The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 and 2015
NOTE 1 – NATURE OF BUSINESS
Standard Metals Processing,
Inc. (formerly Standard Gold Holdings, Inc., Standard Gold, Inc. and Princeton Acquisitions, Inc.) (the “Company”
or “we” or “our”) 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 (“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 mineral exploration and mining. Accordingly, the Hunter
Bates Share Exchange represented a change in control and Hunter Bates became a wholly owned subsidiary of the Company.
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 was formed in April 2008 to acquire 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.” We had not engaged in any exploration or mining activities at the Bates-Hunter Mine
properties and on April 29, 2011, we transferred all of our interests of Hunter Bates back to Wits Basin in order to develop the
toll milling business as described below.
On March 15, 2011, the Company closed a
series of transactions, whereby we acquired certain assets of Shea Mining & Milling, LLC (“Shea Mining”). The exchange
agreement was by and between the Company, Shea Mining, Afignis, LLC, Leslie Lucas Partners, LLC, Wits Basin and Alfred A. Rapetti
(the “Shea Exchange Agreement”) whereby the Company acquired certain assets from Shea Mining, which assets include
those located in Tonopah, Nevada, of land, buildings, a dormant milling facility, abandoned milling equipment, water permits and
mine tailings (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. The Company 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. See Note 3 –Shea Milling
and Mining Assets for a detailed discussion.
Going Concern
The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America, 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 year ended December 31, 2016, the Company incurred losses from operations of $940,935. At December
31, 2016, the Company had an accumulated deficit of $102,578,115 and a working capital deficit of $9,268,552. These circumstances
raise substantial doubt about the Company’s ability to continue as a going concern. 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.
During the year ended December 31, 2016, the Company received net cash proceeds of $305,000 from the convertible promissory notes
payable and issuance of common stock. Management believes that private placements of equity capital and/or additional debt financing
will be needed to fund our long-term operating requirements. The Company 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 the Company raises
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,
the Company 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 the Company is unable to obtain the necessary capital, the Company may have to cease operations.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include
the accounts of Standard Metals Processing, Inc., and our wholly owned subsidiaries Tonopah Milling and Metals Group, Inc. and
its wholly owned subsidiaries Tonopah Custom Processing, Inc., and Tonopah Resources, Inc. All significant intercompany transactions,
accounts and balances have been eliminated in consolidation.
Reclassification
Certain accounts in the prior period were
reclassified to conform to the current period financial statements presentation.
Cash and Cash Equivalents
We include as cash equivalents: (a) certificates
of deposit, and (b) all other investments with maturities of three months or less when purchased, which are readily convertible
into known amounts of cash. We maintain our cash in high-quality financial institutions. The balances, at times, may exceed federally
insured limits.
Shea Milling and Mining Assets
The Company recorded the fair value of
the Shea Mining and Milling assets as an aggregate amount on the consolidated balance sheets. The assets include the mine tailings
and dumps, the land, water rights and the milling facility (the buildings and equipment), net of impairment. None of the assets
have been put into production, nor has the Company performed any repair or updates to any of the equipment or buildings. As such,
the Company will continue to classify them under a single listing.
Property, Plant and Equipment
Property and equipment are recorded at
cost and depreciated, once placed in service, using the straight-line method over estimated useful lives as follows:
|
|
Years
|
|
Buildings
|
|
|
20
|
|
Equipment
|
|
|
2-7
|
|
Vehicle
|
|
|
2
|
|
Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized. As items of property or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
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 operations 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.
Long-Lived Assets
The Company will periodically evaluate
the carrying value of long-lived assets to be held and used, including but not limited to, mineral properties, mine tailings, mine
dumps, capital assets and intangible assets, when events and circumstances warrant such a review and at least annually. The carrying
value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds
the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that
fair values are reduced for the cost to dispose. During the year ended December 31, 2015 the Company had an impairment charge of
$34,074,869. There were no impairment charges during the year ended December 31, 2016.
Use of Estimates
Preparing financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition and Deferred Revenue
As of December 31, 2016, we have recorded
no revenues from custom permitted processing toll milling.
Off Balance Sheet Arrangements
As of December 31, 2016, we did not have
any off-balance sheet activities (including the use of structured finance or special purpose entities) or any trading activities
in non-exchange traded commodity contracts that have a current or future effect on our financial condition, changes in the financial
condition, revenues or expenses, results of operation, liquidity, capital expenditures or capital resources that are material to
our investors.
Financial Instruments
The carrying amounts for all financial
instruments approximates fair value. The carrying amounts for cash, accounts payable and accrued liabilities approximated fair
value because of the short maturity of these instruments. The fair value of short-term debt approximated the carrying amounts based
upon our expected borrowing rate for debt with similar remaining maturities and comparable risk.
Net 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.
Income Taxes
Income taxes are accounted for based upon
an asset and liability approach. Accordingly, deferred tax assets and liabilities arise from the difference between
the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax amounts are
determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under
currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the
period plus or minus the change in deferred tax assets and liabilities during the period.
Accounting guidance requires the recognition
of a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than
not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized
upon ultimate settlement with the relevant tax authority. The Company believes its income tax filing positions and deductions
will be sustained upon examination and accordingly, no reserves, or related accruals for interest and penalties have been recorded
at December 31, 2016 and 2015. The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received
from favorable tax settlements within income tax expense.
Stock-Based Compensation and Issuance of Stock for Non-Cash
Consideration
The Company measures and recognizes compensation
expense for all share-based payment awards made to employees and directors, including employee stock options and compensatory stock
warrants, based on estimated fair values equaling either the fair value of the shares issued or the value of consideration received,
whichever is more readily determinable. Non-cash consideration pertains to services rendered by consultants and others and has
been valued at the market value of the Company’s common stock at the date of the agreement. The Company’s accounting
policy for employee stock compensation follows the provision of Accounting Standards Codification (ASC) Topic 718-10
“Compensation
– Stock Compensation.”
The Company’s accounting policy for
equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Accounting Standards
Codification (ASC) Topic 505-50, “
Equity-Based Payments to Non-Employees
.” The measurement date for the fair
value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the
consultant or vendor is reached or (ii) the date at which the consultant begins providing services.
Recent Accounting Standards
During the year ended December 31,
2016 and through April 12, 2017, there were several new accounting pronouncements issued by the Financial Accounting
Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company.
Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on
the Company’s consolidated financial statements.
NOTE 3 – SHEA MILLING AND MINING
ASSETS
On March 15, 2011, the Company entered
into an exchange agreement by and between the Company, Shea Mining, Afignis, LLC, Leslie Lucas Partners, LLC, Wits Basin and Alfred
A. Rapetti (the “Shea Exchange Agreement”) whereby the Company 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.
The Company 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,
the Company 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 1,183 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 2,200,000 tons of tailings known as the Millers Tailings from
the historic gold rush of Goldfield and Tonopah, Nevada. The Company has not processed any of these tailings and has no intention
to do so in the near future.
The Tonopah property was subject to an
existing $2,500,000 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 the Company until May 14, 2011 to refinance this mortgage, which was subsequently extended numerous times.
As of August 31, 2011, the Company was 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. Pure Path provided an additional extension to stay
any action of the A&R Forbearance until June 8, 2012, on which date, if not paid or another agreement was not executed, the
Company would be required to issue 5,000,000 shares of its common stock to Pure Path; such extension was provided without additional
consideration. The Company did not pay the balance of the mortgage on June 8, 2012 and pursuant to the terms of the A&R Forbearance
Agreement, the Company was required to issue 5,000,000 shares to Pure Path. The 5,000,000 shares were approved for issuance by
the Board of Directors on October 9, 2012 and were issued to Pure Path on December 6, 2012. Pure Path provided additional extensions
to stay any action of the Forbearance Agreement until August 31, 2013; such extensions were provided without additional consideration.
On October 10, 2013, the Company entered into a Settlement and Release Agreement (the “Agreement”) with Pure Path.
Pursuant to the Agreement, Pure Path relinquished the rights and obligations owed to it and agreed to forbear collection remedies
and legal proceedings against the Company including foreclosure on the Deed of Trust. In connection with the settlement and release
of various debts of approximately $1,500,000, consulting fees owed by the Company, and relinquishment of rights by Pure Path, the
Company issued 27,000,000 restricted shares and a convertible promissory note for up to $2,500,000 with a principal amount on the
date of issuance of $1,933,345 bearing interest of 8% per year for the amounts owed under the Pure Path Agreements.
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 Company has not disturbed, moved or processed any of this material and currently has no intention to do so.
The other assets the Company acquired consisted
of a property lease, which allowed the use of an assay lab property and the associated water permits, (with a right to purchase
for $6,000,000) and a contract agreement, which allowed the Company use of processing permits, located in Amargosa Valley, Nevada
(“Amargosa”). The Company 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 in lease and contract payments remain unpaid as well as $10,500 in late fees required pursuant to the terms of the
lease. On February 10, 2012, the Beatty County Sheriff completed the Eviction at Amargosa and the Company as such, no longer has
access to the assay lab or permits at Amargosa. As a result, all remaining equipment at Amargosa with an aggregate value of $40,925
was written off as impaired.
Pursuant to the Shea Exchange Agreement,
the Company issued a total of 35,000,000 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, a member of our Board of Directors
and our former Chief Executive Officer, was granted an irrevocable voting proxy for half of the shares issued to the Shea Mining
equity holders, which continues 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 former director
of the Company. All such voting rights have since been canceled by the owners or through a transfer of ownership. The Company 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
|
|
|
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 the Company’s common stock it held for 10,000,000
shares of our Series A Preferred Stock. The Series A Preferred Stock has a liquidation preference of $10,000,000, payable only
upon certain liquidity events or upon achievement of a market value of our equity equaling $200,000,000 or more. Additional details
regarding the Series A Preferred Stock can be found in the Company’s Articles of Amendment, which were filed with the Colorado
Secretary of State on January 4, 2013. Additionally, the Company obtained the right to transfer the entire interest and related
debt of the Bates-Hunter Mine, at any time prior to June 13, 2011, to Wits Basin in exchange for the cancellation of a promissory
note issued by Hunter Bates payable in favor of Wits Basin in the approximate amount of $2,500,000. On April 29, 2011, our Board
of Directors approved this transfer.
Furthermore, Wits Basin had entered into
certain commitments, which involved shares of the Company’s common stock and as a result of their exchange of substantially
all of the Company’s common stock they held for Series A Preferred, Wits Basin could no longer honor those commitments. In
consideration of Wits 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 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. As of December 31, 2015 all of these
stock options are expired.
The Company and Wits Basin executed a Settlement
Agreement on January 22, 2016. Pursuant to the terms of the Settlement Agreement, the Company issued 630,000 warrants to purchase
common stock at an exercise price of $0.70 and 630,000 warrants to purchase common stock at an exercise price of $0.30 per share.
The warrants are exercisable until December 31, 2018.
During the year ended December 31,
2015, Management analyzed the Shea Mining and Milling assets and determined that the Tonopah mine tailings of $24,888,252,
Tonopah dormant milling facility of $8,062,875 and Manhattan mine dumps of $100,000 were fully impaired and recorded an
impairment of $33,051,127 and reduced the net carrying value of the Miller’s Landing assets to $2,108,300.
The Company does not conduct any mining
activity.
NOTE 4 – ASSET HELD FOR SALE
During the year ended December 31, 2015
the Company determined that certain equipment with a historic cost of $2,020,415 had a fair value of $996,643 and was no longer
required. The Company evaluated this event using the guidance provided by ASC 360-10 “
Property, Plant and Equipment –
Impairment or disposal of long-life assets
” and concluded an impairment of machinery and equipment of $1,023,772. The
Company negotiated with the Vendor to accept such certain equipment held for sale in full settlement of the Vendor’s Long-Term
Trade Payable, see Note 6. On February 23, 2016 an auction was held in which $222,597 of other equipment was sold for $56,500.
The proceeds from this sale were paid to a former employee for past compensation.
NOTE 5 – PROPERTY, PLANT AND
EQUIPMENT
The Company has
made some preparations including grading the land, installing fences and drilling various wells for future operations. The Company
plans to resume preparing the Tonopah property site for the construction of a permitted custom processing toll milling facility
and will work with contractors for our 21,875 square foot building and servicing the various wells.
Components of our property, plant and
equipment are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Equipment
|
|
$
|
21,000
|
|
|
$
|
21,000
|
|
Construction in Progress
|
|
|
1,775,224
|
|
|
|
1,775,224
|
|
Less accumulated depreciation
|
|
|
(21,000
|
)
|
|
|
(21,000
|
)
|
|
|
$
|
1,775,224
|
|
|
$
|
1,775,224
|
|
NOTE 6 – LONG-TERM TRADE PAYABLE
The following table summarizes the Company’s
long-term trade payable:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Vendor agreement dated March 12, 2015 with monthly payments of $50,000 and zero interest
|
|
$
|
-
|
|
|
$
|
928,143
|
|
Less debt discount
|
|
|
(-
|
)
|
|
|
(-
|
)
|
|
|
|
-
|
|
|
|
928,143
|
|
Less extinguishment of debt
|
|
|
(-
|
)
|
|
|
(928,143
|
)
|
Totals
|
|
$
|
-
|
|
|
$
|
-
|
|
On March 12, 2015 the Company and a vendor
of certain equipment entered into an agreement in which the Company agreed to make monthly payments of $50,000 commencing April
15, 2015. During the year end December 31, 2015, the Company negotiated with the Vendor to accept certain equipment held for sale
in full settlement of the vendors Long-Term Trade Payable.
NOTE 7 – CONVERTIBLE NOTES
PAYABLE
Between January 22, 2016 and March 31,
2016 the Company issued Convertible Promissory Notes totaling $160,000. The Convertible promissory notes accrue interest at 8%
and mature 2 years from the date of issue. At the option of the holder the Convertible Promissory Notes convert into shares of
the Company’s Common Stock. The $55,000 convertible promissory note is convertible at $0.021 per share based on the ninety
day VWAP (volume weighted average price) ending on the date of funding, the $30,000 convertible promissory note is convertible
at $0.05 per share based on the ninety day VWAP ending on the date of funding, and the $75,000 convertible promissory note is convertible
at $0.05 per share based on a fifty percent discount to the closing sale price on the last trading day immediately preceding the
issue date. The Company then analyzed the conversion under ASC 470-20
Debt with conversion and other options
for consideration
of a conversion feature. The Company recorded a discount for the intrinsic value of the conversion feature of $160,000 and will
amortize this debt discount over the term of the notes.
On July 22, 2016 the convertible promissory
notes payable totaling $160,000 and accrued interest of $4,919 were converted into 4,879,067 shares of restricted common stock.
The Company
issued a convertible promissory note in the principal amount of $60,000 on August 1, 2016. The note is due two years after issuance,
accrues interest at 8% per annum and is convertible into shares of common stock at a price of $0.06 per share. The Company then
analyzed the conversion under ASC 470-20
Debt with conversion and other options
for consideration of a conversion feature.
The Company recorded a discount for the intrinsic value of the conversion feature of $60,000 and will amortize this debt discount
over the term of the note.
The Company issued
a convertible promissory note in the principal amount of $65,000 effective on November 28, 2016. The note is due one year after
issuance, accrues interest at 6% per annum and is convertible into shares of common stock at a price of $0.06 per share. The Company
then analyzed the conversion under ASC 470-20
Debt with conversion and other options
for consideration of a conversion feature.
The Company recorded a discount for the intrinsic value of the conversion feature of $65,000 and will amortize this debt discount
over the term of the note.
On December 28, 2016 the convertible promissory
notes payable totaling $65,000 and accrued interest of $353 were converted into 3,262,838 shares of restricted common stock.
The following table summarizes the Company’s
remaining convertible promissory notes (convertible into common stock):
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Convertible notes at December 31, 2016; interest rate of 8%;
|
|
$
|
60,000
|
|
|
$
|
-
|
|
Less unamortized debt discount
|
|
|
(47,507
|
)
|
|
|
|
|
Convertible promissory notes net of unamortized discount of $0 at December 31, 2016; interest rate of 6%; accrued interest of $36,665 at December 31, 2015 and all of these Notes are past due and original terms apply in the default period.
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
Less current portion of Convertible Notes Payable
|
|
|
(175,000
|
)
|
|
|
(175,000
|
)
|
|
|
$
|
12,493
|
|
|
$
|
-
|
|
NOTE 8 –NOTES PAYABLE - RELATED PARTY
The following table summarizes the Company’s
notes payable related party:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Promissory note issued on February 11, 2015, in the principal amount of up to $750,000 with tranches received as follows: $200,000 on February 11, 2015 and $48,000 on February 13, 2015; $50,000 on April 13, 2015; on July 31, 2015 $150,000; on October 20, 2015 $2,500; on October 29, 2015 $12,000; on November 4, 2015 $15,000 the note has a stated interest rate of 8%; with a maturity of 1 year from the date of the tranche. The promissory notes payable are now in default and the stated interest rate increased to 12%.
|
|
$
|
477,500
|
|
|
$
|
477,500
|
|
Less discount
|
|
|
(-
|
)
|
|
|
(11,577
|
)
|
Totals
|
|
$
|
477,500
|
|
|
$
|
465,923
|
|
On February 11, 2015, the Company issued
an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity controlled by a former
director and interim CEO of the Company. The Note, for up to $750,000, is to be provided in tranches. Maturity of each tranche is
one year from the date of receipt. Interest will accrue at 8% per annum on each tranche with increase to 12% on default. As consideration,
the Company agreed to issue common stock purchase warrants for the purchase of up to 250,000 shares of common stock exercisable
for seven years at $1.23 per share. The Company then analyzed the warrant under ASC 470-20-25
Debt with conversion and other
options
for consideration of a warrants issue. The Company recorded a discount based on the relative fair value of the warrants
of $138,880. The Company valued the warrants using the Black-Scholes option pricing model with the following assumptions: stock
price on the measurement date of $1.25; warrant term of 7 years; expected volatility of 291%; and discount rate of 1.83% and accounted
for them as debt discount, which was amortized over the term of the note.
NOTE 9 – NOTES PAYABLE
On October 10, 2013, a Senior Secured Convertible
Promissory Note for up to $2,500,000 at 8% per annum with an original principal balance of $1,933,345 maturing on April 10, 2015
was issued to Pure Path pursuant to a Settlement and Release Agreement. (see Note 8 Related Party transactions).
The following table summarizes the Company’s
remaining convertible promissory notes (convertible into common stock):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Convertible promissory notes net of unamortized discount of $0 at December 31, 2016; interest rate of 6%; accrued interest of $57,665 at December 31, 2015 and all of these Notes are past due and original terms apply in the default period.
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
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 10,000,000 shares ($.001 par value each) of “Series
A Preferred Stock” with an original issue price of $1.00 per share. The Company executed an Agreement with Wits to exchange
these preferred shares for shares of common stock.
The Company entered
into an Agreement on July 29, 2016 with the holder of the Series A Preferred Stock, Wits Basin Precious Minerals, Inc., (“Wits”)
and Wits’ secured creditor regarding exchange options for the Series A Preferred Stock. Under the terms of the Agreement,
upon the occurrence of a Triggering Event (as defined below), the holders of the Preferred Stock will receive the corresponding
compensation, the “Triggering Events” and their corresponding compensation are set forth below:
Series A Preferred Stock
Attributes of Series A Preferred Stock
include but are not limited to the following:
Distribution in Liquidation
The Series A Preferred Stock has a liquidation
preference of $10,000,000, payable only upon certain liquidity events or upon achievement of a market value of our equity equaling
$200,000,000 or more. Upon any liquidation, dissolution or winding up of the Corporation, and after paying or adequately providing
for the payment of all its obligations, the remainder of the assets of the Corporation shall be distributed, either in cash or
in kind, first pro rata to the holders of the Series A Preferred Stock in an amount equal to the Liquidation Value (as described
below); then, to any other series of Preferred Stock, until an amount to be determined by a resolution of the Board of Directors
prior to issuances of such Preferred Stock, has been distributed per share, and, then, the remainder pro rata to the holders of
the Common Stock. Upon the occurrence of any Liquidation Event (as defined below), each holder of Series A Preferred Stock will
receive a payment equal to the Original Issue Price for each share of Series A Preferred Stock held by such holder (the “Liquidation
Value”). A “Liquidation Event” will have occurred when:
• The Corporation has an
average market capitalization (calculated by adding the value of all outstanding shares of Common Stock valued at the Corporation’s
closing sale price on the OTCQB or other applicable bulletin board or exchange, plus the value of the outstanding Series A Preferred
Stock at the Original Issues Price per share) of $200,000,000 or more over any 90 day period. The holders of the Series A Preferred
Stock would have the right, for 30 days after the end of such qualifying 90 day measurement period, to require the Corporation
to purchase the Series A Preferred Stock for an amount equal to the Liquidation Value.
• Any Liquidity Event in
which the Corporation receives proceeds of $50,000,000 or more. For purposes hereof, a “Liquidity Event” means any
(a) liquidation, dissolution or winding up of the Corporation; (b) acquisition of the Corporation by means of any transaction or
series of related transactions (including, without limitation, any reorganization, merger, share exchange, share purchase or consolidation)
provided that the applicable transaction shall not be deemed a liquidation unless the Corporation’s stockholders constituted
immediately prior to such transaction hold less than 50% of the voting power of the surviving or acquiring entity; or (c) the sale,
lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary
of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale
or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets
of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries.
Written notice of any Liquidation Event
(the “Liquidation Notice”) shall be given by mail, postage prepaid, or by facsimile to non-U.S. residents, not less
than five days prior to the anticipated payment date state therein, to the holders of record of Series A Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the records of the Corporation. The Liquidation Notice shall
state (i) the anticipated payment date, and (ii) the total Liquidation Value available for distribution to Series A Preferred Stock
shareholders upon the occurrence of the Liquidation Event.
Redemption
The Series A Preferred Stock may be redeemed
in whole or in part as determined by a resolution of the Board of Directors at any time, at a price equal to the Liquidation Value.
Voting Rights
Shares of Series A Preferred Stock shall
have no rights to vote on any matter submitted to a vote of shareholders, except as required by law, in which case each share of
Series A Preferred Stock shall be entitled to one vote.
Conversion Rights
Holders of Series A Preferred Stock will
have no right to convert such shares into any other equity securities of the Company.
Agreement with
Holder of Series A Preferred Stock
As disclosed in
a Form 8-K filed with the SEC on August 1, 2016, the Company entered into an Agreement on July 29, 2016 with the holder of the
Series A Preferred Stock, Wits Basin Precious Minerals, Inc., (“Wits”) and Wits’ secured creditor regarding exchange
options for the Series A Preferred Stock. Under the terms of the Agreement, upon the occurrence of a Triggering Event (as defined
below), the holders of the Preferred Stock will receive the corresponding compensation, the “Triggering Events” and
their corresponding compensation are set forth below:
3.
Liquidation
Rights, Stated Value and Redemption
. The Series A Preferred Stock has a stated value of Ten Million Dollars ($10,000,000)
(referred to herein as “Stated Value”), payable only upon certain events.
(a) Upon any liquidation,
dissolution or winding up of the Corporation, and after paying or adequately providing for the payment of all its obligations,
the remainder of the assets of the Corporation shall be distributed, either in cash or in kind, first pro rata to the holders of
the Series A Preferred Stock in an amount equal to the Stated Value (as described below); then, to any other series of Preferred
Stock, until an amount to be determined by a resolution of the Board of Directors prior to issuances of such Preferred Stock, has
been distributed per share, and, then, the remainder pro rata to the holders of the Common Stock.
(b) Upon the occurrence
of a Triggering Event (as defined below), the holders of the Preferred Stock will receive the corresponding compensation, The “Triggering
Events” and their corresponding compensation are set forth below:
(1) If either
of the following occur:
(i) the Corporation
receives proceeds of $10,000,000 or more in a cash offering; OR
(ii) the Corporation’s
Common Stock trades at $3.00 or more (with proportionate adjustments for stock splits) for 90 consecutive trading days;
then all of the
10,000,000 shares of the Preferred Stock will be exchanged for 5,000,000 shares of Common Stock.
(2) If the Corporation
has an average market capitalization (calculated by adding the value of all outstanding shares of Common Stock valued at the Corporation’s
closing sale price on the Over the Counter Markets (or other applicable exchange) (the “Market”) of $200,000,000 or
more over any consecutive 95 day period following the effective date of this agreement and the effective date of any required duly
authorized amendment to the Standard’s Articles of Incorporation, the terms of the Preferred Stock and the subsequent consent
of the holder’s secured creditor to the final form and terms of such amendment, and items (1)(i) or (1)(ii) of Section (b)
have not been met, then the Corporation has the right to:
(A) issue the
number of shares of Common Stock equal to the Stated Value using the average closing sale price of the Common Stock on the Over
the Counter Markets of the prior 15 trading days from the date of the notice. The Corporation will provide 10 days’ prior
written notice to the holder and any known secured party of such holder of the Series A Stock of its intention to proceed with
this option; or
(B) issue a portion
of the Stated Value in shares of Common Stock based on the valuation formula in 3(b)(2)(A) and pay the remaining Stated Value in
cash.
If this Section
(3)(b)(2) is triggered, the Corporation has three years to choose option Section (3)(b)(2)(A) or (B) and pay the Stated Value.
The Corporation has 60 days from the date of notice of its election to pay under either Section (3)(b)(2)(A) or (B).
Upon payment of
the Stated Value, the Series A Shares will be retired.
(c) If Section
(3)(b)(2) is triggered and the Corporation fails to pay the Stated Value within the three year time frame, the Corporation will
take all necessary action to return the Series A Preferred Shares in their original form (containing all original terms and conditions)
to the holder with the exception that the Stated Value will be increased to $10,100,000 upon delivery and the Corporation will
lose the exchange options provided in Section (3)(b).
The previous terms
of the Series A Preferred Stock would have required the Company to make a payment of $10,000,000 upon the Company having an average
market capitalization of $200,000,000. This Agreement gives the Company additional payment options and allows for the payment to
be made completely or partially in common shares, depending on the Triggering Event.
The Company issued
five million shares of restricted common stock on April 1, 2016 that are being held in escrow pending a Series A Preferred Stock
Triggering Event.
Series B Preferred Stock
The Company designated a class of Series
B Preferred shares effective November 4, 2013. As of the date of this filing, no shares of our Series B Preferred Stock are
issued and outstanding. Shares of our Series B Preferred Stock are entitled to receive, when and as declared by our Board
of Directors, dividends at a rate of 8% per share annually, payable on the October 1 of each year. Such dividends
shall be cumulative and shall accrue, whether or not earned or declared, from and after the date of issuance of the Series
B Preferred Stock, whichever is later. Each share of Series B Preferred Stock shall be convertible, at any time
and at the option of the holder, into ten shares of common stock (the “Stock Conversion Rate”). The Stock
Conversion Rate is subject to certain adjustments for stock-splits, combinations, reclassifications, exchanges, substitutions,
reorganizations, mergers and/or consolidations.
Upon any liquidation, dissolution, or winding
up of the Company, before any payment of cash or distribution of other property shall be made to the holders of
common stock or any other class or series of stock subordinate in liquidation preference to the Company’s preferred
stock, the assets of the Company shall be distributed as follows: first, the holders of the Series A Preferred Stock
shall be entitled to the preferences detailed in the Certificate of Designation of Series A Preferred Stock; second,
the holders of the Series B Preferred Stock shall be entitled to receive, pro rata according to the stated value of their
shares, out of the assets of the Company legally available for distribution to its shareholders, the greater of: (i) the stated
value per share or (ii) the amount such holder of Series B Preferred Stock would be entitled to receive if the shares of Series
B Preferred Stock were converted into Common Stock at the Stock Conversion Rate.
Shares of Series B Preferred Stock shall
have no rights to vote on any matter submitted to a vote of shareholders, except as required by law, in which case
each share of Series B Preferred Stock shall be entitled to one vote.
Additional details regarding the Series
B Preferred Stock can be found in our Articles of Amendment, which are on file with the Nevada Secretary of State.
On April 11, 2016, the Board of Directors
retired and cancelled the Series B Preferred Stock. As of that date, no shares of Series B Preferred Stock had been issued and
no shares are able to be issued in the future.
Common Stock Issuances
Common Stock issued
on conversion of notes payable
On July 22, 2016 three convertible promissory
notes payable totaling $160,000 and accrued interest of $4,919 were converted into 4,879,067 shares of restricted common stock.
On December 28, 2016 a convertible promissory
note payable totaling $65,000 and accrued interest of $353 were converted into 3,262,838 shares of restricted common stock.
On August 17, 2016 the company received
a subscription agreement and $20,000 for 275,028 shares of the Company common stock.
Restricted Stock Sale
The Company sold four million shares of
restricted common stock to an accredited investor on December 21, 2015. The shares were sold at fair market value at a per share
price of $0.013, the closing sale price on the date of the sale. The Company received $40,000 for the sale on December 21, 2015.
Due to the holidays, the actual issuance of the certificate was delayed until January 26, 2016.
Debt Settlements
On July 31, 2015
the Company issued 250,000 shares of restricted common stock in exchange for $50,000 of outstanding debt. The shares were issued
under the Section 4(a)(2) exemption from registration.
The Company recorded non-cash loss on settlement
of debt of $0 and $150,000 for the years ended December 31, 2016 and 2015, respectively.
Stock Warrants
On July 15, 2014, a holder with an option
to purchase a total of 400,000 shares under the 2010 Plan originally granted on September 14, 2010 executed a cashless exercise
wherein 282,000 restricted shares were issued and 118,000 shares were surrendered as payment for the issued shares.
During the year ended December 31, 2014,
a total of 7,025,227 warrants to purchase common stock were exercised: 1,830,867 warrants were exercised at a price of $0.25 per
share; 520,000 warrants exercised at $0.50 per share; 4,000,000 warrants exercised at $0.60 per share, 244,360 warrants exercised
at $0.89 per share and 430,000 at $1.00 per share for an aggregate total of $3,790,197.
During the first
quarter of 2015, 100,000 warrants were exercised at a per share price of $0.89 for a total of $89,000. During the second quarter
of 2015, 40,000 warrants were exercised at a per share price of $0.89 for a total of $35,600.
Promissory
Notes
On February 11,
2015, the Company issued an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity
controlled by a director of the Company. The Note for up to $750,000 will be provided in tranches. Maturity of each tranche is
one year from the date of receipt. Interest will accrue at 8% per annum on each tranche. As consideration, the Company agreed to
issue common stock purchase warrants for the purchase of up to 250,000 shares of common stock exercisable for seven years at $1.23
per share. Under the terms of the Note, the Company received $200,000 on February 11, 2015, $48,000 on February 13, 2015 and $50,000
on April 13, 2015, $150,000 on July 31, 2015, $2,500 on October 20, 2015, $12,000 on October 29, 2015 and $15,000 on November 4,
2015.
Under the terms
of the Pure Path Note, the Company received $54,590 on February 4, 2015.
Option Grants
2010 Plan
The Company had 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 January 21, 2011, the Company’s Board of Directors (the
“Board”) authorized an amendment to the 2010 Stock Incentive Plan, to increase the number of options available for
granting under the Plan from 3,000,000 to 13,500,000 and authorized the Company to file an S-8 Registration Statement with the
U.S. Securities and Exchange Commission (subsequently filed on January 27, 2011, File No. 333-171906) for the registration of the
shares available in the Plan. On March 15, 2011, with the closing of the Shea Exchange Agreement a “change of control”
event was deemed to have occurred and 13,500,000 previously granted stock options vested in full. 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.
The Company has been receiving files from
former officers and attorneys. Upon review of the files, the original Plan and Board Resolution were located. The Plan approved
by the Board of Directors on March 22, 2010 authorized 3,000,000 shares of common stock for issuance under the Plan. The Board
of Directors voted to increase the number of shares available under the Plan on January 21, 2011. Section 9.11 of the Plan as approved
by the Board states:
9.11 Amendment of the Plan. The
Board of Directors may amend or discontinue the Plan at any time. However, no such amendment or discontinuance shall adversely
change or impair, without the consent of the recipient, an Incentive previously granted. Further, no such amendment shall, without
approval of the stockholders of the Company, (a) increase the maximum number of shares of Common Stock which may be issued to all
participants under the Plan, (b) change or expand the types of Incentives that may be granted under the Plan, (c) change the class
of persons eligible to receive Incentives under the Plan, or (d) materially increase the benefits accruing to participants under
the Plan.
Pursuant to the terms of the Plan, the
stockholders of the Company must approve this increase. As the stockholders of the Company did not approve the increase of shares
available under the Plan, the increase on January 21, 2011 was not effective.
As of January 21, 2011 the Company had
issued a total of 2,800,000 options to purchase shares under the Plan and had 200,000 shares remaining authorized and unissued.
However, also on January 21, 2011, the Board of Directors authorized the issuance of 10,500,000 options. This issuance far exceeded
the number of shares available and the excess issuances were not valid. As a correction measure, the Company has divided the 200,000
shares that were available pro-rata between the persons named in the resolution.
The Board of Directors terminated the 2010
option plan on August 23, 2013.
Options issued in 2013
The following options were issued in 2013
outside of any option plan:
The Company executed an Employment Agreement
with Sharon Ullman dated effective November 13, 2013. As compensation for her employment as the Chief Executive Officer of the
Company, Ms. Ullman was granted a total of 4,500,000 options to purchase common stock of the Company at an exercise price of $0.40
per share, with a grant term of 7 years. A total of 1,500,000 options vest upon each of the following: (i) November 13, 2013; (ii)
June 1, 2014; and (iii) June 1, 2015.
The Company executed an Employment Agreement
with Jim Stieben dated effective October 15, 2013. Pursuant to the agreement, Mr. Stieben was appointed the President and Director
of Operations of Tonopah Custom Processing, Inc. As compensation for his services, Mr. Stieben was granted a total of 1,500,000
options to purchase common stock of the Company at an exercise price of $0.60 per share, with a grant term of 7 years. A total
of 750,000 options vested on October 15, 2013, and 375,000 options will vest upon each of the following: (i) the completed construction
of a permitted processing building on the Miller’s Mill site; and (ii) the Company achieving profitability.
2014 Option Plan
By Board Resolution effective January 27,
2014, the Company adopted a 2014 Stock Incentive Plan (the “Plan”) to compensate employees and consulting groups in
their efforts to enhance the long-term shareholder value of the Company. Pursuant to the Plan, selected persons are offered opportunities
to participate in the Company's growth and success and are encouraged to acquire and maintain stock ownership in the Company. The
Plan grants options to purchase shares of our common stock vesting at dates beginning on the date of grant and issuable at chronological
or performance increments. The Plan Administrator may also grandfather in existing options granted during 2013. The shareholders
approved the 2014 Plan at the 2014 annual meeting.
Under administration by the Compensation
Committee (the “Plan Administrator”), a maximum of 75,000,000 shares of common stock are available for issuance under
the Plan, subject to adjustment from time to time. Awards may be granted under the Plan to officers, directors, employees and consultants
of the Company and as the Plan Administrator selects. The Plan Administrator is authorized, in its sole discretion, to issue options
as incentive stock options, which shall be appropriately designated. The term of each option to purchase common stock of the Company
is established by the Plan Administrator or, if not so established, is 10 years from the grant date.
The Plan Administrator establishes the
time at which each option shall vest and become exercisable. If not established in the instrument evidencing the option, the option
shall vest and become exercisable according to the following schedule: (i) after one year of the participant’s continuous
employment or service with the company or its related corporations, one quarter of the total options will be vested and exercisable;
(ii) after each additional six-month period of continuous service completed thereafter, an additional one eighth of the total options
will be vested and exercisable; and (iii) after four years, 100% of the options will be vested and exercisable. Under the terms
of the Plan, the exercise price for shares shall be paid in cash or check to the Company unless the Plan Administrator determines
otherwise.
The Plan Administrator shall determine
whether the options will continue to be exercisable, and the terms and conditions of such exercise, if a participant ceases to
be employed or provide services to the Company. If not so established in the instrument evidencing such options, any portion of
an option that is not vested and exercisable on the date of termination of the participant’s employment or service relationship
(the “Employment Termination Date”) shall expire on such date. Any portion of an option that is vested and exercisable
on the Employment Termination Date shall expire upon the earliest to occur of: (i) if the participant’s Employment Termination
Date occurs by reason of retirement, disability or death, the one-year anniversary of such Employment Termination Date; (ii) if
the participant’s Employment Termination Date occurs for reasons other than cause, retirement, disability or death, the three-month
anniversary of such Employment Termination Date; or (iii) the last day of the option term. Notwithstanding the foregoing, if the
participant dies after the Employment Termination Date while the Option is otherwise exercisable, the portion of the option that
is vested and exercisable on such Employment Termination Date shall expire upon the earlier to occur of: (a) the last day of the
option term; or (b) the first anniversary of the date of death, unless the Plan Administrator determines otherwise.
If a participant is terminated for cause,
the options shall automatically expire at the time the Company first notifies the participant of the termination. If a participant’s
employment is suspended pending investigation of whether they will be terminated for cause, the participant’s rights under
any option shall be suspended during the period of investigation. Awards granted under the Plan may not be assigned, except, to
the extent permitted by Section 422 of the Internal Revenue Code (the “IRC”), and the Plan Administrator may permit
such assignment, transfer and exercisability, and may permit a participant to designate a beneficiary who may exercise the award
or receive compensation under the award after the participant’s death. Any award permitted to be assigned shall be subject
to the terms and conditions contained in the instrument evidencing the award.
The Plan may only be amended by the Company’s
Board of Directors, as it deems advisable. Shareholder approval shall be required for any amendment to the extent required for
compliance with Section 422 of the IRC, as amended or any applicable law or regulation. The Board may suspend or terminate the
Plan at any time. Incentive stock options may not be granted more than 10 years after the later of the Plan’s adoption by
the Board or the adoption by the Board of any amendment to the Plan that constitutes adoption of a new plan for the purpose of
Section 422 of the IRC. Participants who are residents of California shall be subject to additional terms and conditions until
the Common Stock becomes a publicly traded security, under the California Securities Code.
On January 16, 2015 the Company’s
Chief Operating Officer was granted 2,250,000 options under the 2014 Plan with an exercise price of $1.15 per share for a term
of seven years. The options shall vest and become exercisable as follows: (i) 750,000 shall vest on the Date of Grant; (ii) 187,500
shall vest on each of the following dates: April 1, 2015, July 1, 2015, October 1, 2015, January 1, 2016, April 1, 2016, July 1,
2016, October 1, 2016 and January 1, 2017. On March 27, 2015 the Company executed an addendum to the Chief Operating Officer’s
employment agreement wherein he agreed to take on additional responsibilities. As consideration, the Company issued an additional
7,000,000 options under the 2014 Plan with an exercise price of $1.00 for a term of seven years. The 7,000,000 options vested in
full on grant.
On April 24, 2015 the Company entered into
an employment agreement with Mr. John Ryan to serve as the Company’s president. Pursuant to the employment agreement, the
Company granted Mr. Ryan 2,500,000 options under the 2014 Plan with an exercise price of $0.92 per share for a term of three years
to Mr. John Ryan its new President. The options shall vest and become exercisable as follows: (i) 100,000 vested on the Date of
Grant; (ii) 150,000 vested on July 24, 2015, (iii) 250,000 shall vest on each of the following dates: October 24, 2015, January
24, 2016 and April 24, 2016, (iv) 750,000 shall vest on achievement of certain performance objectives of tonnage and gold ore concentrate
(v) 750,000 shall vest on achievement of certain performance objectives based on earnings before interest, taxes, depreciation
and amortization. See the Form 8-K filed with the Commission on April 28, 2015. The Company and Mr. Ryan came to a mutual agreement
to terminate this agreement on October 22, 2015. All unvested options are cancelled.
On June 4, 2015 the Company entered into
an employment agreement with Mr. Thomas Loucks to serve as the Company’s Vice President of Corporate Development. Pursuant
to the employment agreement, the Company granted Mr. Loucks 2,500,000 options under the 2014 Plan with an exercise price of $0.90
per share for a term of three years. The options shall vest and become exercisable as follows: (i) 500,000 shall vest on the Date
of Grant; (ii) 500,000 shall vest on each of the following dates: December 4, 2015, June 4, 2016, December 4, 2016 and June 4,
2017. The Company and Mr. Loucks came to a mutual agreement to terminate this agreement on October 22, 2015. All unvested options
are cancelled.
On June 11, 2015 the Company entered into
an employment agreement with Mr. Bobby Cooper to serve as the Company’s Managing Director. Pursuant to the employment agreement,
the Company granted Mr. Cooper 2,500,000 options under the 2014 Plan with an exercise price of $0.80 per share for a term of three
years. The options shall vest and become exercisable as follows: (i) 500,000 shall vest on the Date of Grant; (ii) 500,000 shall
vest on each of the following dates: December 11, 2015, June 11, 2016, December 11, 2016 and June 11, 2017. The Company and Mr.
Cooper came to a mutual agreement to terminate this agreement on October 22, 2015. All unvested options are cancelled.
On July 21, 2015 the Company agreed to
reprice 750,000 options of an officer and director June 18, 2014 with an original exercise price of $1.67 to $0.75 exercise price.
The accounting effect of this resolution is to cancel the previous options and reissue new options with the new exercise price
of $0.75 with vested immediately as all other option terms remained the same and reduced option compensation by $318,270.
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 stock awards granted during fiscal 2016 and 2015, the fair value of each 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:
|
|
|
2016
|
|
|
|
2015
|
|
Risk-free interest rate
|
|
|
—
|
|
|
|
0.084% - 2.08%
|
|
Expected volatility factor
|
|
|
—
|
|
|
|
185% - 305%
|
|
Expected dividend
|
|
|
—
|
|
|
|
—
|
|
Expected option term (years)
|
|
|
—
|
|
|
|
3 - 7
|
|
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.
The Company recorded $0 and $10,608,577
related to compensation expense for the years ended December 31, 2016 and 2015, respectively. All 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 $0.10 and $0.13 per
share impact on the loss per share for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, there
was $0 in unrecognized compensation expense.
The following tables summarize information
about the Company’s stock options:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Options outstanding - December 31, 2014
|
|
|
34,131,842
|
|
|
$
|
0.99
|
|
Granted
|
|
|
17,500,000
|
|
|
|
.90
|
|
Canceled or expired
|
|
|
(16,555,619
|
)
|
|
|
.92
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Options outstanding - December 31, 2015
|
|
|
35,076,223
|
|
|
$
|
0.99
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
(2,500,000
|
)
|
|
|
0.88
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Options outstanding –December 31, 2016
|
|
|
32,576,223
|
|
|
$
|
0.98
|
|
Weighted average fair value of options granted during the year ended December 31, 2016
|
|
|
|
|
|
$
|
-
|
|
Weighted average fair value of options granted during the year ended December 31, 2015
|
|
|
|
|
|
$
|
0.90
|
|
A summary of the Company’s nonvested
options at December 31, 2016, and changes during the year ended December 31, 2016, is presented below:
|
|
Options
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Non-vested, beginning of period
|
|
|
1,149,850
|
|
|
$
|
0.90
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Vested
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(1,149,850
|
)
|
|
$
|
0.88
|
|
Non-vested, end of period
|
|
|
-
|
|
|
$
|
-
|
|
The following tables summarize information
about stock options outstanding and exercisable at December 31, 2016:
|
|
Options Outstanding and Exercisable at December 31, 2016
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value(1)
|
|
$0.40 to $0.60
|
|
|
5,276,223
|
|
|
3.9 years
|
|
$
|
0.46
|
|
|
$
|
-
|
|
$0.61 to $1.00
|
|
|
9,800,000
|
|
|
3.7 years
|
|
$
|
0.67
|
|
|
$
|
-
|
|
$1.01 to $1.50
|
|
|
14,500,000
|
|
|
3.8 years
|
|
$
|
1.25
|
|
|
$
|
-
|
|
$1.51 to $2.25
|
|
|
3,000,000
|
|
|
4.3 years
|
|
$
|
1.63
|
|
|
$
|
-
|
|
$0.40 to $2.25
|
|
|
32,576,223
|
|
|
3.9 years
|
|
$
|
0.98
|
|
|
$
|
-
|
|
|
(1)
|
The
aggregate intrinsic value in the table represents the difference between the closing stock price on December 31, 2016 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 December 31, 2016. No options were exercised during 2016.
|
Common Stock Purchase Warrants
For warrants granted to non-employees in
exchange for services, we recorded the fair value of the equity instrument using the Black-Scholes pricing model unless the value
of the services is more reliably measurable.
On March 2, 2015, 100,000 warrants to purchase
common stock were exercised at a per share price of $0.89 for a total of $89,000.
On April 23, 2015, 40,000 warrants to purchase
common stock were exercised at a per share price of $0.89 for a total of $35,600.
The Company and Wits Basin executed a Settlement
Agreement on January 22, 2016. Pursuant to the terms of the Settlement Agreement, the Company issued 630,000 warrants to purchase
common stock at an exercise price of $0.70 and 630,000 warrants at an exercise price of $0.30 to investors of Wits Basin. The warrants
are exercisable until December 31, 2018.
The following table summarizes information
about the Company’s stock purchase warrants outstanding at December 31, 2016 and 2015:
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Range
of
Exercise
Price
|
|
|
Weighted
Remaining
Contractual
Life
|
Outstanding at December 31, 2014
|
|
|
5,483,980
|
|
|
$
|
0.79
|
|
|
$
|
0.20 – 2.00
|
|
|
4.8 years
|
Granted
|
|
|
400,000
|
|
|
$
|
1.24
|
|
|
$
|
1.23 – 1.25
|
|
|
|
Cancelled or expired
|
|
|
(728,340
|
)
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
Exercised
|
|
|
(140,000
|
)
|
|
$
|
0.89
|
|
|
$
|
0.25 – 0.89
|
|
|
|
Outstanding at December 31, 2015
|
|
|
5,015,640
|
|
|
$
|
0.88
|
|
|
$
|
0.20 – 2.00
|
|
|
4.4 years
|
Granted
|
|
|
1,260,000
|
|
|
$
|
2.00
|
|
|
$
|
0.30 – 1.25
|
|
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Outstanding at December 31, 2016
|
|
|
6,275,640
|
|
|
$
|
0.86
|
|
|
$
|
0.20 – 2.00
|
|
|
3.2 years
|
Warrants exercisable at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
6,275,640
|
|
|
|
The aggregate intrinsic value of the 6,275,640
outstanding and exercisable warrants at December 31, 2016 was $0. The intrinsic value is the difference between the closing stock
price on December 31, 2016 and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised
their warrants on December 31, 2016.
NOTE 11 – LEGAL MATTERS
Stephen E.
Flechner v. Standard Metals Processing, Inc.
On April 29, 2014, Stephen E. Flechner
filed suit in the United States District Court for the District of Colorado against Standard Metals Processing, Inc. alleging that
Standard Metals had refused to allow him to exercise stock options granted to him pursuant to a Stock Option Agreement, dated April
1, 2010, and a second Stock Option Agreement, dated January 21, 2011. On June 12, 2014, Standard Metals filed an Answer and a Motion
to Dismiss or, Alternatively, to Stay or Transfer the action to the United States District Court for the Northern District of Alabama,
Middle Division . On January 16, 2015, Standard Metals filed a Motion for Summary Judgment. On January 23, 2015, the Court issued
an Order granting in part and denying in part Standard Metals’ Motion to Dismiss or, Alternatively, to Stay or Transfer the
action to the United States District Court for the Northern District of Alabama, Middle Division. The Court in its Order stayed
further proceedings in Colorado pending the issuance of orders by the Alabama court. Thereafter, on January 26, 2015, the Court
issued an Order vacating the February 20, 2015 Trial Preparation Conference and the March 9, 2015 Bench Trial. On March 23, 2015,
the Court issued an Order denying Standard Metals’ Motion for Summary Judgment. On March 30, 2015, Flechner filed a Motion
to Lift the Stay. On March 31, 2015, the Court issued an Order granting Flechner’s Motion to Lift the Stay. On April 6, 2015,
the Court issued an Order scheduling a Bench Trial for July 29, 2015. On April 9, 2015, Flechner filed a Motion for Reconsideration
of the Court’s March 23, 2015 Order Denying Flechner’s Motion to Enforce the Confidential Settlement Agreement to Settle
Certain Issues. On May 1, 2015, the Court issued an Order Granting Flechner’s Motion to Enforce the Confidential Settlement
Agreement to Settle Certain Issues. On August 12, 2015 the United Stated District Court for the District of Colorado issued a judgment
in favor of Stephen E. Flechner for $2,157,000. An amended final judgment was ordered in adjudication of the Complaint by the U.S.
District Court for the District of Colorado (the “Court”) on August 28, 2015 in favor of Flechner in the amount of
$2,157,000, plus interest through the date of judgment of $235,246, plus interest of $472.76/day from August 28, 2015 until paid
in full. The Company, in good faith anticipation of a settlement did not appeal the judgment and therefore, the Company’s
notice of appeal was dismissed on November 17, 2015. This judgment is now non-appealable. The Company and Flechner entered into
a Settlement Agreement on November 24, 2015, wherein Flechner will receive $450,000 in cash payment and $250,000 in installment
payments. As of the date of this filing, the Company has recorded an accrual in the amount of judgment and is negotiations with
Flechner.
Midwest Investment Partners, LLC v.
Standard Gold Holdings, Inc.
On September 6, 2013, Midwest Investment
Partners, LLC filed suit in the
United States District Court for the Southern District of Indiana, Evansville Division
against
Standard Gold Holdings, Inc. alleging a breach of the Company’s obligations under a $50,000 6% Convertible Promissory Note,
dated April 5, 2011, and a $25,000 6% Convertible Promissory Note, dated September 2, 2011, by (i) failing to repay the April 5,
2011 Note when due on October 6, 2011, and (ii) failing to repay the September 2, 2011 Note when due on February 29, 2012. On January
10, 2014, Standard Gold filed an Answer with Affirmative and Other Defenses to Midwest’s Complaint and Demand for Jury Trial.
On April 3, 2014, Midwest filed a Motion for Summary Judgment. On August 28, 2014, the Court entered an Order granting Midwest’s
Motion for Summary Judgment and closed judgment in favor of Midwest against Standard Gold. On November 23, 2015, the parties executed
a Settlement Agreement wherein the Company would pay or cause to be paid $130,000 to Midwest and issued 25,000 shares of restricted
common stock to Blair Mielke. Additionally, the Company cooperated with Midwest to transfer a number of shares of stock owned by
Midwest to Midwest’s investors. The remaining shares of stock owned by Midwest are subject to a lock up, leak out agreement.
This settlement agreement settles both this action and the Blair Mielke action listed below.
Midwest Investment Partners, LLC v.
Standard Metals Processing, Inc.
On March 17, 2014,
Midwest Investment Partners, LLC filed suit against Standard Metals Processing, Inc. in
Vanderburgh County Superior Court, Vanderburgh,
Indiana,
alleging that Standard Metals had wrongfully refused to remove a transfer restriction on Midwest’s shares of
Standard Metals stock pursuant to Rule 144 of the Securities Act. On March 27, 2014, Standard Metals filed a Notice of Removal
of a Civil Action requesting that the case proceed in the
United States District Court for the Southern District of Indiana,
Evansville Division
as an action properly removed pursuant to 28 U.S.C. §§ 1441 (a) and (b). On April 15, 2014, Standard
Metals served and filed its Answer and Affirmative Defenses to Plaintiff’s Complaint and Demand for Jury Trial. On November
26, 2014, Standard Metals filed a Motion for Summary Judgment. On February 11, 2015, the Court issued an Order granting Standard
Metals’ Motion for Summary Judgment and entered a Final Judgment in favor of Standard Metals and terminating the action.
NOTE 12 – RELATED PARTY TRANSACTIONS
Tina Gregerson/Tina Gregerson Family
Properties, LLC
On February 11, 2015, the Company issued
an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity controlled by a former
director and offier of the Company. The Note for up to $750,000 will be provided in tranches. Maturity of each tranche is one year
from the date of receipt. Interest will accrue at 8% per annum on each tranche. As consideration, the Company agreed to issue common
stock purchase warrants for the purchase of up to 250,000 shares of common stock exercisable for seven years at $1.23 per share.
Under the terms of the Note, the Company received $200,000 on February 11, 2015, $48,000 on February 13, 2015, $50,000 on April
13, 2015, $150,000 on July 31, 2015, $2,500 on October 20, 2015, $12,000 on October 29, 2015 and $15,000 on November 4, 2015.
Pure Path Management Company, LLC
Pure Path Management Company, LLC (“Pure
Path”) is currently the beneficial owner of 20.69% of the Company’s outstanding common stock. On October 10, 2013,
the Company issued 27,000,000 shares of common stock to Pure Path Management Company, LLC to settle $1,500,000 of the note payable
and accrued interest by the Company to Pure Path.
In connection with the assignment of the
Forbearance Agreement, the Parties executed an Agreement in Principle setting forth terms of the Forbearance Agreement (collectively
the “Pure Path Agreements”). Pursuant to the Pure Path Agreements, Pure Path was to receive participation payments
to be received on a quarterly basis for seven years after the final closing at a rate of 5% of adjusted gross revenue as such terms
are defined in the Pure Path Agreements, past and future consulting fees for approximately $1,150,000, collection remedies and
legal proceedings against the Company including foreclosure on the Deed of Trust, registration rights, rights of first refusal,
tag along rights, preemptive rights, exclusive worldwide rights pertaining to financing and joint ventures, and other negative
covenants regarding approval of corporate actions.
Pursuant to the Settlement and Release
Agreement, Pure Path relinquished the foregoing rights and obligations owed to it and agreed to forbear collection remedies and
legal proceedings against the Company including foreclosure on the Deed of Trust, and in connection with the settlement and release
of various debts of approximately $1,500,000 and the consulting fees owed by the Company and relinquishment of rights by Pure Path,
the Company issued 27,000,000 restricted shares and a Promissory Note (the “Pure Path Note”)in the amount of up to
$2,500,000 with a beginning principal balance of $1,933,345 bearing interest of 8% per year for the current balance of the amounts
owed under the Pure Path Agreements.
Under the terms of the Pure Path Note noted
above, the Company received $54,590 on February 4, 2015.
On April 11, 2016, the Company and Pure
Path executed an addendum removing Pure Path’s ability to convert its note into shares of Series B Preferred Stock.
Subsequently, the Company retired and cancelled
the entire class of Series B Preferred Stock, such class is no longer available for issuance.
NOTE 13 - INCOME TAXES
The components of income tax expense for
the years ended December 31, 2016 and 2015 consist of the following:
|
|
2016
|
|
|
2015
|
|
Current tax provision
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred tax benefit
|
|
|
(321,000
|
)
|
|
|
(16,853,000
|
)
|
Valuation allowance
|
|
|
321,000
|
|
|
|
16,853,000
|
|
Total income tax provision
|
|
$
|
—
|
|
|
$
|
—
|
|
Reconciliations between the statutory rate
and the effective tax rate for the years ended December 31, 2016 and 2015 consist as follows:
|
|
2016
|
|
|
2015
|
|
Federal statutory tax rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State taxes, net of federal benefit
|
|
|
0
|
%
|
|
|
0
|
%
|
Permanent differences
|
|
|
—
|
|
|
|
—
|
%
|
Expiration of Stock Options
|
|
|
—
|
|
|
|
—
|
%
|
Other
|
|
|
—
|
|
|
|
—
|
%
|
Valuation allowance
|
|
|
34
|
%
|
|
|
34
|
%
|
Effective tax rate
|
|
|
—
|
|
|
|
—
|
|
Significant components of the Company's
estimated deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
11,299,000
|
|
|
$
|
10,978,000
|
|
Impairment of assets
|
|
|
11,310,000
|
|
|
|
11,310,000
|
|
Stock based compensation
|
|
|
3,607,000
|
|
|
|
3,607,000
|
|
Loss on settlement of debt
|
|
|
51,000
|
|
|
|
51,000
|
|
Total deferred tax asset
|
|
|
26,267,000
|
|
|
|
25,946,000
|
|
Valuation allowance
|
|
|
(26,267,000
|
)
|
|
|
(25,946,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2016, we had approximately
$33,232,000 of federal net operating loss carry forwards. These carry forwards, if not used, will begin to expire in 2028. Future
utilization of our net operating loss carry forwards is subject to certain limitations under Section 382 of the Internal Revenue
Code. We believe that the issuance of our common stock in exchange for the Shea Mining and Milling properties in March of 2011
resulted in an “ownership change” under the rules and regulations of Section 382. Accordingly, our ability to utilize
our net operating losses generated prior to this date is limited to approximately $1,000,000 annually.
As of December 31, 2016, we do not believe
any of our net operating loss carry forward consists of deductions generated by the exercise of warrants or options to purchase
our stock. In the future, the stock options referenced in the above table of deferred tax items may be exercised and we may receive
a tax deduction. To the extent that the tax deduction is included in a net operating loss carry forward and is in excess of amounts
recognized for book purposes, no benefit will be recognized until the loss carry forward is recognized. Upon utilization and realization
of the carry forward, the corresponding change in the deferred asset and valuation allowance will be recorded as additional paid-in
capital.
We provide for a valuation allowance when
it is more likely than not that we will not realize a portion of the deferred tax assets. We have established a valuation allowance
against our net deferred tax asset due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions
to utilize the assets. Therefore, we have not reflected any benefit of such deferred tax assets in the accompanying financial statements.
Our net deferred tax asset and valuation allowance increased by $321,000 in the year ended December 31, 2016.
We reviewed all income tax positions taken
or that we expect to be taken for all open years and determined that our income tax positions are appropriately stated and supported
for all open years. The Company is subject to U.S. federal income tax examinations by tax authorities for years after 2011 due
to unexpired net operating loss carryforwards originating in and subsequent to that year. The Company may be subject to income
tax examinations for the various taxing authorities which vary by jurisdiction.
NOTE 14 – EARNINGS (LOSS) PER
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.
At December 31, 2016 and 2015, the weighted
average shares from stock options of 32,576,223 and 35,076,223, respectively and warrants of 6,275,640 and 5,015,640, and number
of equitant shares of convertible notes payable 1,000,000 and 0 respectively were excluded from the diluted weighted average common
share calculation due to the antidilutive effect such shares would have on net loss per common share.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements
On November 13, 2013, the Company entered
into an employment agreement with Sharon Ullman to serve as Chief Executive Officer (CEO). Ms. Ullman had been serving as the Company’s
interim CEO since December 16, 2011, and CEO since October 9, 2012 when the Board removed “interim” from her title,
but did not have an agreement in place. The term of the agreement is for a period of three years commencing on November 13, 2013.
Ms. Ullman shall be paid a salary consisting of $25,000 per month and shall be reimbursed for out of pocket business expenses already
paid by her during her service to the Company and any health insurance payments she has made beginning November 1, 2013. Ms. Ullman
was issued options to purchase 4,500,000 shares of Common Stock of the Company at $0.40 per share, of which 1,500,000 vested on
November 13, 2013, 1,500,000 vested on June 1, 2014, and 1,500,000 vested on June 1, 2015. If there is a change in control of the
Company, upon termination of her employment or during a period of disability Ms. Ullman will be entitled to the benefits listed
above. Effective April 1, 2015, Ms. Ullman and the Company agreed to suspend her compensation.
On June 10, 2014 the Company entered into
a one-year employment agreement with Robert Geiges to serve as our Chief Financial Officer with a base salary of $1,000 per month.
Mr. Geiges tendered his resignation on October 19, 2015.
On January 16, 2015 the Company entered
into an employment agreement with Jonathan Spier to serve as Chief Operating Officer of the Company. Mr. Spier will receive monthly
compensation of $1 for January through March 2015 and $12,500 thereafter. Mr. Spier was granted 2,250,000 options under the 2014
Plan with an exercise price of $1.15 per share for a term of seven years. The options shall vest and become exercisable as follows:
(i) 750,000 shall vest on the Date of Grant; (ii) 187,500 shall vest on each of the following dates: April 1, 2015, July 1, 2015,
October 1, 2015, January 1, 2016, April 1, 2016, July 1, 2016, October 1, 2016 and January 1, 2017. On March 27, 2015 the Company
and Mr. Spier executed an addendum to his agreement wherein he agreed to take on additional responsibilities. As consideration,
the Company issued an additional 7,000,000 options under the 2014 Plan with an exercise price of $1.00 for a term of seven years.
Mr. Spier tendered his resignation on September 30, 2015. All unvested options are cancelled.
On April 24, 2015 the Company entered into
an employment agreement with Mr. John Ryan to serve as the Company’s president. Pursuant to the employment agreement, the
Company granted Mr. Ryan 2,500,000 options under the 2014 Plan with an exercise price of $0.92 per share for a term of three years
to Mr. John Ryan its new President. The options shall vest and become exercisable as follows: (i) 100,000 vested on the Date of
Grant; (ii) 150,000 vested on July 24, 2015, (iii) 250,000 shall vest on each of the following dates: October 24, 2015, January
24, 2016 and April 24, 2016, (iv) 750,000 shall vest on achievement of certain performance objectives of tonnage and gold ore concentrate
(v) 750,000 shall vest on achievement of certain performance objectives based on earnings before interest, taxes, depreciation
and amortization. See the Form 8-K filed with the Commission on April 28, 2015. The Company and Mr. Ryan came to a mutual agreement
to terminate this agreement on October 22, 2015. All unvested options are cancelled.
On June 4, 2015 the Company entered into
an employment agreement with Mr. Thomas Loucks to serve as the Company’s Vice President of Corporate Development. Pursuant
to the employment agreement, the Company granted Mr. Loucks 2,500,000 options under the 2014 Plan with an exercise price of $0.90
per share for a term of three years to Mr. Thomas Loucks. The options shall vest and become exercisable as follows: (i) Five Hundred
Thousand (500,000) shall vest on the Date of Grant; (ii) Five Hundred Thousand (500,000) shall vest December 4, 2015; (iii) Five
Hundred Thousand (500,000) shall vest June 4, 2016; (iv) Five Hundred Thousand (500,000) shall vest December 4, 2016; and (v) Five
Hundred Thousand (500,000) shall vest June 4, 2016. See the Form 8-K filed with the Commission on June 9, 2015. The Company and
Mr. Loucks came to a mutual agreement to terminate this agreement on October 22, 2015. All unvested options are cancelled
On June 11, 2015 the Company entered into
an employment agreement with Mr. Bobby E. Cooper to serve as the Company’s Managing Director, Metals and Mining. Pursuant
to the employment agreement, the Company granted Mr. Cooper 2,500,000 options under the 2014 Plan with an exercise price of $0.80
per share for a term of three years to Mr. Bobby E. Cooper. The options shall vest and become exercisable as follows: (i) Five
Hundred Thousand (500,000) shall vest on the Date of Grant; (ii) Five Hundred Thousand (500,000) shall vest December 11, 2015;
(iii) Five Hundred Thousand (500,000) shall vest June 11, 2016; (iv) Five Hundred Thousand (500,000) shall vest December 11, 2016;
and (v) Five Hundred Thousand (500,000) shall vest June 11, 2016. See the Form 8-K filed with the Commission on June 16, 2015.
The Company and Mr. Cooper came to a mutual agreement to terminate this agreement on October 22, 2015. All unvested options are
cancelled
NOTE 16 – SUBSEQUENT EVENTS
On February 15, 2017 and March 1, 2017
the Company issued convertible promissory notes in the aggregate principal amount of $60,000. The notes are due one year after
issuance, accrues interest at 6% per annum and is convertible into shares of common stock at a price of $0.06 per share.
On March 7, 2017, convertible promissory
notes payable totaling $64,174.24 and accrued interest were converted into 3,008,712 shares of restricted common stock.