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, 2012
OR
¨
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
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For the transition period from _______ to _______
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Commission file number 000-14319
STANDARD GOLD, INC.
(Exact Name of Small Business Issuer as
Specified in its Charter)
COLORADO
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84-0991764
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification Number)
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Incorporation or Organization)
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900
IDS CENTER, 80 SOUTH EIGHTH STREET, MINNEAPOLIS, MINNESOTA 55402-8773
(Address of
Principal Executive Offices)
612.349.5277
(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 website, 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
x
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
¨
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Non-accelerated filer
¨
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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 10, 2012, there were 45,418,756
shares of the Registrant’s common stock, par value $.001, outstanding.
STANDARD GOLD, INC.
FORM 10-Q
TABLE OF CONTENTS
JUNE 30, 2012
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Page
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PART I
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FINANCIAL INFORMATION
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Item 1.
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Condensed Financial Statements
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4
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Condensed Balance Sheets - As of June 30, 2012 and December 31, 2011
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4
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Condensed Statements of Operations - For the three months and six months ended June 30, 2012 and 2011
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5
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Condensed Statements of Cash Flows - For the six months ended June 30, 2012 and 2011
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6
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Notes to the Condensed Financial Statements
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7
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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19
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Item 4T.
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Controls and Procedures
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22
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PART II
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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23
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Item 1A.
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Risk Factors
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23
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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23
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Item 3.
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Defaults Upon Senior Securities
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23
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Item 4.
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Mine Safety Disclosures
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23
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Item 5.
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Other Information
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23
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Item 6.
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Exhibits
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23
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Signatures
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24
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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, 2011.
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 Financial Statements
Condensed Balance Sheets
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June 30,
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December 31,
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2012
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2011
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(unaudited)
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(audited)
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Assets
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Current assets:
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Cash
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$
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38,401
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$
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620
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Prepaid expenses
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|
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30,031
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37,835
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Total current assets
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68,432
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38,455
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Shea Mining and Milling Assets
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35,159,427
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35,159,427
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Property, plant and equipment, net
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40,925
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40,925
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Debt issuance costs, net
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—
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|
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275
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Total Assets
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$
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35,268,784
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$
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35,239,082
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Liabilities and Shareholders’ Equity
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Current liabilities:
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Short-term notes payable
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$
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2,364,523
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$
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2,072,728
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Convertible notes payable, current portion
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2,104,504
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2,300,973
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Due to Wits Basin Precious Minerals Inc
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16,616
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16,616
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Accounts payable
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565,183
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580,343
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Due to Shea Mining and Milling
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365,000
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|
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400,000
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Accrued interest
|
|
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314,103
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|
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119,644
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Accrued expenses
|
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1,447,994
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|
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1,137,379
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Total current liabilities
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7,177,923
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6,627,683
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Preferred stock, $.001 par value, 50,000,000 shares authorized:
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10,000,000 and 10,000,000 shares issued and outstanding
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at June 30, 2012 and December 31, 2011, respectively
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10,000,000
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10,000,000
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Shareholders’ equity:
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Common stock, $.001 par value, 100,000,000 shares authorized:
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44,918,756 and 43,848,756 shares issued and outstanding
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at June 30, 2012 and December 31, 2011, respectively
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44,918
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43,848
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Additional paid-in capital
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44,696,495
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43,882,949
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Accumulated deficit during exploration stage
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(26,650,552
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)
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(25,315,398
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)
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Total shareholders’ equity
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18,090,861
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|
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18,611,399
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Total Liabilities and Shareholders’ Equity
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$
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35,268,784
|
|
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$
|
35,239,082
|
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The accompanying notes
are an integral part of these condensed financial statements.
STANDARD GOLD, INC.
(AN EXPLORATION STAGE COMPANY)
Condensed Statements of Operations
(unaudited)
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September 28, 2004
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Three Months Ended
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Six Months Ended
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(inception)
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June 30,
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June 30,
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to June 30,
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2012
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2011
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2012
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2011
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2012
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Revenues
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$
|
—
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$
|
—
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$
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—
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$
|
—
|
|
|
$
|
—
|
|
|
|
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|
|
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Operating expenses:
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General and administrative
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|
312,705
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|
|
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844,972
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|
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844,773
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|
|
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7,832,184
|
|
|
|
14,090,148
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Exploration expenses
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—
|
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|
|
14,180
|
|
|
|
—
|
|
|
|
50,501
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|
|
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5,876,922
|
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Depreciation and amortization
|
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|
—
|
|
|
|
7,241
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|
|
|
—
|
|
|
|
28,961
|
|
|
|
331,361
|
|
Loss on disposal of assets
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|
|
—
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|
|
|
—
|
|
|
|
—
|
|
|
|
—
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|
|
|
12,362
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|
Total operating expenses
|
|
|
312,705
|
|
|
|
866,393
|
|
|
|
844,773
|
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7,911,646
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20,310,793
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Loss from operations
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(312,705
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)
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|
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(866,393
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)
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(844,773
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)
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|
|
(7,911,646
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)
|
|
|
(20,310,793
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other income (expense):
|
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|
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|
|
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|
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|
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Other income
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—
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|
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—
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|
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—
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—
|
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|
|
1,691
|
|
Interest expense
|
|
|
(149,977
|
)
|
|
|
(993,123
|
)
|
|
|
(490,381
|
)
|
|
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(1,477,567
|
)
|
|
|
(5,987,755
|
)
|
Foreign currency loss
|
|
|
—
|
|
|
|
(150,410
|
)
|
|
|
—
|
|
|
|
(329,875
|
)
|
|
|
(353,695
|
)
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Total other income (expense)
|
|
|
(149,977
|
)
|
|
|
(1,143,533
|
)
|
|
|
(490,381
|
)
|
|
|
(1,807,442
|
)
|
|
|
(6,339,759
|
)
|
Loss from operations before income taxes
|
|
|
(462,682
|
)
|
|
|
(2,009,926
|
)
|
|
|
(1,335,154
|
)
|
|
|
(9,719,088
|
)
|
|
|
(26,650,552
|
)
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(462,682
|
)
|
|
$
|
(2,009,926
|
)
|
|
$
|
(1,335,154
|
)
|
|
$
|
(9,719,088
|
)
|
|
$
|
(26,650,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
43,929,525
|
|
|
|
40,590,008
|
|
|
|
43,910,569
|
|
|
|
34,208,651
|
|
|
|
|
|
The accompanying notes are an integral part
of these condensed financial statements.
STANDARD GOLD, INC.
(AN EXPLORATION STAGE COMPANY)
Condensed Statements of Cash Flows
(unaudited)
|
|
Six Months Ended June 30,
|
|
|
September 28,
2004
(inception) to
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,335,154
|
)
|
|
$
|
(9,719,088
|
)
|
|
$
|
(26,650,552
|
)
|
Adjustments to reconcile net loss to cash
|
|
|
|
|
|
|
|
|
|
|
|
|
flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
28,961
|
|
|
|
331,361
|
|
Amortization of imputed interest and original issue
discounts on debt
|
|
|
273,833
|
|
|
|
1,067,510
|
|
|
|
3,201,995
|
|
Amortization of prepaid consulting fees related to issuance
of common stock and warrants
|
|
|
—
|
|
|
|
112,000
|
|
|
|
491,000
|
|
Amortization of debt issuance costs
|
|
|
275
|
|
|
|
10,688
|
|
|
|
29,239
|
|
Compensation expense related to issuance of common stock
and stock option grants
|
|
|
265,000
|
|
|
|
6,774,991
|
|
|
|
8,202,000
|
|
Loss on foreign currency
|
|
|
—
|
|
|
|
329,875
|
|
|
|
353,695
|
|
Issuance of common stock for expenses
|
|
|
—
|
|
|
|
94,400
|
|
|
|
2,118,400
|
|
Loss on disposal of miscellaneous assets
|
|
|
—
|
|
|
|
—
|
|
|
|
12,362
|
|
Issuance of equity securities by Wits Basin for exploration
expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
334,950
|
|
Debt incurred for exploration expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
75,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
7,804
|
|
|
|
(74,285
|
)
|
|
|
(30,031
|
)
|
Accounts payable
|
|
|
(15,160
|
)
|
|
|
203,954
|
|
|
|
485,183
|
|
Accrued expenses and other
|
|
|
524,388
|
|
|
|
501,043
|
|
|
|
3,396,571
|
|
Net cash used in operating activities
|
|
|
(279,014
|
)
|
|
|
(669,951
|
)
|
|
|
(7,648,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Shea Mining and Milling assets
|
|
|
—
|
|
|
|
(970,427
|
)
|
|
|
(1,020,427
|
)
|
Purchases of equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
(185,215
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(970,427
|
)
|
|
|
(1,205,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(491,106
|
)
|
Payments from (advances to) Wits Basin
|
|
|
—
|
|
|
|
(27,624
|
)
|
|
|
5,314,251
|
|
Cash proceeds from issuance of common stock, warrants and
exercise of stock options, net
|
|
|
—
|
|
|
|
78,105
|
|
|
|
1,173,694
|
|
Cash proceeds from short-term debt
|
|
|
316,795
|
|
|
|
1,932,500
|
|
|
|
2,935,295
|
|
Debt issuance costs
|
|
|
—
|
|
|
|
(13,365
|
)
|
|
|
(39,264
|
)
|
Net cash provided by financing activities
|
|
|
316,795
|
|
|
|
1,969,616
|
|
|
|
8,892,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
37,781
|
|
|
|
329,238
|
|
|
|
38,401
|
|
Cash and cash equivalents, beginning of period
|
|
|
620
|
|
|
|
154
|
|
|
|
—
|
|
Cash and cash equivalents, end of period
|
|
$
|
38,401
|
|
|
$
|
329,392
|
|
|
$
|
38,401
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
3,375
|
|
|
$
|
267,466
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part
of these condensed financial statements.
STANDARD GOLD, INC.
(AN EXPLORATION STAGE COMPANY)
Notes
to Condensed Financial Statements
June
30, 2012
(unaudited)
NOTE 1 - OVERVIEW
Standard Gold, Inc. (“we,”
“us,” “our,” “Standard Gold” or the “Company”) is an exploration stage company
based in Minneapolis, Minnesota.
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.
On September 29, 2009, we completed a share exchange agreement with Hunter Bates Mining Corporation, a Minnesota corporation formed
in April 2008 (“Hunter Bates”) and certain of its shareholders, in which Hunter Bates’ shareholders exchanged
all of their capital securities into similar capital securities of ours (the “Hunter Bates Share Exchange”) and we
adopted the business model of Hunter Bates of minerals exploration and mining. Accordingly, the Hunter Bates Share Exchange represented
a change in control and Hunter Bates became a wholly owned subsidiary of Standard Gold.
Prior to September 29, 2009, Wits Basin
Precious Minerals Inc., a Minnesota corporation and public reporting company quoted on the Pink Sheets under the symbol “WITM”
(“Wits Basin”) was the majority shareholder of Hunter Bates. Hunter Bates acquired the prior producing gold mine properties
(consisting of land, buildings, equipment, mining claims and permits) located in Central City, Colorado, known as the “Bates-Hunter
Mine.” Since August 2008, no exploration activities had been conducted at the Bates-Hunter Mine due to funding. As part of
the Shea Exchange Agreement (described below), we had the right, at our option, at any time prior to June 13, 2011, to transfer
our entire interest in our subsidiary, Hunter Bates, which included the Hunter-Bates Mine and all related obligations and liabilities
back to Wits Basin. On April 29, 2011, the Company’s management exercised its right to transfer our entire ownership interest
in Hunter Bates.
On March 15, 2011, we closed a series of
transactions, whereby we acquired certain assets of Shea Mining & Milling, LLC (“Shea Mining”), which assets include
land, buildings, a dormant milling facility, abandoned milling equipment, water permits, mine tailings, mine dumps and the assignment
of a note payable, a lease and a contract agreement with permits (the “Shea Exchange Agreement”). We completed the
Shea Exchange Agreement to acquire the Shea Mining assets and develop a toll milling services business of precious minerals. Toll
milling is a process whereby mined material is crushed and ground into fine particles to ease the extraction of any precious minerals
contained therein, such as gold, silver, lead, zinc and copper, and rare earth metals.
The Company’s Internet website is
at www.standardgoldmilling.com.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The 2011 consolidated financial statements
include the accounts of Standard Gold, Inc., and our wholly owned subsidiary Hunter Bates Mining Corporation (and its wholly owned
subsidiary Gregory Gold Producers, Inc). All significant intercompany transactions and balances have been eliminated in the 2011
consolidation.
Effective April 29, 2011, Standard Gold
transferred its entire ownership in Hunter Bates to Wits Basin and subsequently became a single reporting entity. The 2012 financial
statements include only the accounts of Standard Gold.
Basis of Presentation
The accompanying unaudited condensed 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 financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in our Form 10-K filed May 17, 2012. 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, 2012 are not necessarily indicative of the results that may be expected for the year as a whole.
Shea Mining and Milling Assets
We have recorded the fair value of the
Shea Mining and Milling assets as an aggregate amount on our condensed balance sheet. The assets include the mine tailings and
dumps, the land, water rights and the milling facility (the buildings and equipment). None of the assets have been put into production,
nor have we performed any repair or updates to any of the equipment or buildings. As such, we will continue to classify them under
a single listing.
Mineral Properties
Mineral property acquisition costs are
recorded at cost and are deferred until the viability of the property is determined. No properties have reached the development
stage at this time. Exploration, mineral property evaluation, option payments, related acquisition costs for mineral properties
acquired under an option agreement, general overhead, administrative and holding costs to maintain a property on a care and maintenance
basis are expensed in the period they are incurred. When reserves are determined for a property and a bankable feasibility study
is completed, subsequent exploration and development costs on the property would be capitalized. If a project were to be put into
production, capitalized costs would be depleted on the unit of production basis.
Management reviews the net carrying value
of each mineral property as changes may materialize with a property or at a minimum, on an annual basis. Where information and
conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated future prices,
proven and probable reserves and value beyond proven and probable reserves, and operating, capital and reclamation costs on an
undiscounted basis. If it is determined that the future cash flows are less than the carrying value, a write-down to the estimated
fair value is made with a charge to loss for the period. Where estimates of future net cash flows are not available and where other
conditions suggest impairment, management assesses if the carrying value can be recovered.
Management's estimates of gold prices,
recoverable reserves, probable outcomes, operating capital and reclamation costs are subject to risks and uncertainties that may
affect the recoverability of mineral property costs.
NOTE 3 – EARNINGS (LOSS) PER
COMMON SHARE
Basic net earnings (loss) per common share
is computed by dividing net earnings (loss) applicable to common shareholders by the weighted average number of common shares outstanding
during the periods presented. Diluted net earnings (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,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Basic earnings (loss) per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) to common shareholders
|
|
$
|
(462,682
|
)
|
|
$
|
(2,009,926
|
)
|
|
$
|
(1,335,154
|
)
|
|
$
|
(9,719,088
|
)
|
Weighted average of common shares
outstanding
|
|
|
43,929,525
|
|
|
|
40,590,008
|
|
|
|
43,910,569
|
|
|
|
34,208,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common shareholders
|
|
$
|
(462,682
|
)
|
|
$
|
(2,009,926
|
)
|
|
$
|
(1,335,154
|
)
|
|
$
|
(9,719,088
|
)
|
Basic weighted average common shares
outstanding
|
|
|
43,929,525
|
|
|
|
40,590,008
|
|
|
|
43,910,569
|
|
|
|
34,208,651
|
|
Options, convertible debentures and
warrants
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Diluted weighted average common shares
outstanding
|
|
|
43,929,525
|
|
|
|
40,590,008
|
|
|
|
43,910,569
|
|
|
|
34,208,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.28
|
)
|
|
(1)
|
As of June 30, 2012, we had (i) 9,319,335 shares of common stock issuable
upon the exercise of outstanding stock options, (ii) 12,126,878 shares of common stock issuable upon the exercise of outstanding
warrants, (iii) reserved an aggregate of 4,223,006 shares of common stock issuable under outstanding convertible debt agreements
and (iv) 1,919,000 shares reserved under private options. These 27,588,219 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, 2011, we had (i) 13,764,500 shares of common stock issuable
upon the exercise of outstanding stock options, (ii) 11,226,878 shares of common stock issuable upon the exercise of outstanding
warrants, (iii) reserved an aggregate of 4,689,885 shares of common stock issuable under outstanding convertible debt agreements
and (iv) 1,919,000 shares reserved under private options. These 31,600,263 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.
|
NOTE 4 – COMPANY’S CONTINUED
EXISTENCE
The accompanying condensed 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, 2012, we incurred
losses from operations of $1,335,154. At June 30, 2012, we had an accumulated deficit of $26,650,552 and a working capital deficit
of $7,109,491. 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 – ACQUISITION OF SHEA
MINING AND MILLING ASSETS
On March 15, 2011, we entered into an exchange
agreement by and between us, Shea Mining, Afignis, LLC, Leslie Lucas Partners, LLC, Wits Basin and Alfred A. Rapetti (the “Shea
Exchange Agreement”) whereby we acquired certain assets from Shea Mining, which assets include those located in Tonopah (financed
through a note payable assigned to us), mine dumps, a property lease and a contract agreement in exchange for 35,000,000 shares
of our unregistered shares. The Shea Exchange Agreement did not include any operable toll milling equipment, employees or operational
processes and therefore has been accounted for as a purchase of a group of assets. We completed the Shea Exchange Agreement to
acquire the Shea assets and develop a toll milling services business of precious minerals.
Pursuant to the assignment of a note payable,
we executed an Assignment and Assumption of Loan Documents and Loan Modification Agreement, by and between us, Shea Mining and
NJB Mining, Inc. (the “Loan Modification Agreement”), dated March 15, 2011, for those assets located in Tonopah, Nevada
(“Tonopah”), consisting of land, buildings, mining tailings, a dormant milling facility, abandoned milling equipment
and water permits. The land encompasses 1,174 deeded acres, one of the largest private land holdings in Esmeralda County, Nevada.
Approximately 334 acres of this land has sitting on it an estimated 2.2 million tons of tailings known as the Millers Tailings
from the historic gold rush of Goldfield and Tonopah, Nevada.
The Tonopah property was subject to an
existing $2.5 million first deed of trust which was in default at the time of the Shea Exchange Agreement and included accrued
interest of $375,645, which was also assumed in the transaction. As part of the assignment, NJB Mining, Inc. (“NJB”)
modified the related note to allow us until May 14, 2011 to refinance this mortgage, which was subsequently extended numerous times.
As of August 31, 2011, we were still in default under the terms of the Loan Modification Agreement, and therefore entered into
a forbearance agreement with NJB, (the “NJB Forbearance Agreement”), in which NJB agreed to forbear from initiating
legal proceedings, including forbearance of the deed of trust and enforcement of its collection remedies. The NJB Forbearance Agreement
further provided for additional extensions up through December 9, 2011. On December 9, 2011, Pure Path Capital Management Company,
LLC. (“Pure Path”) purchased the Loan Modification Agreement and the NJB Forbearance Agreement directly from NJB. On
December 21, 2011, we entered into an amended and restated forbearance agreement with Pure Path (the “A&R Forbearance”),
whereby Pure Path extended the provisions of the NJB Forbearance Agreement. As of June 30, 2012, the principal amount outstanding
on the A&R Forbearance is $2,047,728 (plus accrued interest). Pure Path has provided an additional extension to stay any action
of the A&R Forbearance until August 30, 2012; such extension was provided without additional consideration. We are still in
negotiations with Pure Path in order to complete definitive documents to release the A&R Forbearance and structure a new note.
If such arrangements are not agreed to, we could lose the Tonopah property and/or be required to issue an additional 5,000,000
shares of our common stock.
In connection with the Shea Exchange Agreement,
we also were assigned the ownership of approximately a six square mile section of mine dump material in Manhattan, Nevada (“Manhattan”).
The other assets we acquired consisted
of a property lease, which allowed us the use of an assay lab property and the associated water permits, (with a right to purchase
for $6 million) and a contract agreement, which allowed us the use of processing permits, located in Amargosa Valley, Nevada (“Amargosa”).
We paid a monthly base rent of $17,500 on this lease and $5,000 monthly on the contract agreement. In January 2012, the landlord
of the Amargosa lease caused to have served a Five Day Notice To Pay Rent Or Quit due to default in the monthly $17,500 lease payments.
The Company began immediate communications with the landlord, which resulted in a delay of further actions by the landlord to pursue
any remedies. Then on February 9, 2012, the landlord caused to have served an Order For Summary Eviction (“Eviction”)
due to continued default in lease payments. Effective with the Eviction, a total of $112,500 lease payments remain unpaid as well
as $10,500 of late fees required pursuant to the terms of the lease. On February 10, 2012, the Beatty County Sheriff completed
the Eviction at Amargosa and we as such, no longer have access to the assay lab or permits at Amargosa.
As previously mentioned, pursuant to the
Shea Exchange Agreement, we issued a total of 35 million shares of our common stock to the equity holders of Shea Mining in exchange
for certain of their assets, resulting in those holders owning an ownership interest of approximately 87% of our then currently
outstanding common stock (approximately 56% ownership interest on a fully diluted basis). Alfred A. Rapetti, our Chief Executive
Officer at the time, was granted an irrevocable voting proxy for half of the shares issued to the Shea Mining equity holders, which
continued until the affected shares are publicly sold after a period of at least six months, and thereafter in accordance with
all applicable securities laws. In August 2011, these rights were transferred to Blair Mielke, a director of the Company. We also
agreed to indemnify Shea Mining from any liabilities arising after March 15, 2011 out of the Loan Modification Agreement or the
loan agreements.
The purchase consideration of the assets
acquired was calculated as follows:
Issuance of 35,000,000 shares of common stock with an estimated fair value of
$0.89 per share (closing sales price on March 15, 2011)
|
|
$
|
31,150,000
|
|
Cash consideration ($365,000 still payable at June 30, 2012)
|
|
|
700,000
|
|
Assumption of NJB Mining mortgage
|
|
|
2,500,000
|
|
Assumption of accrued interest and other liabilities
|
|
|
463,184
|
|
Legal costs (includes issuance of 100,000 shares of common stock valued
at $89,000)
|
|
|
205,258
|
|
Other direct expenses incurred in connection with the Shea Exchange
Agreement
|
|
|
140,985
|
|
|
|
$
|
35,159,427
|
|
In conformity with accounting principles
generally accepted in the United States of America, cost of acquiring a group of assets is allocated to the individual assets within
the group based on the relative fair values of the individual assets.
The table below sets forth the final purchase
price allocation. The fair value of the mineral properties and property and equipment was determined based on level 3 inputs using
cost and market value approaches.
Tonopah mine tailings
|
|
$
|
24,888,252
|
|
Tonopah dormant milling facility
|
|
|
8,062,875
|
|
Tonopah land
|
|
|
1,760,000
|
|
Tonopah water rights
|
|
|
348,300
|
|
Manhattan mine dumps
|
|
|
100,000
|
|
Total
|
|
$
|
35,159,427
|
|
Simultaneous with these transactions, pursuant
to the Shea Exchange Agreement, Wits Basin exchanged 19,713,544 shares of our common stock it held for 10 million shares of our
newly created non-voting 5% preferred stock, referred to as the “Series A Preferred Stock.” The Series A Preferred
Stock has a liquidation preference of $10 million, payable only upon certain liquidity events or upon achievement of a market value
of our equity equaling $200 million or more. Additional details regarding the Series A Preferred Stock can be found in our Second
Amended and Restated Articles of Incorporation, which were filed with the Colorado Secretary of State on March 15, 2011. Additionally,
on April 29, 2011, we transferred our entire ownership interest in our subsidiary, Hunter Bates, which included the Bates-Hunter
Mine and related debt, to Wits Basin.
Furthermore, Wits Basin had entered into
certain commitments which involved shares of our common stock and as a result of their exchange of substantially all of the Standard
Gold common stock they held for Series A Preferred Stock, they could no longer honor those commitments. In consideration of Wits
Basin agreeing to the exchange, the Company agreed to enter into two stock option agreements as follows: (1) the Company granted
to one of Wits Basin’s major lenders a replacement stock option, on substantially the same terms as the stock option issued
by Wits Basin, to purchase up to 1,299,000 shares of the Company’s common stock at an exercise price of $1.00 per share expiring
on December 14, 2014 (of which the holder exercised on 10,000 shares of the option with a payment of $10,000 during 2011) and (2)
the Company granted to Wits Basin a replacement stock option, expiring on December 19, 2014, to purchase up to 630,000 shares of
the Company’s common stock, at an exercise price of $0.50 per share.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
After we consummated the Shea Exchange
Agreement, we purchased some miscellaneous assets for use at the Amargosa property. On February 10, 2012, we were evicted from
the Amargosa property and we have not yet renegotiated different terms with the landlord. Since we no longer have access to any
of our equipment, we may have to forfeit recovery of such equipment, but until such time that we can determine that we can not
come to new terms with the Amargosa landlord, management has decided that no impairment charges will be recognized on these assets.
Depreciation expense recorded on allowable assets was calculated on a straight-line method over the estimated useful life, ranging
from five to seven years. Since all of our depreciable assets are idle and not in use, management did not record any depreciation
for the six months ended June 30, 2012.
Components of our property, plant and equipment
are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Equipment
|
|
$
|
41,587
|
|
|
$
|
41,587
|
|
Less accumulated depreciation
|
|
|
(662
|
)
|
|
|
(662
|
)
|
|
|
$
|
40,925
|
|
|
$
|
40,925
|
|
NOTE 7 – DEBT ISSUANCE COSTS
We recorded debt issuance costs with respect
to legal services incurred relating to the various promissory notes issued. Debt issuance costs were being amortized on a straight-line
basis over the term of the corresponding debt (which approximated the effective interest method).
The following table summarizes the amortization
of debt issuance costs:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Debt issuance costs, net, beginning of period
|
|
$
|
275
|
|
|
$
|
13,367
|
|
Add: additional debt issuance costs
|
|
|
—
|
|
|
|
13,365
|
|
Less: debt issuance costs transferred (1)
|
|
|
—
|
|
|
|
(10,025
|
)
|
Less: amortization of debt issuance costs
|
|
|
(275
|
)
|
|
|
(16,432
|
)
|
Debt issuance costs, net, end of period
|
|
$
|
—
|
|
|
$
|
275
|
|
(1)
The transfer of our Hunter Bates subsidiary to Wits Basin occurred on April 29, 2011, requiring these costs directly attributable
to the Bates-Hunter Mine to be transferred.
NOTE 8 – SHORT-TERM NOTES PAYABLE
The following table summarizes the Company’s
short-term notes payable:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Promissory note issued on September 7, 2010, in the principal amount of $25,000 to Stephen Flechner, our President at the time, utilized for a potential mining project; stated interest rate of 5%; accrued interest of $2,314 at June 30, 2012; with a maturity date of November 30, 2010 and currently past due, original terms apply in the default period. (1)
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Secured note payable originated in connection with the Shea Exchange Agreement, stated interest rate of 7.5%; accrued interest of $143,369 at June 30, 2012 based on the default interest rate of 12.5%. (2)
|
|
|
2,047,728
|
|
|
|
2,047,728
|
|
|
|
|
|
|
|
|
|
|
Pure Path has advanced, under verbal agreements, an aggregate $291,795 during the six months ended June 30, 2012. These advances are unsecured, stated interest rate of 12.5%, all with a maturity date of August 30, 2012. Accrued interest aggregated $9,398 at June 30, 2012.
|
|
|
291,795
|
|
|
|
—
|
|
Totals
|
|
$
|
2,364,523
|
|
|
$
|
2,072,728
|
|
(1)
Secured by a personal guarantee of Stephen D. King, our CEO at the time.
(2)
On December 9, 2011, Pure Path Capital Management Company, LLC (“Pure Path”) purchased the Loan Modification
Agreement and the NJB Forbearance Agreement directly from NJB. On December 21, 2011, we entered into an amended and restated forbearance
agreement with Pure Path (the “A&R Forbearance”), whereby Pure Path extended the provisions of the NJB Forbearance
Agreement. Pure Path has provided an additional extension to stay any action of the A&R Forbearance until August 30, 2012;
such extension was provided without additional consideration.
The Company has placed in escrow the
following: (i) a Deed in Lieu of Foreclosure, (ii) Water Rights Deed and (iii) a Bill of Sale. Should the Company not meet the
requirements of the August 30, 2012 deadline, Pure Path has the right to take immediate title to the assets located in Tonopah
and interest in all leases, contracts and permits related to ownership, occupancy and operation of said assets. We are still in
negotiations with Pure Path in order to complete definitive documents to release the A&R Forbearance and structure a new note.
If such arrangements are not agreed to, we could lose the Tonopah property and/or be required to issue an additional 5,000,000
shares of our common stock.
Summary
The following table summarizes the short-term
notes payable activity in 2012:
Balance at December 31, 2011
|
|
$
|
2,072,728
|
|
Add: advances from Pure Path
|
|
|
291,795
|
|
Balance at June 30, 2012
|
|
$
|
2,364,523
|
|
The weighted average interest rate on short-term
notes payable at June 30, 2012 was 12.4%.
NOTE 9 – CONVERTIBLE NOTES PAYABLE
Beginning in January 2011 through November
2011, we entered into six-month convertible promissory notes with accredited investors (the “CP Notes”). The terms
of the CP Notes are: (i) accrue interest at 6% per annum (ii) include the right to convert into our common stock at any time, at
a price of $0.50 per share, and (iii) the issuance of a two-year stock purchase warrant, with an exercise price of $0.50 per share,
at a rate of two warrants per $1 of CP Notes.
In June 2012, the Board authorized a reduction
in the exercise of the warrant exercise price, from $0.50 to $0.25 per share for any additional CP Notes entered into, but still
at a rate of two warrants per $1 of CP Notes. The Company entered into one such CP Note during June 2012 of $25,000.
The warrants created an aggregate debt
discount of $1,489,253. In addition, due to proceeds allocated between the debt and warrants, beneficial conversion charges were
created totaling an additional debt discount of $1,074,066. Both discounts are being amortized over the six-month term of each
of the respective CP Notes.
For the six months ended June 30, 2012,
we recorded $131,651 of amortization of the value assigned to the additional beneficial conversion feature of the CP Notes and
$142,182 amortization of warrant debt discount. As of June 30, 2012, there remains $6,999 of unamortized debt discount to be recognized.
During June 2012, one of the note holders
transferred an aggregate $500,000 of CP Notes and accrued interest to Pure Path in a private transaction. On June 28, 2012, Pure
Path converted the $478,186 of principal and $21,814 of accrued interest into 1,000,000 shares of unregistered common stock.
Through June 30, 2012, convertible note
holders converted $569,936 of principal plus $22,931 accrued interest into 1,185,735 shares of our common stock.
The following table summarizes the Company’s
convertible notes:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Convertible promissory notes net of unamortized discount of $6,999 at June 30, 2012; interest rate of 6%; accrued interest of $159,022 at June 30, 2012 and all but one of these CP Notes are past due and original terms apply in the default period.
|
|
$
|
2,104,504
|
|
|
$
|
2,300,973
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
2,104,504
|
|
|
|
2,300,973
|
|
Less: current portion
|
|
|
(2,104,504
|
)
|
|
|
(2,300,973
|
)
|
Long-term portion
|
|
$
|
—
|
|
|
$
|
—
|
|
As of June 30, 2012, the outstanding principal
balance of convertible notes is $2,111,503.
NOTE 10 - SHAREHOLDERS’ EQUITY
Preferred
Stock
Simultaneous with the Shea Exchange Agreement,
Wits Basin exchanged 19,713,544 shares of our common stock it held for 10 million shares ($.001 par value each) of our newly created
non-voting 5% preferred stock, referred to as the "Series A Preferred Stock" with an original issue price of $1.00 per
share. The Series A Preferred Stock has a liquidation preference of $10 million, payable only upon certain liquidity events or
upon achievement of a market value of our equity equaling $200 million or more. As of June 30, 2012, there were undeclared dividends
of approximately $646,000 on the outstanding Series A Preferred Stock. In conformity with accounting principles generally accepted
in the United States of America, these undeclared dividends have not been accrued in the Company’s financial statements and
had no effect on the earnings per share calculation.
Common
Stock Issuances
During the three months ended June 30,
2012, two holders of our CP Notes converted $488,186 of principal and $21,814 of accrued interest into 1,020,000 shares of our
unregistered common stock.
Stock
Option Grants
We have one stock option plan: the 2010
Stock Incentive Plan, as amended (the “Plan”). Stock options, stock appreciation rights, restricted stock and other
stock and cash awards may be granted under the Plan. In general, options vest over a period ranging from immediate vesting to five
years and expire 10 years from the date of grant. Effective July 25, 2011, the Plan was amended to increase the total shares of
stock which may be issued under the Plan from 13,500,000 to 14,500,000.
During the three months ended June 30,
2012, no stock options were granted and there remains an aggregate of 5,400,000 shares of our common stock available to be granted
under the Plan.
The Company uses the Black-Scholes pricing
model as a method for determining the estimated fair value for stock awards. Compensation expense for 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.
In determining the compensation cost of
the options granted during fiscal 2012 and 2011, the fair value of each option grant had been estimated on the date of grant using
the Black-Scholes pricing model and the weighted average assumptions used in these calculations are summarized below:
|
|
2012
|
|
2011
|
Risk-free interest rate
|
|
1.89%
|
|
2.00% – 2.25%
|
Expected volatility factor
|
|
153%
|
|
146% - 158%
|
Expected dividend
|
|
—
|
|
—
|
Expected option term
|
|
5 years
|
|
10 years
|
The Company reviews its current assumptions
on a periodic basis and adjusts them as necessary to ensure an accurate valuation. The risk-free interest rate is based on the
Federal Reserve Board’s constant maturities of the U.S. Treasury bond obligations with terms comparable to the expected life
of the options at their issuance date. The Company uses historical data to estimate expected forfeitures, expected dividend yield,
expected volatility of the Company’s stock and the expected life of the options.
We recorded $265,000 and $6,774,991 related
to employee stock compensation expense for the six months ended June 30, 2012 and 2011, respectively. All stock compensation expense
is included in general and administrative expense. The compensation expense had a $0.01 and $0.20 per share impact on the loss
per share for the six months ended June 30, 2012 and 2011, respectively.
The following table summarizes information
about the Company’s stock options:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Options outstanding – December 31, 2011
|
|
|
15,638,335
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
100,000
|
|
|
|
0.47
|
|
Canceled or expired
|
|
|
(4,500,000
|
)
|
|
|
0.51
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Options outstanding – June 30, 2012
|
|
|
11,238,335
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
Options exercisable – June 30, 2012
|
|
|
11,238,335
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
|
|
|
|
|
|
|
during the six months ended June 30, 2012
|
|
|
|
|
|
$
|
0.43
|
|
Weighted average fair value of options granted
|
|
|
|
|
|
|
|
|
during the six months ended June 30, 2011
|
|
|
|
|
|
$
|
0.59
|
|
The following tables summarize information
about stock options outstanding and exercisable at June 30, 2012:
|
|
Options Outstanding and Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value(1)
|
|
$0.47 to $0.60
|
|
|
7,649,335
|
|
|
8.0 years
|
|
$
|
0.52
|
|
|
$
|
—
|
|
$0.72 to $0.90
|
|
|
2,000,000
|
|
|
7.9 years
|
|
$
|
0.86
|
|
|
$
|
—
|
|
$1.00 to $1.50
|
|
|
1,589,000
|
|
|
3.7 years
|
|
$
|
1.09
|
|
|
$
|
—
|
|
$0.47 to $1.50
|
|
|
11,238,335
|
|
|
7.4 years
|
|
$
|
0.66
|
|
|
$
|
—
|
|
(1) The aggregate intrinsic
value in the table represents the difference between the closing stock price on June 30, 2012 and the exercise price, multiplied
by the number of in-the-money options that would have been received by the option holders had all option holders exercised their
options on June 30, 2012. No options were exercised during the six months ended June 30, 2012.
Stock
Warrants
During the three months ended June 30,
2012, we issued a two-year warrant to purchase 50,000 shares of common stock at an exercise price of $0.25 per share in connection
with our CP Notes (the allocated fair value of the warrant was calculated to be $7,116).
The following table summarizes information
about the Company’s stock warrants outstanding:
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Range
of
Exercise
Price
|
|
|
Weighted
Remaining
Contractual
Life
|
|
Outstanding at December 31, 2011
|
|
|
12,076,878
|
|
|
$
|
0.62
|
|
|
$
|
0.50 – 1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
50,000
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
|
|
|
Cancelled or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Warrants outstanding at June 30, 2012
|
|
|
12,126,878
|
|
|
$
|
0.62
|
|
|
$
|
0.25 – 1.00
|
|
|
|
2.1 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at June 30, 2012
|
|
|
12,126,878
|
|
|
$
|
0.62
|
|
|
|
$ 0.25 – 1.00
|
|
|
|
|
|
The aggregate intrinsic value of the 12,126,878
outstanding and exercisable warrants at June 30, 2012, was $0. The intrinsic value is the difference between the closing stock
price on June 30, 2012 and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised
their warrants on June 30, 2012.
NOTE 11 – RELATED PARTY TRANSACTIONS
Afignis, LLC
Pursuant to the Shea Exchange Agreement
on March 15, 2011, by and between us, Shea Mining, Afignis, LLC, Leslie Lucas Partners, LLC, Wits Basin and Alfred A. Rapetti,
we acquired certain assets from Shea Mining in exchange for 35,000,000 shares of our unregistered shares. Those shares were issued
equally to the Shea Mining members of Afignis, LLC and Leslie Lucas Partners, LLC. Sharon Ullman, our Interim Chief Executive Officer
and a member of our Board, is the Manager of Afignis, LLC.
Midwest Investment Partners LLC
Blair Mielke, a member of our Board, is
also a Managing Member of Midwest Investment Partners LLC (“Midwest”). Midwest holds the voting rights of the 17,500,000
Leslie Lucas Partners, LLC shares of our common stock until such time as the shares are sold in the public markets in accordance
with all applicable Federal and state securities laws. Additionally, during 2011 the Company entered into two six-month 6% convertible
promissory notes (as described in Note 9 – Convertible Promissory Notes) with Midwest, aggregating $75,000. At June
30, 2012, the aggregate outstanding balance on these notes was $75,000. In connection with these notes, Midwest was
also granted two-year stock purchase warrants to purchase up to 150,000 shares of the Company’s common stock at $0.50 per
share.
NOTE 12 – COMMITMENTS AND
CONTINGENCIES
In May 2011, the Company entered into an
agreement with a consultant to operate and manage a future toll milling facility in Clark County, Nevada as well as to perform
other services, as requested by the Company. The term of the agreement is for two years and may be renewed by mutual agreement
of the parties. In return for these services, the Company has agreed to the following compensation throughout the term of
this agreement:
|
(1)
|
Issue 300,000 shares of its unregistered common stock;
|
|
(2)
|
pay the consultant a cash payment of $10,000 per month plus certain living accommodation expenses
for a residence in Clark County;
|
|
|
|
|
(3)
|
pay the consultant 25% of the calculated monthly net profits, as defined in the agreement, of the
Clark County toll milling facility; and
|
|
(4)
|
pay the consultant 10% of the Company’s net profits derived from those contracts originated
by the consultant.
|
As of June 30, 2012, the Company has not
yet constructed a toll milling facility in Clark County, Nevada. To date, the Company has not issued any stock to the consultant
and made only one of the $10,000 monthly payments due the consultant. At June 30, 2012, the Company has accrued $317,250 and
$113,000 for the future issuance of the common stock and unpaid monthly cash payments, respectively.
NOTE 13 – SUBSEQUENT EVENTS
The Company’s Board authorized a
price reduction of certain warrants from $0.50 to $0.25 per share. On July 30, 2012, Pure Path exercised on warrants to purchase
1,000,000 shares of the Company’s unregistered common stock in exchange for a $250,000 reduction in the short-term advances
from Pure Path.
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
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, 2011.
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.
On September 29, 2009, we completed a share exchange agreement with Hunter Bates Mining Corporation, a Minnesota corporation formed
in April 2008 (“Hunter Bates”) and certain of its shareholders, in which Hunter Bates’ shareholders exchanged
all of their capital securities into similar capital securities of ours (the “Hunter Bates Share Exchange”) and we
adopted the business model of Hunter Bates of minerals exploration and mining. Accordingly, the Hunter Bates Share Exchange represented
a change in control and Hunter Bates became a wholly owned subsidiary of Standard Gold.
Prior to September 29, 2009, Wits Basin
Precious Minerals Inc., a Minnesota corporation and public reporting company quoted on the Pink Sheets under the symbol “WITM”
(“Wits Basin”) was the majority shareholder of Hunter Bates. Hunter Bates acquired the prior producing gold mine properties
(consisting of land, buildings, equipment, mining claims and permits) located in Central City, Colorado, known as the “Bates-Hunter
Mine.” Since August 2008, no exploration activities had been conducted at the Bates-Hunter Mine due to funding. As part of
the Shea Exchange Agreement (described below), we had the right, at our option, at any time prior to June 13, 2011, to transfer
our entire interest in our subsidiary, Hunter Bates, which included the Hunter-Bates Mine and all related obligations and liabilities
back to Wits Basin. On April 29, 2011, the Company’s management exercised its right to transfer our entire ownership interest
in Hunter Bates.
On March 15, 2011, we closed a series of
transactions, whereby we acquired certain assets of Shea Mining & Milling, LLC (“Shea Mining”), which assets include
land, buildings, a dormant milling facility, abandoned milling equipment, water permits, mine tailings, mine dumps and the assignment
of a note payable, a lease and a contract agreement with permits (the “Shea Exchange Agreement”). We completed the
Shea Exchange Agreement to acquire the Shea Mining assets and develop a toll milling services business of precious minerals. Toll
milling is a process whereby mined material is crushed and ground into fine particles to ease the extraction of any precious minerals
contained therein, such as gold, silver, lead, zinc and copper, and rare earth metals.
RESULTS OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 2012 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2011.
Revenues
We had no revenues from any operations
for the three and six months ended June 30, 2012 and 2011. Furthermore, we do not anticipate having any significant revenue until
we have sufficiently funded our capital requirements.
Operating Expenses
General and administrative expenses were
$312,705 for the three months ended June 30, 2012 as compared to $844,972 for the same period in 2011. General and administrative
expenses were $844,773 for the six months ended June 30, 2012 as compared to $7,832,184 for the same period in 2011. A significant
portion of the general and administrative expenses are recognition of stock option expense. For the six month period ended June
30, 2102, we recorded $265,000 in option expense as compared to $6,774,991 for the same period in 2011. Should we secure adequate
financing, we anticipate that future operating expenses will continue to increase for fiscal 2012 as we continue to build the infrastructure
to proceed with tolling milling services and possible entrance into other mine properties.
Exploration expenses were $0 for the three
months ended June 30, 2012 as compared to $14,180 for the same period in 2011. Exploration expenses were $0 for the six months
ended June 30, 2012 as compared to $50,501 for the same period in 2011. Exploration expenses for 2011 relate to the cash expenditures
reported for the maintenance work at the Bates-Hunter project and for due diligence on other gold exploration projects. With the
transfer of our ownership interest in Hunter Bates to Wits Basin on April 29, 2011, we do not expect to have any exploration expenses
until such time as we acquire other mining properties or are able to enter into some type of joint venture with existing mines.
Depreciation and amortization expenses
were $0 for the three months ended June 30, 2012 as compared to $7,241 for the same period in 2011. Depreciation and amortization
expenses were $0 for the six months ended June 30, 2012 as compared to $28,961 for the same period in 2011. The 2011 amounts primarily
represent depreciation of fixed assets for the Bates-Hunter Mine. We transferred the depreciable assets related to the Bates-Hunter
Mine back to Wits Basin on April 29, 2011 and will no longer be recording any depreciation expenses specifically related to the
Bates-Hunter Mine. On February 10, 2012, as it pertains to depreciable assets we currently own, we were evicted from the Amargosa
property and we have not yet renegotiated different terms with the landlord. Since we no longer have access to any of our equipment,
which resides on the Amargosa property, we may have to forfeit recovery of such equipment, but until such time that we can determine
that we can not come to new terms with the Amargosa landlord, management has decided that no impairment charges will be recognized
on these assets. Since all of our depreciable assets are idle and not in use, management did not record any depreciation (on this
equipment) for the six months ended June 30, 2012.
Other Income and Expenses
Interest Expense
Interest expense for the three months ended
June 30, 2012 was $149,977 compared to $993,123 for the same period in 2011. Interest expense for the six months ended June 30,
2012 was $490,381 compared to $1,477,567 for the same period in 2011. The 2012 and 2011 amounts relate to the interest due on our
notes payable: (i) the short-term notes payable, (ii) the convertible notes we entered into plus the amortization of the value
assigned to additional beneficial conversion features and warrants issued, and (iii) the amortization of debt issuance costs. The
non-cash interest expenses for the three and six months ended June 30, 2012 was $40,200 and $274,108 compared to $835,142 and $1,153,198
for the same periods in 2011, respectively.
Foreign Currency
With the consummation of the Bates-Hunter
Mine acquisition in June 2008, we had been recording direct non-cash foreign currency exchange gains and losses due to our dealings
with the limited recourse promissory note, which was payable in Canadian Dollars. We recorded no gain or loss for the three months
ended June 30, 2012, compared to a loss of $150,410 for the three months ended June 30, 2011 due to the fluctuations in exchange
rate between the US Dollar and the Canadian Dollar. We recorded no gain or loss for the for the six months ended June 30, 2012,
compared to a loss of $329,875 for the same period in 2011. With the transfer of our ownership interest in Hunter Bates, which
included the Bates-Hunter Mine and its related limited recourse promissory note to Wits Basin on April 29, 2011, we are no longer
incurring any gains or losses due to foreign currency exchange rates.
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 the issuance of short-term debt and convertible debt during 2012 and 2011. 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 $7,109,491 at June 30, 2012. Cash and cash equivalents were $38,401 at June 30, 2012, representing an increase of $37,781 from
the cash and cash equivalents of $620 at December 31, 2011.
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 and provide for
capital expenditures. Our basic operational expenses are estimated at approximately $80,000 per month and we continue to have debt
service commitments, which includes approximately $2,340,000 (plus accrued interest) due to Pure Path and $2,111,503 (plus accrued
interest) if the convertible note holders do not convert any portion of their convertible notes. Above the basic operational expenses,
we estimate that we need approximately $1,500,000 to begin limited tolling operations at a proposed facility to be located in Clark
County, Nevada. If we are not able to raise additional working capital, we may have to cease operations altogether.
For the six months ended June 30, 2012,
we had net cash used in operating activities of $279,014 as compared to $669,951, for the six months ended June 30, 2011. We were
unsuccessful in our efforts during 2011 to build a base of operations in Nevada and during 2012, we were only maintaining minimal
activities due to lack of available cash, and as such, thereby accounting for the decrease in 2012.
For the six months ended June 30, 2011,
we had net cash used in investing activities of $970,427 all related to the Shea Transaction with no cash used in investing activities
during the six months ended June 30, 2012.
For the six months ended June 30, 2012
and 2011, we had net cash provided by financing activities of $316,795 and $1,969,616, respectively. During 2012, we were advanced
$291,795 by Pure Path. During the six months ended June 30 2011, we issued six-month convertible promissory notes resulting in
gross cash proceeds of $1,932,500.
The following table summarizes our debt
as of June 30, 2012:
Outstanding
Amount
|
|
|
Interest
Rate
|
|
Unamortized
Discounts
|
|
|
Accrued
Interest
|
|
|
Maturity
Date
|
|
Type
|
$
|
25,000 (1)
|
|
|
5%
|
|
$
|
—
|
|
|
$
|
2,314
|
|
|
November 30, 2010
|
|
Conventional
|
$
|
2,047,728 (2)
|
|
|
12.5% (3)
|
|
$
|
—
|
|
|
$
|
143,369
|
|
|
February 8, 2012 (4)
|
|
Conventional
|
$
|
2,104,504 (5)
|
|
|
6%
|
|
$
|
6,999
|
|
|
$
|
159,022
|
|
|
(6)
|
|
Convertible
|
$
|
291,795 (7)
|
|
|
12.5%
|
|
$
|
—
|
|
|
$
|
9,398
|
|
|
August 30, 2012 (7)
|
|
Conventional
|
|
(1)
|
Promissory note issued on September 7, 2010, to Stephen Flechner, our President
at the time, currently past due, original terms apply in the default period.
|
|
(2)
|
Represents the outstanding balance of the original note payable to NJB Mining
Inc. that was purchased directly by Pure Path Capital Management (for the assets located in Tonopah).
|
|
(3)
|
The stated interest rate is 7.5%, but since the note was not paid in full
by August 25, 2010, then the rate increased to 12.5% (an additional 5% default rate was added).
|
|
(4)
|
This is the date referenced in the A&R Forbearance Agreement now owned
by Pure Path, extended until August 30, 2012.
|
|
(5)
|
Beginning in January 2011, we entered into various six-month convertible
promissory notes convertible at a price of $0.50 per share and issued a two-year stock purchase warrant with exercise prices of
$0.50 and $0.25 per share at a rate of two (2) warrants per $1 of note.
|
|
(6)
|
The six month convertible promissory notes began maturing on July 5, 2011.
As of the date of this Report, all but one of these convertible promissory notes are currently past due and original terms apply
in the default period.
|
|
(7)
|
Aggregate short-term loans from Pure Path.
|
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. We will continue our
attempt to raise additional capital. Some of the possibilities available to us are through private equity transactions, to develop
a credit facility with a lender or the exercise of options and warrants. However, such additional capital may not be available
to us at acceptable terms or at all. In the event that we are unable to obtain additional capital, we would be forced to cease
operations altogether.
OFF BALANCE SHEET ARRANGEMENTS
During the six months ended June 30, 2012,
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 and Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q 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 the Securities and Exchange Commission’s rules and forms, and is accumulated
and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation and taking into
account that certain material weaknesses existed as of December 31, 2011, our Chief Executive Officer and Chief Financial Officer
have each concluded that our disclosure controls and procedures were not effective. As a result of this conclusion, the financial
statements for the period covered by this Quarterly Report on Form 10-Q were prepared with particular attention to the material
weaknesses previously disclosed. Notwithstanding the material weaknesses in internal controls that continue to exist as of June
30, 2012, we have concluded that the financial statements included in this Quarterly Report on Form 10-Q present fairly, the financial
position, results of operations and cash flows of the Company as required for interim financial statements.
Due to the small number of employees dealing
with general administrative and financial matters and the expenses associated with increases to remediate the disclosure controls
and procedures that have been identified, the Company continued to operate without changes to its int
ernal
controls over financial reporting for the period covered by this
Quarterly Report on Form 10-Q while continuing to seek
the expertise it needs to remediate the material weaknesses at an appropriate cost benefit basis.
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, 2011 (the “2011 Form 10-K”). There have been no material changes
to the risk factors previously disclosed in the 2011 Form 10-K. The risks described in the 2011 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,
2012, convertible note holders converted $488,186 of principal plus $21,814 accrued interest into 1,020,000 shares of our common
stock. For these issuances, 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 there were two investors and such investors had knowledge and experience in financial and business
matters such that it was capable of evaluating the risks of the investment.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit
|
Description
|
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.
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|
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|
|
|
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Date: August 14, 2012
|
|
|
|
|
|
|
By:
|
/s/ Sharon L. Ullman
|
|
|
Sharon L. Ullman
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
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By:
/
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s/ Mark D. Dacko
|
|
|
Mark D. Dacko
|
|
|
Chief Financial Officer
|
|
|
|
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