
|
|
|
20,279
|
|
|
|
73,614
|
|
|
|
5,289,835
|
|
|
Debt
issuance costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,899
|
)
|
|
Net
cash provided by financing activities
|
|
|
45,279
|
|
|
|
73,614
|
|
|
|
5,844,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(449,171
|
)
|
|
|
(558
|
)
|
|
|
1,716
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
450,887
|
|
|
|
1,655
|
|
|
|
—
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,716
|
|
|
$
|
1,097
|
|
|
$
|
1,716
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
29,918
|
|
|
$
|
—
|
|
|
$
|
30,751
|
|
|
Cash
paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Issuance
of common stock for prepaid consulting fees
|
|
$
|
300,000
|
|
|
$
|
—
|
|
|
$
|
300,000
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
Notes
to Condensed Consolidated Financial Statements
June
30, 2010
(unaudited)
NOTE 1 - NATURE OF
BUSINESS
Standard
Gold, Inc. (formerly known as Princeton Acquisitions, Inc.) was incorporated in
the State of Colorado on July 10, 1985, as a blind pool or blank check company.
From the date of our incorporation until September 29, 2009, our business model
was to complete a merger with, or acquisition of a private company, partnership
or sole proprietorship without any particular industry or geographical location
preference.
On
September 11, 2009, we entered into a share exchange agreement with Hunter Bates
Mining Corporation, a Minnesota corporation (“Hunter Bates”) and certain of its
shareholders, in which its shareholders would exchange all of their capital
securities into similar capital securities of ours. Hunter Bates was formed as a
wholly owned subsidiary of Wits Basin Precious Minerals Inc., a Minnesota
corporation and public reporting company quoted on the Over-the-Counter Bulletin
Board under the symbol “WITM” (“Wits Basin”) to acquire the prior producing gold
mine properties located in Central City, Colorado, known as the “Bates-Hunter
Mine.” We consummated the share exchange with all of the Hunter Bates
shareholders on September 29, 2009 (the “Share Exchange”).
Accordingly,
the Share Exchange represented a change in control and Hunter Bates became a
wholly owned subsidiary of ours. For accounting purposes, the Share Exchange has
been accounted for as a reverse acquisition with Hunter Bates as the accounting
acquirer (legal acquiree) and Standard Gold as the accounting acquiree (legal
acquirer). Upon effectiveness of the Share Exchange, we adopted the
business model of Hunter Bates and as such have become a stand-alone minerals
exploration and development company with a focus on gold projects.
Throughout
this Report, Standard Gold, Inc., and our wholly owned subsidiary Hunter Bates
and its wholly owned subsidiary Gregory Gold Producers, Inc., a Colorado
corporation (“Gregory Gold”) will be referred collectively to as “we,” “us,”
“our,” “Standard Gold” or the “Company.”
Line of
Business
Hunter
Bates is an exploration and development stage Minnesota corporation formed in
April 2008. We were formed as a wholly owned subsidiary of Wits Basin
to acquire the Bates-Hunter Mine property pursuant to an Asset Purchase
Agreement dated September 20, 2006. On June 12, 2008, Hunter Bates completed the
acquisition of the Bates-Hunter Mine, which included real property, mining
claims, permits and equipment. The purchase was financed through a limited
recourse promissory note of Hunter Bates payable to Mr. George Otten (on behalf
of all of the Sellers) in the principal amount of Cdn$6,750,000 and Wits Basin
issued 3,620,000 shares of its common stock.
When Wits
Basin acquired the rights to purchase the Bates-Hunter Mine in January 2005, it
also acquired exploration rights of the Bates-Hunter Mine properties. Wits Basin
utilized Gregory Gold as an oversight management company for the exploration
activities conducted at the Bates-Hunter Mine since that time. On September 3,
2009, prior to the Share Exchange, Wits Basin contributed all of its equity
interest in Gregory Gold to Hunter Bates, thereby making Gregory Gold a wholly
owned subsidiary of Hunter Bates. Gregory Gold holds minimal assets related to
operating the water treatment plant and area maintenance used in the exploration
activities of the Bates-Hunter Mine.
As of the
date of this Report, our only assets are the Bates-Hunter Mine property and
minimal assets held in Gregory Gold and we do not claim to have any mineral
reserves at the Bates-Hunter Mine. Furthermore, we possess only a few pieces of
equipment and employ insufficient numbers of personnel necessary to actually
explore and/or mine for minerals; we therefore remain substantially dependent on
third party contractors to perform such operations. No further exploration
activities will be conducted at the Bates-Hunter Mine until such time as funds
become available. In addition to the Bates-Hunter Mine, we also seek to find,
develop, produce and sell other gold mine assets.
NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared by us in accordance with accounting principles generally accepted in
the United States of America (“US GAAP”), for interim financial information
pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”). Accordingly, they do not include all of the information
and footnotes required by US GAAP for complete financial statements. The
unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
our Form 10-K filed March 26, 2010. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the
six months ended June 30, 2010 are not necessarily indicative of the results
that may be expected for the year as a whole.
Foreign
Currencies
All
dollar amounts expressed in this Report are in US Dollars (“$”), unless
specifically noted, as certain transactions are denominated in the Canadian
Dollar (“Cdn$”).
NOTE 3 – EARNINGS (LOSS) PER
COMMON SHARE
Basic net
loss per common share is computed by dividing net loss applicable to common
shareholders by the weighted average number of common shares outstanding during
the periods presented. Diluted net loss per common share is
determined using the weighted average number of common shares outstanding during
the periods presented, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of options,
warrants and conversion of convertible debt. In periods where losses
are reported, the weighted average number of common shares outstanding excludes
common stock equivalents, because their inclusion would be
anti-dilutive.
The
following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings (loss) per share are as
follows:
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) to common shareholders
|
|
$
|
(976,229
|
)
|
|
$
|
(689,666
|
)
|
|
$
|
(1,721,268
|
)
|
|
$
|
(719,048
|
)
|
|
Weighted
average of common shares outstanding
|
|
|
23,022,517
|
|
|
|
18,500,000
|
|
|
|
22,955,472
|
|
|
|
18,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings (loss) per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common shareholders
|
|
$
|
(976,229
|
)
|
|
$
|
(689,666
|
)
|
|
$
|
(1,721,268
|
)
|
|
$
|
(719,048
|
)
|
|
Basic
weighted average common shares outstanding
|
|
|
23,022,517
|
|
|
|
18,500,000
|
|
|
|
22,955,472
|
|
|
|
18,500,000
|
|
|
Options,
convertible debentures and warrants
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
Diluted
weighted average common shares outstanding
|
|
|
23,022,517
|
|
|
|
18,500,000
|
|
|
|
22,955,472
|
|
|
|
18,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings (loss) per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.04
|
)
|
|
|
(1)
|
As
of June 30, 2010, we had (i) 4,180,000 shares of common stock issuable
upon the exercise of outstanding warrants and (ii) 1,600,000 shares of
common stock upon the exercise of outstanding options. These 5,780,000
shares, which would be reduced by applying the treasury stock method, were
excluded from diluted weighted average outstanding shares amount for
computing the net loss per common share, because the net effect would be
antidilutive for each of the periods
presented.
|
|
|
(2)
|
As
of June 30, 2009, we had no stock options, warrants or shares reserved
outstanding.
|
NOTE 4 – COMPANY’S CONTINUED
EXISTENCE
The
accompanying condensed consolidated financial statements have been prepared in
conformity with US GAAP, assuming we will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the six months ended June 30, 2010, we
incurred losses from operations of $1,721,268. At June 30, 2010, we had an
accumulated deficit of $8,422,068 and a working capital deficit of $2,040,139.
Our ability to continue as a going concern is dependent on our ability to raise
the required additional capital or debt financing to meet short and long-term
operating requirements. We believe that future private placements of equity
capital and debt financing are needed to fund our long-term operating
requirements. We may also encounter business endeavors that require significant
cash commitments or unanticipated problems or expenses that could result in a
requirement for additional cash. If we raise additional funds through
the issuance of equity or convertible debt securities, the percentage ownership
of our current shareholders could be reduced, and such securities might have
rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective business endeavors or opportunities, which
could significantly and materially restrict our operations. We are continuing to
pursue external financing alternatives to improve our working capital position.
If we are unable to obtain the necessary capital, we may have to cease
operations.
NOTE 5 – PREPAID
EXPENSES
Prepaid
expenses consist of two components: prepaid consulting fees and other prepaid
expenses. The prepaid consulting fees include the calculated fair value of
300,000 shares of common stock issued ($300,000) to a consultant on May 21,
2010, for various services that we do not have the internal infrastructure to
perform, with the amortization periods coinciding with terms of the agreement.
The other prepaid expenses contain amounts we have prepaid for general and
administrative purposes and are being expensed as utilized. Components of
prepaid expenses are as follows:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Prepaid
consulting fees
|
|
$
|
150,000
|
|
|
$
|
—
|
|
|
Other
prepaid expenses
|
|
|
7,117
|
|
|
|
—
|
|
|
|
|
$
|
157,117
|
|
|
$
|
—
|
|
NOTE 6 – PROPERTY, PLANT AND
EQUIPMENT
Prior to
our acquisition of the Bates-Hunter Mine in June 2008, Gregory Gold made
purchases of various pieces of equipment necessary to operate and de-water the
Bates-Hunter Mine property. After the acquisition, we now have additional assets
of land, buildings and other additional equipment all related to the
Bates-Hunter Mine. Depreciation on our assets is calculated on a straight-line
method over the estimated useful life, presently ranging from two to twenty
years. Components of our property, plant and equipment are as
follows:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
329,280
|
|
|
$
|
329,280
|
|
|
Buildings
|
|
|
1,206,954
|
|
|
|
1,206,954
|
|
|
Equipment
|
|
|
199,694
|
|
|
|
199,694
|
|
|
Less
accumulated depreciation
|
|
|
(244,602
|
)
|
|
|
(199,520
|
)
|
|
|
|
$
|
1,491,326
|
|
|
$
|
1,536,408
|
|
NOTE 7 – MINERAL PROPERTIES
AND DEVELOPMENT COSTS
As of
June 30, 2010, we own one wholly owned mining property known as the Bates-Hunter
Mine, which was purchased in June 2008. Since the purchase, we have not
commenced any mining operations due to the lack of funding and therefore, we
have not recorded any amortization expense nor have we determined that any
impairment has occurred for the period ended June 30, 2010. Components of our
mineral properties and development costs are as follows:
|
|
|
|
|
|
|
|
|
Mining claims
(1)
|
|
$
|
5,657,383
|
|
|
$
|
5,657,383
|
|
|
Mining
permits
(2)
|
|
|
3,343
|
|
|
|
3,343
|
|
|
|
|
$
|
5,660,726
|
|
|
$
|
5,660,726
|
|
|
|
(1)
|
We
acquired some surface rights and some mining rights to 22 parcels located
in Gilpin County, Colorado.
|
|
|
(2)
|
We
acquired various mining, special use, water discharge, stormwater and
drilling permits, all of which require renewal at various
times.
|
NOTE 8 – DEBT ISSUANCE
COSTS
We
recorded debt issuance costs with respect to legal services incurred relating to
the Cabo convertible promissory note issued in 2009 (see Note 9 – Convertible
Note Payable). Debt issuance costs are being amortized on a straight-line basis
(which approximates the effective interest method) over the term of the
corresponding debt.
The
following table summarizes the amortization of debt issuance costs:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
Debt
issuance costs, net, beginning of period
|
|
$
|
23,392
|
|
|
$
|
—
|
|
|
Add:
additional debt issuance costs
|
|
|
—
|
|
|
|
25,899
|
|
|
Less:
amortization of debt issuance costs
|
|
|
(5,012
|
)
|
|
|
(2,507
|
)
|
|
Debt
issuance costs, net, end of period
|
|
$
|
18,380
|
|
|
$
|
23,392
|
|
Future
annual amortization is scheduled to be as follows for the years ending December
31:
|
2010
— Remaining
|
|
$
|
5,014
|
|
|
2011
|
|
|
10,026
|
|
|
2012
|
|
|
3,340
|
|
|
Total
|
|
$
|
18,380
|
|
NOTE 9 –
CONVERTIBLE NOTE PAYABLE
On April
28, 2009, Wits Basin entered into a convertible debenture with Cabo Drilling
(America) Inc., a Washington corporation formerly known as Advanced Drilling,
Inc (“Cabo”), pursuant to which Wits Basin issued to Cabo a 12% Convertible
Debenture dated April 27, 2009 (the “Debenture”), in the principal amount of
$511,590. As this obligation stems from work completed on and around the
Bates-Hunter Mine property and is secured by our property (as referenced below),
for accounting purposes it is reflected on our financial statements. The
Debenture has a maturity date of April 27, 2012, with scheduled payments of
$150,000 due each anniversary with a final payment due of the remaining balance
on the third anniversary. The Debenture is convertible at the option of the
holder at any time into shares of Wits Basin common stock at a conversion price
of $0.20 per share, subject to standard anti-dilutive adjustments. Any future
conversion of this Debenture into Wits Basin common stock would be recorded as a
reclass to “Due to Wits Basin” on our books. The Debenture was issued to Cabo in
satisfaction of an outstanding payable totaling $451,590 for drilling services
performed relating to the Bates-Hunter Mine property. The difference between the
face amount of the Debenture and the outstanding payable totaling $60,000 is
treated as a discount to the debt and is being amortized to interest expense
over the 3-year term of the Debenture.
On April
22, 2010, we made a $15,000 penalty payment to Cabo in order to receive an
extension on the first $150,000 anniversary payment due April 27, 2010. The
Company currently is in negotiations with Cabo on some type of security to be
offered to them to insure they will receive this anniversary
payment.
Hunter
Bates has guaranteed Wits Basin’s obligations under the Debenture, and further
entered into that certain Deed of Trust to Public Trustee, Mortgage, Security
Agreement, Assignment of Production and Proceeds, Financing Statement and
Fixture Filing to provide security for the obligations under the
Debenture.
Summary
The
following table summarizes the convertible note balance:
|
Balance
at December 31, 2008
|
|
$
|
—
|
|
|
Add:
conversion of accrued expenses and additional interest
charge
|
|
|
451,590
|
|
|
Add:
amortization of debt discount
|
|
|
13,333
|
|
|
Balance
at December 31, 2009
|
|
|
464,923
|
|
|
Add:
amortization of debt discount
|
|
|
10,000
|
|
|
Less:
principal payments
|
|
|
—
|
|
|
Balance
at June 30, 2010
|
|
|
474,923
|
|
|
Less:
current portion
|
|
|
(300,000
|
)
|
|
Long-term
portion
|
|
$
|
174,923
|
|
As of
June 30, 2010, the outstanding principal balance is $511,590 with accrued
interest of $75,331.
NOTE 10 – LONG-TERM NOTES
PAYABLE
Long-term limited recourse
promissory note – Otten
On June
12, 2008, Hunter Bates completed the acquisition of the Bates-Hunter Mine
properties, which included land, buildings, equipment, mining claims and
permits, financed through a limited recourse promissory note of Hunter Bates
payable to Mr. George Otten (on behalf of all of the Sellers) in the principal
amount of Cdn$6,750,000 (the “Otten Note”). The Otten Note required an initial
payment of Cdn$250,000 due by December 1, 2008, which was ultimately paid on
November 13, 2009. As of June 30, 2010, the outstanding principal balance is
Cdn$6,500,000 (approximately $6,187,883 US).
Commencing
on April 1, 2010, a quarterly installment of accrued interest plus a Production
Revenue Payment (as defined below) became payable. The Otten Note was
interest-free until January 1, 2010, and from such date the interest is at a
rate of 6% per annum, with a maturity date of December 31, 2015. The
Otten Note balance reflected a discount (valued at $580,534 and fully amortized
to interest expense as of December 31, 2009) relating to the recourse note being
non-interest bearing until the first payment in 2010. Hunter Bates’ payment
obligations under the Otten Note is secured by a deed of trust relating to all
of the property acquired in favor of Gilpin County Public Trustee for the
benefit of Mr. Otten. Hunter Bates is required to make quarterly principal
repayments (each a “Production Revenue Payment”) beginning April 1, 2010, which
payment(s) shall equal:
|
|
1.
|
For
all calendar quarters March 31, 2010 to December 31, 2012, 75% of the
profit realized by Hunter Bates for the immediately preceding calendar
quarter, and
|
|
|
2.
|
For
calendar quarters ending after December 31, 2012, the greater of (a) 75%
of the profit realized by Hunter Bates for the relevant calendar quarter
or (b) Cdn$300,000.
|
Furthermore,
if Hunter Bates has not been obligated to make a Production Revenue Payment by
December 31, 2012, then beginning on April 1, 2013 and continuing on each
payment date until Hunter Bates has become obligated to make a Production
Revenue Payment, Hunter Bates shall make principal repayments in the amount of
Cdn$550,000. Upon Hunter Bates becoming obligated to make a Production Revenue
Payment at anytime after April 1, 2013, Hunter Bates shall make Production
Revenue Payments in accordance with #2 above.
The
Company has not made the quarterly interest payments as of the date of this
report, which were due on April 1, 2010 and July 1, 2010, for an aggregate
amount due of $186,215. On May 17, 2010, we made a $10,000 penalty payment for
an extension on the April 1, 2010 interest payment, deferring it until August 1,
2010. The Company currently is in discussions with Mr. Otten regarding these
past due interest payments.
The
following table summarizes the Otten long-term limited recourse promissory note
in US Dollars:
|
Balance
at December 31, 2008
|
|
$
|
5,139,637
|
|
|
Add:
unrealized foreign currency loss from the Otten limited recourse
note
|
|
|
916,170
|
|
|
Add:
amortization of original issue discount
|
|
|
375,067
|
|
|
Less:
principal payments
|
|
|
(241,106
|
)
|
|
Balance
at December 31, 2009
|
|
|
6,189,768
|
|
|
Less:
unrealized foreign currency gain from the Otten limited recourse
note
|
|
|
(1,885
|
)
|
|
Less:
principal payments
|
|
|
—
|
|
|
Balance
at June 30, 2010
|
|
$
|
6,187,883
|
|
Long-term related party
promissory note – Wits Basin
In August
2009, Hunter Bates issued a note payable in favor of Wits Basin (at which time
held 100% of the equity interest in Hunter Bates) in the principal amount of
$2,500,000 (the “Wits Basin Note”) in consideration of various start-up and
developments costs and expenses incurred by Wits Basin on its behalf while
Hunter Bates and Gregory Gold were consolidated, wholly owned subsidiaries of
Wits Basin. The aggregate amount of start-up and developments costs and expenses
incurred by Wits Basin prior to the Share Exchange was $6,367,872 with the
remaining balance of $3,867,872 being credited to additional paid in capital.
The Wits Basin Note is due on December 31, 2013, and calls for quarterly
payments of $150,000 starting on March 31, 2010. Interest accrues at a rate of
6% compounded per annum. In the event Hunter Bates generates net
revenues in excess of $2,000,000 during any fiscal year or completes one or more
financings in the aggregate amount of $10,000,000, Hunter Bates’ payment
obligations under the Wits Basin Note will, at the option of Wits Basin,
accelerate and become due and payable.
On
September 29, 2009, Hunter Bates satisfied an aggregate of $500,000 under the
Wits Basin Note through (i) the issuance of 500,000 shares of its common stock
and warrants to purchase an additional 500,000 shares at an exercise price of
$1.00 (sold at $0.50 per unit with a total value of $250,000) to a creditor of
Wits Basin in satisfaction of certain of Wits Basin’s obligation to such
creditor and (ii) the payment to Wits Basin of $250,000.
For the
six months ended June 30, 2010, interest expense of $59,506 has been charged to
operations and is included in accrued interest.
The
following table summarizes the Wits Basin long-term note payable:
|
Balance
at December 31, 2008
|
|
$
|
—
|
|
|
Add:
issuance of note
|
|
|
2,500,000
|
|
|
Less:
principal payments
|
|
|
(500,000
|
)
|
|
Balance
at December 31, 2009
|
|
|
2,000,000
|
|
|
Less:
principal payments
|
|
|
—
|
|
|
Balance
at June 30, 2010
|
|
|
2,000,000
|
|
|
Less:
current portion
|
|
|
(900,000
|
)
|
|
Long-term
portion
|
|
$
|
1,100,000
|
|
Current maturity summary of
all long-term debt
For all
long-term debt, the scheduled annual maturities for the years ending December 31
are as follows:
|
2010
— Remaining
|
|
$
|
600,000
|
|
|
2011
|
|
|
600,000
|
|
|
2012
|
|
|
600,000
|
|
|
2013
|
|
|
2,294,360
|
|
|
2014
|
|
|
2,094,360
|
|
|
Thereafter
|
|
|
1,999,163
|
|
|
Total
|
|
$
|
8,187,883
|
|
NOTE 11 - SHAREHOLDERS’
EQUITY
Common Stock
Issuances
During
the three months ended June 30, 2010, we issued 300,000 shares of our
unregistered common stock to a third party consultant for services in public and
investor relations valued at $300,000. We are amortizing the $300,000 during
2010 at a rate of $75,000 per quarter to coincide with the terms of the
agreement.
Option
Grants
On March
22, 2010, our Board approved and adopted the 2010 Stock Option Plan (the “2010
Plan”), whereby 3,000,000 shares of the Company’s par value $0.001 common stock
are held in reserve for issuance pursuant to the Plan.
On April
1, 2010, the Company entered into a Stock Option Agreement with Stephen E.
Flechner, the Company’s President, whereby the Company issued Mr. Flechner a
ten-year option to purchase 800,000 shares of the Company’s common stock at an
exercise price of $0.90 per share, which was the closing price of the Company’s
common stock on April 1, 2010. The option is subject to the terms of
the 2010 Plan and vests in three equal annual installments, with the first
tranche vesting on April 1, 2010. The vesting of the option shall
accelerate (i) at such time the closing price of the Company’s common stock (as
quoted on the OTCBB or an exchange) remains at or above $3.00 per share for 30
consecutive days, (ii) upon Mr. Flechner’s death, (iii) upon the occurrence of a
Change of Control (as defined in the Employment Agreement or (iv) upon the
termination of employment for any reason other than Cause.
On April
1, 2010, the Company also entered into a Stock Option Agreement with its Chief
Executive Officer, Stephen D. King, whereby the Company issued Mr. King a
ten-year option to purchase 800,000 shares of the Company’s common stock at an
exercise price of $0.90 per share, which was the closing price of the Company’s
common stock on April 1, 2010. The option is subject to the terms of
the 2010 Plan and vests in three equal annual installments with the first
tranche vesting on April 1, 2010. The vesting of the option shall
accelerate (i) upon Mr. King’s death or (ii) upon the occurrence of a Change of
Control (as defined in the option agreement). Immediately upon grant,
Mr. King transferred his rights to the Stock Option Agreement to his spouse,
Deborah King.
As of
June 30, 2010, 3,000,000 shares of our common stock are available to be granted
under our 2010 Plan, of which 1,400,000 are available for future
issuances.
The
Company uses the Black-Scholes pricing model as a method for determining the
estimated fair value for employee stock awards. Compensation expense for
employee stock awards is recognized on a straight-line basis over the vesting
period of service awards and for performance based awards, the Company
recognizes the expense when the performance condition is probable of being
met.
We
recorded $600,000 and $0 related to employee stock compensation expense for the
six months ended June 30, 2010 and 2009, respectively. All stock compensation
expense is included in general and administrative expense. There was no tax
benefit from recording this non-cash expense due to our income tax valuation
allowance and due to a portion of the options being incentive stock options. The
compensation expense had a $0.02 impact on the loss per share for the three and
six months ended June 30, 2010. As of June 30, 2010, approximately $840,000 of
total unrecognized compensation expense is expected to be recognized over a
period of approximately 21 months.
The
following table summarizes information about the Company’s stock
options:
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
outstanding - December 31, 2009
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,600,000
|
|
|
|
0.90
|
|
|
Canceled
or expired
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Options
outstanding - June 30, 2010
|
|
|
1,600,000
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable - June 30, 2010
|
|
|
533,334
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted during the six months ended June 30,
2010
|
|
|
|
|
|
$
|
0.90
|
|
|
Weighted
average fair value of options granted during the six months ended June 30,
2009
|
|
|
|
|
|
$
|
—
|
|
Stock
Warrants
No stock
purchase warrants were issued during the three months ended June 30, 2010. The
following table summarizes information about the Company’s stock warrants
outstanding at June 30, 2010:
|
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
Weighted
Remaining
Contractual
|
|
|
Outstanding
at December 31, 2009
|
|
|
4,130,000
|
|
|
$
|
0.64
|
|
|
$
|
0.01
– 1.00
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
50,000
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
|
Cancelled
or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Outstanding
at June 30, 2010
|
|
|
4,180,000
|
|
|
$
|
0.64
|
|
|
$
|
0.01
– 1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at June 30, 2010
|
|
|
4,180,000
|
|
|
$
|
0.64
|
|
|
$
|
0.01
– 1.00
|
|
|
|
NOTE 12 – EFFECT OF RECENTLY
ISSUED ACCOUNTING STANDARDS
In
January 2010, the FASB
issued ASU 2010-02, “Consolidation (Topic 810): Accounting and Reporting for
Decreases in Ownership of a Subsidiary.” This amendment to Topic 810
clarifies, but does not change, the scope of current US GAAP. It
clarifies the decrease in ownership provisions of Subtopic 810-10 and removes
the potential conflict between guidance in that Subtopic and asset derecognition
and gain or loss recognition guidance that may exist in other US
GAAP. An entity will be required to follow the amended guidance
beginning in the period that it first adopts FAS 160 (now included in Subtopic
810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009. The amendments should be
applied retrospectively to the first period that an entity adopted FAS 160.
There is no effect on the financial statements from the current adoption of this
guidance.
In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair
Value Measurements.” This update requires additional disclosure within the roll
forward of activity for assets and liabilities measured at fair value on a
recurring basis, including transfers of assets and liabilities between Level 1
and Level 2 of the fair value hierarchy and the separate presentation of
purchases, sales, issuances and settlements of assets and liabilities within
Level 3 of the fair value hierarchy. In addition, the update requires enhanced
disclosures of the valuation techniques and inputs used in the fair value
measurements within Levels 2 and 3. The new disclosure requirements are
effective for interim and annual periods beginning after December 15, 2009,
except for the disclosure of purchases, sales, issuances and settlements of
Level 3 measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010. As ASU 2010-06 only requires enhanced disclosures,
the Company does not expect that the adoption of this update will have a
material effect on its financial statements.
NOTE 13 – RELATED PARTY
TRANSACTIONS
In
addition to the note payable discussed in Note 10, Wits Basin provides certain
general and administrative services (primarily management salary and office
rent) for the Company. Amounts charged to operations amounted to $11,063 and
$22,600 for the three months ended June 30, 2009 and 2010, respectively. Amounts
charged to operations amounted to $21,582 and $45,200 for the six months ended
June 30, 2009 and 2010, respectively.
NOTE 14 – SUBSEQUENT
EVENT
The
Company had been in discussions with a consulting entity to provide corporate
finance and merger and acquisition consulting services pursuant to the terms of
a six-month consulting agreement. The Company’s Chief Executive Officer executed
said agreement, effective May 28, 2010, which requires (i) cash fees of $2,000
per month; (ii) the issuance of an aggregate of 200,000 shares of the Company’s
common stock for a purchase price of $200 (at $0.01 per share) issuable in four
installments of 50,000 each (50,000 due immediately and 50,000 on each August 1,
October 1 and December 1, 2010); and (iii) the issuance of a one-year warrant to
purchase an additional 100,000 shares of the Company’s common stock at an
exercise price of $3.50 per share. Since the Company’s board has not yet
approved the agreement or the stock/warrant issuance, we accrued a miscellaneous
expense of $91,605 in order to recognize the potential liability. As of the date
of this Report, the equity issuances have not yet been made.
Item
2. Management’s Discussion and Analysis of Financial
Condition
and Results of Operations
The
following management discussion and analysis of financial condition and results
of operations should be read in connection with the accompanying unaudited
condensed consolidated financial statements and related notes thereto included
elsewhere in this Report and the audited consolidated financial statements and
notes thereto included in the Company’s Form 10-K for the fiscal year ended
December 31, 2009.
OVERVIEW
Standard
Gold, Inc. (formerly known as Princeton Acquisitions, Inc.) was incorporated in
the State of Colorado on July 10, 1985, as a blind pool or blank check company.
From the date of our incorporation until September 29, 2009, our business model
was to complete a merger with, or acquisition of a private company, partnership
or sole proprietorship without any particular industry or geographical location
preference.
On
September 11, 2009, we entered into a share exchange agreement with Hunter Bates
Mining Corporation, a Minnesota corporation (“Hunter Bates”) and certain of its
shareholders, in which its shareholders would exchange all of their capital
securities into similar capital securities of ours. Hunter Bates was formed as a
wholly owned subsidiary of Wits Basin Precious Minerals Inc. (a Minnesota
corporation and public reporting company quoted on the Over-the-Counter Bulletin
Board under the symbol “WITM”) (“Wits Basin”) to acquire the prior producing
gold mine properties located in Central City, Colorado, known as the
“Bates-Hunter Mine.” We consummated the share exchange with all of the Hunter
Bates shareholders on September 29, 2009 (the “Share Exchange”).
Accordingly,
the Share Exchange represented a change in control and Hunter Bates became a
wholly owned subsidiary of ours. For accounting purposes, the Share Exchange has
been accounted for as a reverse acquisition with Hunter Bates as the accounting
acquirer (legal acquiree) and Standard Gold as the accounting acquiree (legal
acquirer). Upon effectiveness of the Share Exchange, we adopted the
business model of Hunter Bates and as such have become a stand-alone minerals
exploration and development company with a focus on gold projects.
Hunter
Bates is an exploration and development stage Minnesota corporation formed in
April 2008. We were formed as a wholly owned subsidiary of Wits Basin
to acquire the Bates-Hunter Mine property pursuant to an Asset Purchase
Agreement dated September 20, 2006. On June 12, 2008, Hunter Bates completed the
acquisition of the Bates-Hunter Mine, which included real property, mining
claims, permits and equipment. The purchase was financed through a limited
recourse promissory note of Hunter Bates payable to Mr. George Otten (on behalf
of all of the Sellers) in the principal amount of Cdn$6,750,000 and Wits Basin
issued 3,620,000 shares of its common stock.
When Wits
Basin acquired the rights to purchase the Bates-Hunter Mine in January 2005, it
also acquired exploration rights of the Bates-Hunter Mine properties. Wits Basin
utilized Gregory Gold as an oversight management company for the exploration
activities conducted at the Bates-Hunter Mine since that time. On September 3,
2009, prior to the Share Exchange, Wits Basin contributed all of its equity
interest in Gregory Gold to Hunter Bates, thereby making Gregory Gold a wholly
owned subsidiary of Hunter Bates. Gregory Gold holds minimal assets related to
operating the water treatment plant and area maintenance used in the exploration
activities of the Bates-Hunter Mine.
The
Bates-Hunter Mine property, which was a prior producing gold mine when
operations ceased during the 1930’s, consists of land, buildings, equipment,
mining claims and permits. The Bates-Hunter Mine is located about 35
miles west of Denver, Colorado and is located within the city limits of Central
City.
As of the
date of this Report, our only assets are the Bates-Hunter Mine property and
minimal assets held in Gregory Gold and we do not claim to have any mineral
reserves at the Bates-Hunter Mine. Furthermore, we possess only a few pieces of
equipment and employ insufficient numbers of personnel necessary to actually
explore and/or mine for minerals; we therefore remain substantially dependent on
third party contractors to perform such operations.
We
previously hired two Canadian drilling companies who completed approximately
12,000 feet of surface drilling, which provided detailed data, which has been
added to our existing 3-D map of the region. With the surface drilling program
completed in August 2008, no further exploration activities have been conducted
at the Bates-Hunter Mine; only property and safekeeping processes are being done
until such time as sufficient funds have been acquired to resume exploration
activities.
In
addition to the Bates-Hunter Mine, we are actively seeking to discover other
gold mine properties, both domestic and international.
RESULTS
OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO THE
THREE AND SIX MONTHS ENDED JUNE 30, 2009.
Revenues
We had no
revenues from operations for the three and six months ended June 30, 2010 and
2009. Furthermore, we do not anticipate having any significant future revenues
until an economic mineral deposit is discovered or unless we make further
acquisitions or complete other mergers or joint ventures with business models
that produce such results.
Operating
Expenses
General
and administrative expenses were $926,705 for the three months ended June 30,
2010 as compared to $14,582 for the same period in 2009. General and
administrative expenses were $1,216,329 for the six months ended June 30, 2010
as compared to $30,520 for the same period in 2009. The significant increase in
2010 primarily represents our engaging of consultants and hiring a president to
focus on our gold projects. Of the $1,216,329 in 2010, we recorded $600,000
which relates to stock based compensation expenses, approximately $463,000 in
consulting expenses, which included services provided by market makers, the
services of Stephen E. Flechner (who we hired to be our President effective
April 1, 2010) and the management fees charged to us by Wits Basin. We
anticipate that our operating expenses will continue to increase for the
remainder of the year as we continue to build the infrastructure of the Company
in order to proceed with exploration development of the Bates-Hunter project and
due diligence followed by potential acquisitions of other gold
projects.
Exploration
expenses relate to the cash expenditures being reported on the work-in-process
for the Bates-Hunter project. Exploration expenses were $84,277 for the three
months ended June 30, 2010 as compared to $21,515 for the same period in 2009.
Exploration expenses were $157,683 for the six months ended June 30, 2010 as
compared to $48,997 for the same period in 2009. Exploration expenses relate to
the cash expenditures being reported for our maintenance work at the
Bates-Hunter project (the last drilling accomplished at the Bates-Hunter was in
August of 2008) and for due diligence on other gold projects. In 2009, the
Company was only maintaining the Bates-Hunter project, while in 2010, we
continued to maintain the property and have performed some due diligence on some
other possible gold projects. Depending upon our success in obtaining dedicated
funds and the timeframe for receipt of such funds, we anticipate the rate of
spending for fiscal 2010 exploration expenses to be greater than 2009
expenses.
Depreciation
and amortization expenses were $21,820 for the three months ended June 30, 2010
as compared to $26,431 for the same period in 2009. Depreciation and
amortization expenses were $45,082 for the six months ended June 30, 2010 as
compared to $52,862 for the same period in 2009, which represents depreciation
of fixed assets for the mine itself and equipment purchased for work being
performed at the Bates-Hunter Mine. We anticipate that our depreciation expense
will remain at or near current levels over the remainder of the fiscal
year.
Other Income and
Expenses
Our other
income and expense consists of interest income, interest expense and non-cash
foreign currency adjustments. Interest income for the three months ended June
30, 2010 was $18 compared to $0 for the same period in 2009. Interest
income for the six months ended June 30, 2010 was $295 compared to $0 for the
same period in 2009. We expect that future interest income will remain low
during the next twelve months if our cash balances remain low.
Interest
expense for the three months ended June 30, 2010 was $156,788 compared to
$148,921 for the same period in 2009. Interest expense for the six
months ended June 30, 2010 was $304,354 compared to $239,348 for the same period
in 2009. The 2010 amount relates to the interest due on all three of our notes
payable: (i) the Otten Note (the limited recourse promissory note for
Cdn$6,750,000), which was interest-free until January 1, 2010, and from such
date accrues interest at a rate of 6% per annum, (ii) in April 2009, we entered
into a 12% Convertible Debenture with Cabo Drilling (America) Inc., in the
principal amount of $511,590, and (iii) in August 2009, Hunter Bates issued a
note payable in favor of Wits Basin (at which time held 100% of the equity
interest in Hunter Bates) in the principal amount of $2,500,000 in consideration
of various start-up and developments costs and expenses incurred by Wits Basin
on its behalf while Hunter Bates and Gregory Gold were consolidated, wholly
owned subsidiaries of Wits Basin. The 2009 amount was the amortization of
imputed interest discount on the Otten Note. We anticipate that interest expense
will continue at this level for the remainder of 2010.
With the
consummation of the Bates-Hunter Mine acquisition in June 2008, we are recording
direct non-cash foreign currency exchange gains and losses due to our dealings
with the limited recourse promissory note, which is payable in Canadian
Dollars. We recorded a gain of $213,343 for the three months ended
June 30, 2010, compared to a loss of $478,217 for the three months ended June
30, 2009 due to the exchange rate between the US Dollar and the Canadian Dollar.
For the six months ended June 30, 2010, we recorded a gain of $1,885 as compared
to $347,321 loss for the same period in 2009. We will continue to see gains and
losses for foreign currency in future periods as long as the Otten Note is
outstanding.
LIQUIDITY AND CAPITAL
RESOURCES
Liquidity
is a measure of an entity’s ability to secure enough cash to meet its
contractual and operating needs as they arise. We have funded our operations and
satisfied our capital requirements through private placements of our equities
and advances from Wits Basin. We do not anticipate generating sufficient net
positive cash flows from our operations to fund the next twelve months. We had a
working capital deficit of $2,040,139 at June 30, 2010. Cash and cash
equivalents were $1,716 at June 30, 2010, representing a decrease of $449,171
from the cash and cash equivalents of $450,887 at December 31,
2009.
We have
engaged a number of consultants to assist us in public relations and marketing
and have hired an individual to become our President effective April 1, 2010,
and as such, our cash reserves will not be sufficient to meet our operational
needs and thus, we need to raise additional capital to pay for our operational
expenses. Our basic operational expenses are estimated at approximately $100,000
per month and we continue to have debt service commitments, which are currently
past due. If we are not able to raise additional working capital, whether from
affiliated entities or third parties, we may have to cutback on operational
expenditures or cease operations altogether.
For the
six months ended June 30, 2010 and 2009, we had net cash used in operating
activities of $494,450 and $74,172, respectively. During 2010, the
significant increase over 2009 is due to our engagement of a number of
consultants, both for marketing and for strategic planning and our due diligence
on a number of other gold properties. During 2009, we mainly performed
maintenance activities only at the Bates-Hunter Mine site.
For the
six months ended June 30, 2010 and 2009, we had net cash provided by financing
activities of $45,279 and $73,614, respectively. During 2010, we issued 50,000
shares of our unregistered common stock through a private placement unit
offering at $0.50 per unit, each unit consisting of one share of our common
stock, par value $0.001 per share, and one five-year warrant to purchase a share
of common stock at an exercise price of $1.00 per share, resulting in net cash
proceeds of $25,000. Additionally, Wits Basin provided us operating funds of
$20,279 in 2010. During 2009, Wits Basin provided our capital requirements
totaling $73,614.
The
following table summarizes our debt as of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
$
|
511,590
|
|
|
$
|
75,331
|
|
April
27, 2012
|
|
Convertible
(1)
|
|
|
$
|
2,000,000
|
(2)
|
|
$
|
59,506
|
|
December
31, 2013
|
|
Conventional
|
|
|
$
|
6,187,883
|
(3)
|
|
$
|
186,215
|
|
December
31, 2015
|
|
Conventional
|
|
|
|
(1)
|
Cabo
Debenture convertible at $0.20 per share into shares of Wits Basin common
stock.
|
|
|
(2)
|
Hunter
Bates issued a note payable in favor of Wits Basin, in the principal
amount of $2,500,000 in consideration of various start-up and development
costs and expenses incurred by Wits Basin on Hunter Bates’ behalf while it
was a consolidated, wholly owned subsidiary of Wits
Basin.
|
|
|
(3)
|
The
limited recourse promissory note of Hunter Bates payable to Mr. Otten
began accruing interest at a rate of 6% per annum on January 1, 2010, with
quarterly interest only payments due beginning April 1,
2010.
|
Summary
Our
existing sources of liquidity will not provide cash to fund operations and make
the required payments on our debt service for the next twelve
months. Our ability to continue as a going concern is dependent
entirely on raising funds through the sale of equity or debt, and/or from
receiving funds from Wits Basin. Wits Basin is currently assisting us in our
endeavors to raise working capital. If we are unable to obtain the
necessary capital, we may have to cease operations.
OFF BALANCE SHEET
ARRANGEMENTS
During
the six months ended June 30, 2010, we did not engage in any off balance sheet
arrangements as defined in Item 303(a)(4) of Regulation S-K.
Item
4T. Controls and Procedures
Under the
supervision of, and the participation of, our management, including our Chief
Executive Officer and Chief Financial Officer, we have conducted an evaluation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of the end of the period covered by this Quarterly Report to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms, and is accumulated and communicated to our management as appropriate
to allow timely decisions regarding required disclosure. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of our disclosure controls and procedures were not
effective as of June 30, 2010, because of the identification of the material
weakness in internal control over financial reporting described below.
Notwithstanding the material weakness that existed as of June 30, 2010, our
Chief Executive Officer and Chief Financial Officer have each concluded that the
consolidated financial statements included in this Quarterly Report present
fairly, in all material respects, the financial position, results of operations
and cash flows of the Company and its subsidiaries in conformity with accounting
principles generally accepted in the United States of America (“GAAP”). We are
currently taking steps to remediate such material weakness as described
below.
Since we
do not have a formal audit committee, our Board of Directors oversees the
responsibilities of the audit committee. The Board is fully aware that there is
lack of segregation of duties due to the small number of employees dealing with
general administrative and financial matters.
With the
reverse merger in September 2009, the internal controls of Hunter Bates (a
wholly owned subsidiary of Wits Basin at that time) were the new internal
controls that are in place for the Company. These controls adopted from Wits
Basin had several deficiencies identified at December 31, 2009, and those
deficiencies still exist with our formal review of our internal controls as of
this quarter.
Material Weakness in
Internal Control over Financial Reporting
A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be prevented or
detected. In connection with the assessment, management identified the following
control deficiencies that represent material weaknesses at June 30,
2010:
|
|
·
|
During the quarter ended June 30,
2010, the Company entered into a material transaction without timely
obtaining the appropriate signed agreements, stock certificates and board
approval prior to releasing cash funds called for by the
transaction. There were no formal policy changes made in 2010
because no similar transactions were encountered during
2009. Management believes the approval process currently in
place is sufficient to alleviate any misappropriation of funds and will
change procedures if and when circumstances indicate they are
needed.
|
|
|
·
|
Management did not design and
maintain effective control relating to the quarter end closing and
financial reporting process due to lack of evidence of review surrounding
various account reconciliations and properly evidenced journal
entries. Due to the Company’s limited resources, the Company
has insufficient personnel resources and technical accounting and
reporting expertise to properly address all of the accounting matters
inherent in the Company’s global financial
transactions. Numerous GAAP audit adjustments were made to the
financial statements for the year ended December 31, 2009. This material
weakness was identified in 2007 and 2008, and has not been corrected at
this time due to resource constraints. Additionally, the Company does not
have a formal audit committee with a financial expert, and thus the
Company lacks the board oversight role within the financial reporting
process. Management continues to search for additional board members that
are independent and can add financial expertise, in an effort to remediate
part of this material
weakness.
|
|
|
·
|
The Company’s small size and
“one-person” office prohibits the segregation of duties and the timely
review of financial data and banking information. The Company
has very limited review procedures in place. This material
weakness was not corrected during 2009. Management plans to
establish a more formal review process by the board members in an effort
to reduce the risk of fraud and financial
misstatements.
|
We are in
the process of establishing certain steps in response to the identification of
these material weaknesses that should result in certain changes in our internal
control over financial reporting, but due to the Company’s limited funds and
inability to add certain staff personnel, the changes may be limited and may
also not be completely effective. There were no additional material weaknesses
noted during the quarter ended June 30, 2010.
Changes in Internal Control
over Financial Reporting
During
the quarter ended June 30, 2010, there was no change in our internal control
over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
None.
Item
1A. Risk Factors
The most
significant risk factors applicable to the Company are described in Part I Item
1A entitled “Risk Factors” of the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 (the “2009 Form 10-K”). There
have been no material changes to the risk factors previously disclosed in the
2009 Form 10-K. The risks described in the 2009 Form 10-K are not the
only risks facing the Company. Additional risks and uncertainties not
currently known to management may materially adversely affect the Company’s
business, financial condition, and/or operating results.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
During
the three months ended June 30, 2010, the Company issued to a consultant 300,000
shares of the Company’s common stock. For this issuance, the Company relied on
the exemption from federal registration under Section 4(2) of the Securities Act
of 1933, and/or Rule 506 promulgated thereunder. The Company relied on this
exemption and/or the safe harbor rule thereunder based on the fact that (i)
there was one investor and such investor had knowledge and experience in
financial and business matters such that it was capable of evaluating the
risks of the investment, and (ii) the Company has obtained a subscription
agreement from the investor indicating that he is an accredited
investor.
Item
3. Defaults Upon Senior Securities
None.
Item
6. Exhibits
|
Exhibit
|
|
Description
|
|
10.1
|
|
2010
Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on April 5,
2010).
|
|
10.2
|
|
Employment
Agreement with Stephen E. Flechner dated April 1, 2010 (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on April 5, 2010).
|
|
10.3
|
|
Stock
Option Agreement with Stephen E. Flechner dated April 1, 2010
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K filed on April 5, 2010).
|
|
10.4
|
|
Stock
Option Agreement with Deborah King dated April 1, 2010 (incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
filed on April 5, 2010).
|
|
31.1**
|
|
Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2**
|
|
Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1**
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32.2**
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
** Filed
herewith electronically
SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
Standard
Gold, Inc.
|
|
|
|
|
Date:
August 13, 2010
|
|
|
|
|
|
|
By:
|
/s/ Stephen D.
King
|
|
|
|
|
Stephen
D. King
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
By:
|
/s/ Mark D.
Dacko
|
|
|
|
|
Mark
D. Dacko
|
|
|
|
Chief
Financial Officer
|
Standard Metals Processing (QB) (USOTC:SMPR)
Historical Stock Chart
From Jun 2024 to Jul 2024
Standard Metals Processing (QB) (USOTC:SMPR)
Historical Stock Chart
From Jul 2023 to Jul 2024
