The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
March 31, 2016
(unaudited)
NOTE 1 - OVERVIEW
Standard Metals Processing, Inc. (“we,”
“us,” “our,” “Standard Metals” or the “Company”) is an exploration stage company
having offices in Gadsden, Alabama and through its subsidiary, a property in Tonopah, Nevada. Our business plan is to purchase
equipment and build a facility on our Tonopah property to serve as a permitted custom processing toll milling facility (which includes
an analytical lab, pyrometallugircal plant, and hydrometallurgical recovery plant).
The Company plans to perform permitted
custom processing toll milling which 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 minerals in the gold, silver and platinum metal groups. Custom milling
and refining can include many different processes that are designed specifically for each ore load and to maximize the extraction
of precious metals from carbon or concentrates. These toll-processing services also distill, dry, mix, or mill chemicals and bulk
materials on a contractual basis and provide a chemical production outsourcing option for industrial companies, which lack the
expertise, capacity, or regulatory permits for in-house production.
We are required to obtain several permits
before we can begin construction of a small scale mineral processing facility to conduct permitted processing toll milling activities
and construction of the required additional buildings and well relocation necessary for us to commence operations.
Any reference herein to “Standard
Metals,” “the Company,” “we,” “our,” or “us” is intended to mean Standard
Metals Processing, Inc. a Nevada corporation, and all of our subsidiaries unless otherwise indicated.
Going Concern
The accompanying condensed
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 three months ended March 31, 2017, the Company incurred
losses from operations of $183,381. At March 31, 2017, the Company had an accumulated deficit of $102,761,496 and a working
capital deficit of $9,263,895. 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 three months ended March
31, 2017, the Company received net cash proceeds of $120,000 from the convertible promissory notes payable. 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 financial statements include the accounts
of Standard Metals Processing, Inc., its’ wholly owned subsidiary Tonopah Milling and Metals Group, Inc. (“TMMG”),
and TMMG’s wholly owned subsidiaries Tonopah Custom Processing, Inc. and Tonopah Resources, Inc. All significant intercompany
transactions, accounts and balances have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared 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 for the year ended December 31, 2016 filed April 14, 2017. In
the opinion of management, all adjustments (consisting of normal recurring adjustments unless otherwise indicated) considered necessary
for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative
of the results that may be expected for the year as a whole.
Shea Mining and Milling Assets
The Company recorded the estimated fair
value of the Shea Mining and Milling assets as an aggregate amount on the condensed balance sheets. 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 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.
Mineral Properties
Mineral property acquisition costs are
recorded at cost and are deferred until the viability of the property is determined. No properties have produced operating revenues
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.
The Company does not own any mining claims.
It owns tailings located on the Tonopah property and some tailings located in Manhattan, Nevada. The Company has not disturbed
or processed any of this material and does not intend to do so in the foreseeable future.
Impairment of Long-Lived Assets and 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.
Use of Estimates
The preparation of 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.
Recent Accounting Pronouncements
During the period ended March 31, 2017
and through May 12, 2017, there were several additional 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.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842) The standard requires
all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and
the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition
of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing
lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over
the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization
of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our
interim and annual periods beginning January 1, 2019, and must be applied on a modified retrospective basis to leases existing
at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption
is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position,
but we do not expect it to have a material impact on our results of operations.
Management’s Evaluation of Subsequent
Events
The Company evaluates events that have occurred after the balance
sheet date of March 31, 2017, through the date which the condensed consolidated financial statements were issued. Based upon the
review, other than described in Note 12 – Subsequent Events, the Company did not identify any recognized or non-recognized
subsequent events that would have required adjustment or disclosure in the condensed 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 the Company, 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 1,186 deeded acres, one of the largest private land holdings in Esmeralda County, Nevada.
An estimated 2,200,000 tons of tailings known as the Millers Tailings from the historic gold rush of Goldfield and Tonopah, Nevada
sits on approximately 334 acres of this land. 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 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,
the Company was also 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 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.
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 $282,587 had a fair value of $12,000 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 $270,587.
NOTE 5 – PROPERTY, PLANT AND
EQUIPMENT
The Company is preparing the Tonopah property
site for the construction of a permitted custom processing toll milling facility including grading the land, installing fencing
and working with contractors for our 21,875 square foot building and servicing and drilling various wells for our future operations.
Components of our property, plant and equipment
are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
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 – CONVERTIBLE NOTES
PAYABLE
On March 14, 2017,
the Company received cash proceeds of $60,000, and on April 18, 2017, the Company issued a promissory note in exchange for the
cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is
convertible into shares of common stock at $0.075 per share. The Company analyzed the conversion feature under ASC 470-20
Debt
with conversion and other options
, and based on the market price of the common stock of the Company on the date of funding
as compared to the conversion price, determined there was no beneficial conversion feature to recognize.
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, accrue interest at 6% per annum and are convertible into shares of common stock at a price of
$0.02 per share. The Company then analyzed the conversion under ASC 470-20
Debt with conversion and other options
for consideration
of a benefical 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.
On March 7, 2017,
the February 15, 2017 and March 1, 2017 convertible promissory notes payable totaling $60,174, including accrued interest, were
converted into 3,008,712 shares of restricted common stock and the remaining debt discount of $58,164 was recorded as amortization
of debt discount.
The following table summarizes the Company’s
remaining convertible promissory notes (convertible into common stock):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Convertible notes at March 31, 2017; interest rate of 8%;
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Convertible notes at March 31, 2017; interest rate of 6%;
|
|
|
60,000
|
|
|
|
|
|
Less unamortized debt discount
|
|
|
(39,644
|
)
|
|
|
(47,507
|
)
|
Convertible promissory notes net of unamortized discount of $0 at March 31, 2017; interest rate of 6%; accrued interest of $36,665 at December 31, 2016 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
|
)
|
|
|
$
|
80,356
|
|
|
$
|
12,493
|
|
NOTE 7 – PROMISSORY NOTES PAYABLE
- RELATED PARTY
The following table summarizes the Company’s
notes payable related party:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
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; $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; the note has a stated interest rate of 8%; with a maturity of 1 year from the date of the tranche. The note is now in default.
|
|
$
|
477,500
|
|
|
$
|
477,500
|
|
Less discount
|
|
|
(-
|
)
|
|
|
(-
|
)
|
Totals
|
|
$
|
477,500
|
|
|
$
|
477,500
|
|
On February 11, 2015, the Company issued
an unsecured promissory note to Tina Gregerson Family Properties, LLC, an entity controlled by a former 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. 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 from the relative fair value of the warrants of $116,560. The Company valued the warrants using the Black-Scholes option
pricing model with the following assumptions: stock price on the measurement date of $1.25; warrant term of 7 years; expected volatility
of 75%; and discount rate of 1.83% and accounted for them as debt discount, which will be amortized over the term of the loan.
NOTE 8 – SHAREHOLDERS’
EQUITY
Preferred Stock
Series A Preferred
Stock
Simultaneous with the Shea Exchange Agreement,
Wits Basin exchanged 19,713,544 shares of our common stock it held for 10,000,000 shares ($.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.
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.
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.
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.
Common Stock - Note Payable Conversion
On March 7, 2017, convertible promissory
notes payable and accrued interest totaling $64,174 were converted into 3,008,712 shares of restricted common stock.
Option Grants
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.
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 $0 related
to compensation expense for the three months ended March 31, 2017 and 2016, 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. As of March 31, 2017, 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, 2015
|
|
|
35,076,223
|
|
|
$
|
0.99
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
(2,500,000
|
)
|
|
|
0.88
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Options outstanding - December 31, 2016
|
|
|
32,576,223
|
|
|
$
|
0.99
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Options outstanding –March 31, 2017
|
|
|
32,576,223
|
|
|
$
|
0.98
|
|
Weighted average fair value of options granted during the period ended March 31, 2017
|
|
|
|
|
|
$
|
-
|
|
Weighted average fair value of options granted during the year ended December 31, 2016
|
|
|
|
|
|
$
|
-
|
|
The following table summarizes information
about stock options outstanding and exercisable at March 31, 2017:
|
|
Options Outstanding and exercisable at March 31, 2017
|
|
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
|
|
|
3.6 years
|
|
$
|
0.46
|
|
|
$
|
-
|
|
$0.61 to $1.00
|
|
|
9,800,000
|
|
|
3.5 years
|
|
$
|
0.67
|
|
|
$
|
-
|
|
$1.01 to $1.50
|
|
|
14,500,000
|
|
|
3.6 years
|
|
$
|
1.25
|
|
|
$
|
-
|
|
$1.51 to $2.25
|
|
|
3,000,000
|
|
|
4.1 years
|
|
$
|
1.63
|
|
|
$
|
-
|
|
$0.40 to $2.25
|
|
|
32,576,223
|
|
|
3.6 years
|
|
$
|
0.98
|
|
|
$
|
-
|
|
|
(1)
|
The aggregate intrinsic value in the table represents the difference between the closing stock price on March 31, 2017 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 March 31, 2017.
|
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.
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 March 31, 2017 and December 31, 2016:
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Range
of
Exercise
Price
|
|
|
Weighted
Remaining
Contractual
Life
|
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
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Outstanding at March 31, 2017
|
|
|
6,275,640
|
|
|
$
|
0.80
|
|
|
$
|
0.20 - 2.00
|
|
|
2.9 years
|
Warrants exercisable at March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
6,425,640
|
|
|
|
The aggregate intrinsic value of the 6,275,640
outstanding and exercisable warrants at March 31, 2017 was $0. The intrinsic value is the difference between the closing stock
price on March 31, 2017 and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised
their warrants on March 31, 2017.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
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. Standard Metals Processing, Inc. intends to continue to vigorously
defend against claims by Steven E. Flechner. 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, which is no longer in effect.
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 previously
disclosed. The Company and Midwest revised the payment schedule of their Settlement Agreement. During the period ended March 31,
2017, the Company made payments of $35,000 to Midwest.
NOTE 10 – 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 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. These notes
are now in default.
Pure Path Management Company, LLC
Pure Path Management Company, LLC (“Pure
Path”) is currently the beneficial owner of 21% of the outstanding common stock of the Company. 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.
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 executed October 10, 2013 with the Company, 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”) for an 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,
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 11 – 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 March 31, 2017, the weighted average
shares from stock options of 32,576,223, warrants of 6,275,640 and Convertible Promissory note shares of 1,800,000 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 12 – SUBSEQUENT EVENTS
Convertible
Promissory Note
On April 18, 2017, the Company issued a
promissory note in the amount of $60,000, interest accrues at 6% per annum and is due one year from the date of issuance. The note
is convertible into shares of common stock at $0.075 per share. The note was funded on March 14, 2017. See
Note 6- Convertible
Notes Payable
.