U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|
x |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September
30, 2015
OR
|
¨ |
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______
to _______
Commission file number 000-14319
STANDARD METALS PROCESSING, INC.
(Exact Name of Small Business Issuer as
Specified in its Charter)
Nevada |
|
84-0991764 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer Identification Number) |
Incorporation or Organization) |
|
|
611 Walnut Street, Gadsden, Alabama
35901
(Address of Principal Executive Offices)
888-960-7347
(Issuer’s Telephone Number, Including
Area Code)
N/A
(Former Name, Former Address and Former
Fiscal Year, If Changed Since Last Report)
Indicate
by check mark whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during
the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ¨
No x
Indicate by check mark whether the Registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨ |
Accelerated filer
¨ |
Non-accelerated filer
¨ |
Smaller reporting company x |
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
As of November 23, 2015, there were
104,150,936 shares of the Registrant’s common stock, par value $.001, outstanding.
STANDARD METALS PROCESSING, INC.
FORM 10-Q
TABLE OF CONTENTS
September 30, 2015
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Form 10-Q contains certain statements
which are forward-looking in nature and are based on the current beliefs of our management as well as assumptions made by and
information currently available to management, including statements related to the uncertainty of the quantity or quality of minerals
in our tailings, the fluctuations in the market price of such reserves, general trends in our operations or financial results,
plans, expectations, estimates and beliefs. In addition, when used in this Form 10-Q, the words “may,” “could,”
“should,” “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan,” “predict” and similar expressions and their variants, as they relate to us or our management,
may identify forward-looking statements. These statements reflect our judgment as of the date of this Form 10-Q with respect to
future events, the outcome of which is subject to risks. We have attempted to identify, in context, certain of the factors that
we believe may cause actual future experience and results to differ materially from our current expectations, which may have a
significant impact on our business, operating results, financial condition or your investment in our common stock, as described
in Part II, Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.
Readers are cautioned that these forward-looking
statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially from those described herein.
We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However,
your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports filed with the
Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K.
STANDARD METALS PROCESSING, INC.
Consolidated Balance Sheets
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Audited) | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 6,656 | | |
$ | 36,095 | |
Prepaid expenses | |
| 45,315 | | |
| 59,010 | |
Assets held for Sale | |
| 928,143 | | |
| - | |
| |
| | | |
| | |
Total current assets | |
| 980,114 | | |
| 95,105 | |
Shea Mining and Milling Assets | |
| 2,108,300 | | |
| 35,159,427 | |
Property, plant and equipment: | |
| | | |
| | |
Machinery and equipment | |
| 21,000 | | |
| 1,758,818 | |
Construction in progress | |
| 2,057,791 | | |
| 1,778,532 | |
| |
| 2,078,791 | | |
| 3,537,350 | |
Accumulated depreciation | |
| (21,000 | ) | |
| (17,613 | ) |
Net property, plant and equipment | |
| 2,057,791 | | |
| 3,519,737 | |
Total Assets | |
$ | 5,146,205 | | |
$ | 38,774,269 | |
| |
| | | |
| | |
Liabilities and Shareholders’ Equity (Deficit) | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Senior secured convertible promissory note payable, related party | |
$ | 2,229,187 | | |
$ | 2,174,597 | |
Long-Term of trade payable in default | |
| 928,143 | | |
| - | |
Promissory notes payable - related party, net of debt discount of $38,856 | |
| 409,144 | | |
| - | |
Convertible notes payable, current portion | |
| 175,000 | | |
| 175,000 | |
Flechner judgement | |
| 2,257,000 | | |
| - | |
Due to Wits Basin Precious Minerals Inc. | |
| 16,616 | | |
| 16,616 | |
Accounts payable | |
| 1,995,957 | | |
| 2,154,512 | |
Accrued interest | |
| 437,212 | | |
| 246,273 | |
Accrued expenses | |
| 958,922 | | |
| 710,286 | |
Accounts payable to related party | |
| 1,424 | | |
| 6,307 | |
| |
| | | |
| | |
Total current liabilities | |
| 9,408,605 | | |
| 5,483,591 | |
| |
| | | |
| | |
Commitments and Contingencies (Note 9) | |
| | | |
| | |
| |
| | | |
| | |
Preferred stock, 50,000,000 shares authorized: | |
| | | |
| | |
Series A, $.001 par value, 10,000,000 and 10,000,000 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively | |
| 10,000,000 | | |
| 10,000,000 | |
| |
| | | |
| | |
Shareholders’ equity (deficit): | |
| | | |
| | |
Series B preferred stock, no shares issued and outstanding | |
| - | | |
| - | |
Common stock, $0.001 par value, 500,000,000 shares authorized: 104,150,936 and 103,660,936 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively | |
| 104,051 | | |
| 103,661 | |
Additional paid-in capital | |
| 87,984,455 | | |
| 75,255,143 | |
Accumulated deficit | |
| (102,350,906 | ) | |
| (52,068,126 | ) |
Total shareholders’ equity (deficit) | |
| (14,262,400 | ) | |
| 23,290,678 | |
Total Liabilities and Shareholders’ Equity (Deficit) | |
$ | 5,146,205 | | |
$ | 38,774,269 | |
The accompanying notes are an integral part of these consolidated financial statements.
STANDARD METALS PROCESSING, INC.
Consolidated Statements of Operations
(Unaudited)
| |
Three months ended | | |
Nine months ended | |
| |
September 30, 2015 | | |
September 30, 2014 | | |
September 30, 2015 | | |
September 30, 2014 | |
| |
| | |
| | |
| | |
| |
Revenues | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 898,510 | | |
| 1,390,818 | | |
| 13,649,311 | | |
| 13,412,422 | |
Impairment of Shea Mining and Milling assets | |
| - | | |
| - | | |
| 33,051,127 | | |
| - | |
Impairment of Machinery and Equipment | |
| 809,675 | | |
| - | | |
| 809,675 | | |
| - | |
Depreciation and amortization | |
| - | | |
| 4,400 | | |
| 3,387 | | |
| 13,213 | |
Judgement on legal actions | |
| - | | |
| - | | |
| 2,257,000 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 1,705,185 | | |
| 1,395,218 | | |
| 49,770,500 | | |
| 13,425,635 | |
Loss from operations | |
| (1,705,185 | ) | |
| (1,395,218 | ) | |
| (49,770,500 | ) | |
| (13,425,635 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Other income | |
| 1,826 | | |
| 1,587 | | |
| 6,084 | | |
| 4,761 | |
Loss on settlement of debt | |
| (150,000 | ) | |
| (147,467 | ) | |
| (150,000 | ) | |
| (1,106,487 | ) |
Interest expense | |
| (78,096 | ) | |
| (44,479 | ) | |
| (196,253 | ) | |
| (136,430 | ) |
Amortization of debt discount | |
| (130,202 | ) | |
| - | | |
| (207,643 | ) | |
| - | |
Change in Accrued expense mark-to-market | |
| 35,532 | | |
| - | | |
| 35,532 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Total other income (expense) | |
| (320,940 | ) | |
| (190,359 | ) | |
| (512,280 | ) | |
| (1,238,156 | ) |
Loss before income tax provision | |
| (2,026,125 | ) | |
| (1,585,577 | ) | |
| (50,282,780 | ) | |
| (14,663,791 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax provision | |
| - | | |
| - | | |
| - | | |
| - | |
Net loss | |
$ | (2,026,125 | ) | |
$ | (1,585,577 | ) | |
$ | (50,282,780 | ) | |
$ | (14,663,791 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic net loss per common share | |
$ | (0.02 | ) | |
$ | (0.02 | ) | |
$ | (0.48 | ) | |
$ | (0.15 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic weighted average common shares outstanding | |
| 104,066,697 | | |
| 102,226,609 | | |
| 103,818,042 | | |
| 97,647,623 | |
The accompanying notes are an integral part of these consolidated financial statements.
STANDARD METALS PROCESSING, INC.
Consolidated Statements of Cash Flows
(unaudited)
| |
For the nine months ended | |
| |
September 30, 2015 | | |
September 30, 2014 | |
OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (50,282,780 | ) | |
$ | (14,663,791 | ) |
Adjustments to reconcile net loss to cash flows used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 3,387 | | |
| 13,213 | |
Amortization of debt issuance costs | |
| 207,656 | | |
| - | |
Compensation expense related to issuance of common stock, warrants and stock option grants | |
| 12,242,135 | | |
| 11,829,508 | |
Impairment of Shea Mining and Milling assets | |
| 33,051,127 | | |
| - | |
Impairment on machinery & equipment | |
| 809,675 | | |
| - | |
Loss on settlement of debt | |
| 150,000 | | |
| 1,106,487 | |
Judgement on legal actions | |
| 2,257,000 | | |
| - | |
Change in Accrued expense mark-to-market | |
| (35,532 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| 13,695 | | |
| (29,807 | ) |
Accounts payable | |
| 500,325 | | |
| 1,724,266 | |
Accrued expenses | |
| 475,094 | | |
| (66,983 | ) |
Accounts payable related party | |
| (4,883 | ) | |
| - | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (613,101 | ) | |
| (87,107 | ) |
| |
| | | |
| | |
INVESTING ACTIVITIES: | |
| | | |
| | |
Purchases of equipment | |
| - | | |
| (1,692,210 | ) |
Payment for construction in progress | |
| (43,528 | ) | |
| (1,491,306 | ) |
| |
| | | |
| | |
Net cash used in investing activities | |
| (43,528 | ) | |
| (3,183,516 | ) |
| |
| | | |
| | |
FINANCING ACTIVITIES: | |
| | | |
| | |
Repayment of short term note principal | |
| - | | |
| (25,000 | ) |
Cash proceeds from issuance of common stock, warrants and exercise of stock options and warrants, net | |
| 124,600 | | |
| 3,158,315 | |
Cash proceeds from debt | |
| 54,590 | | |
| - | |
Proceeds from Notes Payable from related party | |
| 448,000 | | |
| - | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 627,190 | | |
| 3,133,315 | |
| |
| | | |
| | |
DECREASE IN CASH AND CASH EQUIVALENTS | |
| (29,439 | ) | |
| (137,308 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | |
| 36,095 | | |
| 143,099 | |
CASH AND CASH EQUIVALENTS, end of period | |
$ | 6,656 | | |
$ | 5,791 | |
| |
| | | |
| | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |
| | | |
| | |
Cash paid for interest cost | |
| 5,314 | | |
| - | |
Income taxes paid | |
| - | | |
| - | |
Non-cash investing and financing transactions: | |
| | | |
| | |
Convertible promissory notes and accrued interest converted into common stock | |
| - | | |
| 118,559 | |
Accounts payable converted to long-term debt | |
| 928,130 | | |
| - | |
Shares issued for accounts payable settlement | |
| 83,532 | | |
| - | |
Stock and warrants issued in connection with debt | |
| 162,967 | | |
| - | |
Conversions into common stock of amounts originally due to Shea | |
| - | | |
| 225,000 | |
Common stock issued in lieu of accounts payable and accrued expenses | |
| - | | |
| 1,114,237 | |
The accompanying notes are an integral part of these consolidated financial statements.
STANDARD METALS
PROCESSING, INC.
Notes to Condensed
Consolidated Financial Statements
September 30,
2015
(unaudited)
NOTE 1 - OVERVIEW
Standard Metals Processing, Inc. (formerly
Standard Gold Holdings, Inc., Standard Gold, Inc. and Princeton Acquisitions, Inc.) (the “Company”) was incorporated
in the State of Colorado on July 10, 1985 as a blind pool or blank check company. On September 29, 2009, the Company 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 the Company (the “Hunter Bates Share Exchange”) and the Company 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., (“Wits Basin”) a Minnesota corporation and public reporting company quoted on the Pink Sheets
under the symbol “WITM” 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.” The Company had not engaged in any exploration or mining activities
at the Bates-Hunter Mine properties and on April 29, 2011, the Company transferred all of its 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 it 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 the Company, mine dumps, a property lease and a contract agreement
in exchange for 35,000,000 shares of the Company’s 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 – Impairment of Shea Milling and Mining Assets for a detailed discussion.
Refocused Business Plan
The Company considered altering its strategy
and establishing itself as a specialized mining house that can provide financing in exchange for metals streaming and royalty
financing, and also to seek opportunities to acquire current income-producing metal streams and royalty contracts. The Company
has undergone some changes in management and a refocus in its business plan. Management is delaying any plans for metals streaming
and royalty. The Company is reexamining its next steps for developing a processing facility.
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 nine months ended September 30, 2015, the Company incurred losses from operations of $50,282,780.
At September 30, 2015, the Company had an accumulated deficit of $102,350,906 and a working capital deficit of $8,503,491. Our
ability to continue as a going concern is dependent on our ability to raise the required additional capital or debt financing
to meet short and long-term operating requirements. During the nine months ended September 30, 2015, the Company received net
cash proceeds of $627,190 from the exercise of warrants and loans from related parties. 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 subsidiaries, Esmeralda Renewable Energy, Inc. and 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 filed March 31, 2015. 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 six months ended September 30, 2015 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
to be Disposed
The Company reviews its long-lived assets
and identifiable finite-lived intangibles for impairment on an annual basis and whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. The first step of the impairment test, used to identify potential
impairment, compares undiscounted future cash flows of the asset or asset group with the related carrying amount. If the undiscounted
future cash flows of the asset or asset group exceed its carrying amount, the asset or asset group is not considered to be impaired
and the second step is unnecessary. If such assets were considered to be impaired, the impairment to be recognized would be measured
by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell.
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 September 30,
2015 and through November 23, 2015, 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 – IMPAIRMENT OF 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 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,
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 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, then 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, 2014 all
of these stock options are expired.
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 – 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 its 21,875 square foot building and servicing and drilling various wells
for the Company’s future operations.
Components of our property, plant and
equipment are as follows:
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Equipment | |
$ | 21,000 | | |
$ | 1,758,818 | |
Construction in Progress | |
| 2,057,791 | | |
| 1,778,532 | |
Less accumulated depreciation | |
| (21,000 | ) | |
| (17,613 | ) |
| |
$ | 2,057,791 | | |
$ | 3,519,737 | |
NOTE 5 – LONG-TERM TRADE PAYABLE
The following table summarizes the Company’s
long-term trade payable:
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Vendor agreement dated March 12, 2015 with monthly payments of $50,000 and zero interest | |
$ | 928,143 | | |
$ | - | |
Less debt discount | |
| (-
| ) | |
| - | |
| |
| 928,143 | | |
| - | |
Less current portion | |
| (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. As an inducement to enter into the agreement the Company granted the vendor 100,000 shares of its restricted common
stock and 150,000 common stock purchase warrants exercisable for three years at a per share price of $1.25. The Company analyzed
the common stock and purchase warrant under ASC 470-20-25 Debt with conversion and other options for consideration and
accounted for them as debt discount, which will be amortized over the term of the loan. The Company recorded a discount from the
relative fair value of the warrants of $46,407. The warrants were valued using the Black-Scholes option pricing model with the
following assumptions: stock price on the measurement date of $0.94; warrant term of 3 years; expected volatility of 75%; and
discount rate of 1.06%. The Company valued the issuable but not issued common stock at market value of $83,532 and recorded as
an Accrued Expense. As of September 30, 2015 the Company evaluated this Accrued expense under ASC 820-10 “Fair value
Measurement” and was mark-to-market of $48,000 and recorded as a change to accrued expense mark-to-market of $35,532.
The Company did not make the payments
due and therefore have reflected this debt as in default and currently due.
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 contractual
term of the warrants at their issuance date. The Company uses historical data to estimate expected dividend yield and volatility
of the Company’s stock.
NOTE 6 – PROMISSORY NOTES
PAYABLE - RELATED PARTY
The following table summarizes the Company’s
notes payable related party:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
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; the note has a stated interest rate of 8%; with a maturity of 1 year from the date of the tranche. | |
$ | 448,000 | | |
$ | - | |
Less discount | |
| (38,856 | ) | |
| - | |
Totals | |
$ | 409,144 | | |
$ | - | |
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 and interim CEO 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 based on 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
note.
NOTE 7 – ASSET HELD FOR SALE
During the three month period ended September
30, 2015 the Company was in negotiations with the vendor in Note 5 Long-Term Trade Payable and holder of the agreement to attempt
to sell the certain equipment. 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 that an impairment of machinery
and equipment of $809,675 occurred and recorded an asset held for sale of $928,143 at fair value.
NOTE 8 – SHAREHOLDERS’
EQUITY
Preferred Stock
Series A Preferred Stock
Simultaneous with the Shea Exchange Agreement,
Wits Basin exchanged 19,713,544 shares of our common stock it held for 10,000,000 shares ($.001 par value each) of “Series
A Preferred Stock” with an original issue price of $1.00 per share.
Attributes of Series A
Preferred Stock can be found in the Form 10-K for the year ended December 31, 2014 filed with the Commission on March 31,
2015 and in the Company’s filings with the Secretary of State of Colorado.
Series B Preferred Stock
There are no shares of Series B Preferred
Stock issued and outstanding.
Attributes of Series B
Preferred Stock can be found in the Form 10-K for the year ended December 31, 2014 filed with the Commission on March 31,
2015 and in the Company’s filings with the Secretary of State of Nevada.
Common Stock and Common Stock Purchase
Warrant Issuances
Stock issued on conversion of accounts
payable
On July 31, 2015 the Company
reached agreement with a vendor to reduce the Company’s accounts payable by $50,000 in exchange for 250,000 common
shares of the Company’s stock with a fair value of $0.80 per share. The Company evaluated the transaction using ASC
405-20-40 “Liabilities – Extinguishments of Liabilities” and recorded a loss on extinguishment of
debt of $150,000.
Option Grants
2014 Option Plan
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 vest 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 which vested immediately as all other option terms remained the same.
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 the six months period ended June 30, 2015 and the year ended December 31, 2014, 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:
| |
2015 | |
2014 |
Risk-free interest rate | |
.84% -1.74% | |
2.21%- 2.41% |
Expected volatility factor | |
185% - 293% | |
75% |
Expected dividend | |
— | |
— |
Expected option term (years) | |
3 - 7 | |
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 $11,923,865 and $11,829,508
related to compensation expense for the nine months ended September 30, 2015 and 2014, 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 September 30, 2015, there was
$3,834,041 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, 2013 | |
| 32,750,842 | | |
$ | 0.88 | |
| |
| | | |
| | |
Granted | |
| 4,000,000 | | |
| 1.71 | |
Canceled or expired | |
| (2,337,000 | ) | |
| .79 | |
Exercised | |
| (282,000 | ) | |
| .60 | |
Options outstanding - December 31, 2014 | |
| 34,131,842 | | |
$ | 0.99 | |
| |
| | | |
| | |
Granted | |
| 17,750,000 | | |
| 1.21 | |
Canceled or expired | |
| (1,687,500 | ) | |
| 1.38 | |
Exercised | |
| - | | |
| - | |
Options outstanding – June 30, 2015 | |
| 50,194,342 | | |
$ | 0.95 | |
| |
| | | |
| | |
Weighted average fair value of options granted during the period ended June 30, 2015 | |
| | | |
$ | 1.21 | |
Weighted average fair value of options granted during the year ended December 31, 2014 | |
| | | |
$ | 0.94 | |
A summary of the Company’s non-vested
options at September 30, 2015, and changes during the nine months ended September 30, 2015, is presented below:
| |
Options | | |
Weighted Average Grant Date
Fair Value | |
Non-vested, beginning of period | |
| 5,250,000 | | |
$ | 0.24 | |
Granted | |
| 17,750,000 | | |
$ | 1.21 | |
Vested | |
| (13,437,500 | ) | |
$ | 1.01 | |
Forfeited | |
| (1,687,500 | ) | |
$ | 1.38 | |
Non-vested, end of period | |
| 7,775,500 | | |
$ | 0.86 | |
The following tables summarize information
about stock options outstanding and exercisable at September 30, 2015:
| |
Options Outstanding at September
30, 2015 | |
Range of Exercise Prices | |
Number Outstanding | | |
Weighted Remaining Contractual
Life | | |
Weighted Average Exercise
Price | | |
Aggregate Intrinsic Value(1) | |
| |
| | |
| | |
| | |
| |
$0.40 to $0.60 | |
| 6,031,842 | | |
| 5.1
years | | |
$ | 0.48 | | |
$ | 180,000 | |
$0.61 to $1.00 | |
| 25,350,000 | | |
| 4.4
years | | |
$ | 0.81 | | |
$ | | |
$1.01 to $1.50 | |
| 15,812,500 | | |
| 5.2
years | | |
$ | 1.24 | | |
$ | - | |
$1.51 to $2.25 | |
| 3,000,000 | | |
| 5.6
years | | |
$ | 1.63 | | |
$ | - | |
$0.40 to $2.25 | |
| 50,194,342 | | |
| 4.8
years | | |
$ | 0.98 | | |
$ | 180,000 | |
| |
Options Exercisable at September
30, 2015 | |
Range of Exercise Prices | |
Number Exercisable | | |
Weighted Remaining Contractual
Life | | |
Weighted Average Exercise
Price | | |
Aggregate Intrinsic Value(1) | |
| |
| | |
| | |
| | |
| |
$0.40 to $0.60 | |
| 5,281,842 | | |
| 5.1
years | | |
$ | 0.48 | | |
$ | 180,000 | |
$0.61 to $1.00 | |
| 18,700,000 | | |
| 5.1
years | | |
$ | 0.81 | | |
$ | | |
$1.01 to $1.50 | |
| 15,437,500 | | |
| 5.2
years | | |
$ | 1.24 | | |
$ | - | |
$1.51 to $2.25 | |
| 3,000,000 | | |
| 5.6
years | | |
$ | 1.63 | | |
$ | - | |
$0.40 to $2.25 | |
| 42,419,342 | | |
| 5.1
years | | |
$ | 0.98 | | |
$ | 180,000 | |
|
(1) |
The aggregate
intrinsic value in the table represents the difference between the closing stock price on September 30, 2015 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 September 30, 2015. |
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.
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 following table summarizes information
about the Company’s stock purchase warrants outstanding at September 30, 2015 and December 31, 2014:
| |
Number | | |
Weighted Average Exercise
Price | | |
Range of Exercise
Price | | |
Weighted Remaining Contractual
Life |
Outstanding at December 31, 2013 | |
| 13,989,207 | | |
$ | 0.67 | | |
$ |
0.20 – 1.00 | | |
3.3 years |
| |
| | | |
| | | |
| | | |
|
Granted | |
| 150,000 | | |
$ | 2.00 | | |
$ | 2.00 | | |
|
Cancelled or expired | |
| (1,630,000 | ) | |
| 1.00 | | |
$ | 1.00 | | |
|
Exercised | |
| (7,025,227 | ) | |
$ | 0.54 | | |
$ |
0.25 – 1.00 | | |
|
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 | |
| (578,340 | ) | |
| 0.50 | | |
| 0.50 | | |
|
Exercised | |
| (140,000 | ) | |
$ | 0.89 | | |
$ | 0.89 | | |
|
Outstanding at June 30, 2015 | |
| 5,165,640 | | |
$ | 0.88 | | |
$ |
0.20 - 2.00 | | |
4.2 years |
| |
| | | |
| | | |
| | | |
|
Warrants exercisable at September 30, 2015 | |
| | | |
| | | |
| 5,165,640 | | |
|
The aggregate intrinsic value of the 5,165,640
outstanding and exercisable warrants at September 30, 2015 was $140,000. The intrinsic value is the difference between the closing
stock price on September 30, 2015 and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders
exercised their warrants on September 30, 2015.
NOTE 9 – 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.
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.
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 its new Vice President. 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
Legal Matters
Mark Dacko
Mark Dacko, the Company’s former
Chief Financial Officer, made a Demand for Arbitration on December 21, 2012 with the American Arbitration Association for legal
claims against the Company involving his previous employment. The Company and Mr. Dacko were in dispute regarding his employment
with the Company as well as the details of his termination. On December 30, 2013, the Company entered into a settlement agreement
with Mark Dacko.
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.
Deborah A. King v. Standard Metals
Processing, Inc. f/k/a Standard Gold, Inc., Nevada Corporation
On May 14, 2014, Deborah A. King filed
suit against Standard Metals Processing, Inc. in the United States District Court for the District of Nevada. On June 25,
2014, Ms. King filed an Amended Complaint alleging that Standard Metals had refused to allow her to exercise the stock options
assigned to her by her former husband, Stephen King, on January 21, 2011, pursuant to a Stock Option Agreement entered into on
that date by Mr. King and Standard Metals. On July 16, 2014, Standard Metals filed a Motion to Dismiss the Action or Stay the
Proceeding, or, in the Alternative, for a More Definite Statement. On December 9, 2014, the Court issued an Order granting Standard
Metals’ Motion to Dismiss the Action and denying its Motion for a More Definite Statement as moot. On December 9, 2014,
the Clerk of the Court issued a Judgment in a Civil Case stating that the issues in the case had been heard and a decision to
dismiss the action had been rendered by the Court.
Wits Basin Precious Minerals, Inc.,
Lee Levine, Michael Lepore, Mark McLain, Morton Waldman, Allan Staller, Thomas McAdam, Arthur Brown, DJ Sikka, and Bryan Reichel
v. Standard Metals Processing, Inc. f/k/a Standard Gold, Inc., Nevada Corporation
On September 10, 2014, Wits Basin Precious
Minerals, Inc. filed suit against Standard Metals Processing, Inc. in the United States District Court for the District of
Nevada asserting breach of contract, anticipatory breach of contract and equitable relief. On October 16, 2014, Wits Basin
filed an Amended Complaint, adding new parties and alleging that Standard Metals had refused to allow it to exercise its option
to purchase shares granted to it pursuant to an Exchange Agreement, dated March 15, 2011, so that Wits Basin could obtain shares
to meet its requirements under private option agreements it had entered into with option holders, allowing those option holders
certain rights, options and warrants to purchase stock in Standard Metals. On November 5, 2014, Standard Metals filed a Second
Motion to Dismiss Wits Basin et al.’s Amended Complaint. On March 13, 2015, the Court issued an Order granting in part and
denying in part Standard Metals’ Motion to Dismiss the action. The Court dismissed with prejudice Wits Basin et al.’s
claims of breach of contract and anticipatory repudiation of the contract. However, the Court allowed Plaintiffs’ claim
against Standard Metals of interference with contract to go forward. On March 25, 2015, Standard Metals filed its Answer to Wits
Basin’s Amended Complaint. On April 24, 2015, Wits Basin and Standard Metals entered into a Stipulation for Dismissal with
Prejudice of the Claims of Plaintiff Bryan Reichel. On April 29, 2015, the Court entered an Order Granting the Stipulation for
Dismissal of Claims of Plaintiff Bryan Reichel with Prejudice. Standard Metals Processing, Inc. intends to continue to vigorously
defend against the remaining claim asserted by Plaintiffs.
Blair Mielke v. Standard Metals Processing,
Inc., a Nevada corporation, and Does 1 through 20, and Roes Corporations 1 through 20, inclusive
On October 3, 2014, Blair Mielke filed suit
against Standard Metals Processing, Inc. in the Eighth Judicial District Court for the State of Nevada in and for the County
of Clark , alleging that Standard Metals had refused to issue and deliver to him shares of the Company’s common stock
pursuant to the filing of a Form 8-K with the United States Securities and Exchange Commission on August 30, 2011. On October
24, 2014, Standard Metals filed a Petition for Removal to the United States District Court for the District of Nevada (Las
Vegas) . On October 30, 2014, Standard Metals filed a First Motion to Dismiss. On April 24, 2015, the Court entered an Order
granting Standard Metals’ First Motion to Dismiss as to Mielke’s claim for specific performance and denying Standard
Metals’ Motion as to all other claims. On May 5, 2015, Standard Metals filed its Answer and Counterclaims. On May 28, 2015,
Mielke filed his Motion to Dismiss or, in the Alternative, for Summary Judgment. On June 11, 2015, Standard Metals filed its Response
to Mielke’s Motion. Standard Metals Processing, Inc. intends to continue to vigorously defend against the remaining claims
by Blair Mielke.
NOTE 10 – RELATED PARTY TRANSACTIONS
Pure Path Management Company, LLC
Pure Path Management Company, LLC (“Pure
Path”) is currently the beneficial owner of 23% 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.
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 September 30, 2015, the weighted average
shares from stock options of 51,131,842 and warrants of 5,165,640 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 –JUDGMENT ON LEGAL ACTIONS
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 August 12, 2015, the United Stated
District Court for the Southern District of Indiana issued a judgment in favor of Midwest Investment Partners, LLC in the amount
of the note, plus interest and attorney’s fees. The Company is evaluating its options but recorded a liability at June 30,
2015 in the amount of $100,000 on the judgment.
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. The Company intends to appeal the judgment
and has recorded a liability as of June 30, 2015 in the amount of $2,157,000 for the judgment.
NOTE 13 – SUBSEQUENT EVENTS
Management
On October 22, 2015 Mr. Bobby Cooper, Mr.
John Ryan, Mr. Thomas Loucks and Mr. Thomas Myatt came to a mutual agreement with the Board of Directors to terminate their employment
agreements. Ms. Tina Gregerson was appointed interim Chief Executive Officer until a permanent replacement can be appointed. All
options granted but not vested will be cancelled.
Mr. Robert Geiges came to a mutual agreement
with the Board of Directors to terminate his employment agreement on October 28, 2015. Ms. Sharon Ullman was appointed to serve
as interim Chief Financial Officer until the position can be filled on a more permanent basis.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The following management discussion and analysis
of financial condition and results of operations should be read in connection with the accompanying unaudited condensed financial
statements and related notes thereto included elsewhere in this Report and the audited consolidated financial statements and notes
thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2014.
Cautionary Notice Regarding Forward Looking
Statements
Readers are cautioned that the following discussion
contains certain forward-looking statements and should be read in conjunction with the “Special Note Regarding Forward-Looking
Statements” appearing at the beginning of this Quarterly Report.
The information contained in Item 2 contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions
made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions
will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
Advance by Director/Officer
Ms. Tina Gregerson, a director and
Interim CEO advanced $2,500 on October 20, 2015, $12,000 on October 29, 2015 and $15,000 on November 4, 2015 for working
capital purposes.
Settlement
On November 23, 2015, the Company came
to an agreement with Midwest Investment Partners, LLC and Blair Mielke to settle all claims for the payment of $130,000 to
Midwest and the issuance of 25,000 shares of restricted stock to Mr. Mielke.
We desire to take advantage of the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking
statements, which reflect management’s current views and expectations with respect to our business, strategies, future results
and events, and financial performance. All statements made in this filing other than statements of historical fact, including
statements addressing any projections of earnings, revenues or other financial items; any statements of the plans, strategies
and objectives of management for future operations; any statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements of belief; statements expressing general optimism about future
operating results; any statements of assumptions underlying any of the foregoing; and non-historical information, are forward
looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,”
“estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking.
These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results,
performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied
by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect
any future events or circumstances.
Readers should not place undue reliance on
these forward-looking statements, which are based on management’s current expectations and projections about future events,
are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below),
and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences
include, but are not limited to, the risks to be discussed in our Annual Report on Form 10-K and in the press releases and other
communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors
which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
History
Standard Metals Processing, Inc. (formerly
known as Standard Gold Holdings, Inc., Standard Gold, Inc. and Princeton Acquisitions, Inc.) was incorporated in the State of
Colorado on July 10, 1985. 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 minerals exploration and mining. Accordingly, the Hunter Bates Share Exchange
represented a change in control and Hunter Bates became our wholly owned subsidiary.
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.”
On March 15, 2011, we closed a series of transactions,
whereby we acquired certain assets of Shea Mining & Milling, LLC (“Shea Mining”), which assets include land, buildings,
a dormant milling facility, abandoned milling equipment, water permits, mine tailings, mine dumps and the assignment of a note
payable, a lease and a contract agreement with permits. We completed the Shea Exchange Agreement in order to offer toll milling
services 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, and platinum group metals. Custom milling and
refining can include many different processes to extract 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.
The Company re-domiciled in Nevada from Colorado
in March 2013. We determined that, due to a lack of connection to Colorado, it was in the best interest of the Company to move
its domicile to Nevada.
Modification of Corporate Strategy
The Company considered altering its
strategy and establishing itself as a specialized mining house that can provide financing in exchange for metals streaming
and royalty financing, and toll processing services to small- to medium-sized mining companies and also seek opportunities to
acquire current income-producing metal streams and royalty contracts. The Company has undergone some changes in management
and a refocus in its business plan. Management is delaying any plans for metals streaming and royalty. The Company is
reexamining its next steps for developing a processing facility.
Overview of the Company
Standard Metals Processing, Inc. (“we,”
“us,” “our,” “Standard Metals” or the “Company) has offices in Gadsden, Alabama and
through its subsidiary, a property in Tonopah, Nevada. Our business plan is to generating low cost, non-processing passive income
by providing liquidity and specialized services to mining companies in exchange for, royalty and metal stream contracts, and,
in some instances, common stock and warrants. We will also seek to provide toll milling services on a selective basis in exchange
for long term feed contracts. We are also assessing the opportunity 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 is currently setting up the infrastructure
to engage in the royalty and streaming business. These elements include a financial partner, which the Company is currently interviewing
possible candidates. Further, the Company is seeking and has identified specialty mining counsel to provide legal support and
proper contractual relationships to realize the financial fruits of these very specialized relationships. As a secondary focus,
and to further strengthen these junior and mid-level mines, the Company will 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 custom 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 and the required additional buildings to conduct
permitted processing toll milling activities and commence operations.
WATER POLLUTION CONTROL PERMIT WITH
THE NEVADA DEPARTMENT OF ENVIRONMENTAL PROTECTION
Through the subsidiary of the Company’s
wholly owned subsidiary, Tonopah Custom Processing, Inc. (“TCP”), a Water Pollution Control Permit (“WPCP”)
Application was filed with the Nevada Department of Environmental Protection (“NDEP”) Bureau of Mines and Mining Reclamation
(“BMMR”) for the approval of the permits necessary for a small-scale mineral processing facility planned for the Tonopah
Property. The plant will perform laboratory testing, pilot testing, and custom processing of precious metal ores and concentrates
from mining industry clients. Processing of ore materials will employ standard mineral processing techniques including gravity
concentration, froth flotation and chemical leaching and carbon stripping.
The WPCP must be approved prior to commencing
the planned construction of our processing plant in Tonopah, Nevada. We are still in the technical review stage of our WPCP. While
the Company awaits approval, we are preparing for construction of our processing facility which includes working with contractors
that will be building the new 21,875 square foot processing plant, cleaning and preparing the property, and refurbishing a trailer
that will act as our construction office.
In connection with our WPCP application, NDEP
suggested that we take the following actions: (i) retain a Nevada Certified Environmental Manager (“CEM”), (ii) perform
Meteoric Profile II water testing on ground water directly below the mill as well as surrounding wells located off site, and (iii)
determine baseline values of water using the Meteoric Profile II results. NDEP regulations require that the Company delay any
new construction planned for “metal extraction” until after the permits are in place. We hired Allstate-Nevada Environmental
Management, Inc., as our CEM to assist us with obtaining an NDEP WPCP and to help us fulfill all the requirements of NDEP including
the Meteoric Profile II analysis, as well as advise on the overall site cleanup and assisting with any other NDEP requirements.
Survey
In March 2013, Advanced Surveying & Professional
Services, as our Professional Land Surveyor (“PLS”), completed surveys and testing of the Tonopah property required
for the application of our required permits. After completion of the survey, it was determined the property is 1,183 acres. The
scope of work our PLS completed includes: (i) setting a total of 19 permanent monuments at angle points along lines, (ii) setting
eight permanent monuments locating US Hwy 95, (iii) recording a professional map indicating longitude and latitude for all corners,
and (iv) providing a digital map accessible in AutoCad software.
Site Preparation
The Company received leased heavy equipment
on August 1, 2013, which was used to begin cleanup of the site to prepare it for the new construction. We ordered a pre-fabricated
building on November 4, 2013 and took delivery of the building on March 21, 2014.
We have completed the initial grading of specific
designated areas on the 40 undisturbed acres of land including clearing all vegetation, removing of all scrap metal, and the excavation
of the building pad for the preparation of the new 21,875 square foot processing plant and have completed the removal of all the
extra and unnecessary materials and old equipment that has accumulated on the land.
PRODUCTS AND SERVICES
Standard Metals Processing, Inc. (“Standard
Metals” or the “Company” - OTCQB: SMPR), seeks to establish itself as a custom processing permitted toll milling
service provider. Our business plan is to build a facility on our Tonopah property which includes an analytical lab, pyrometallurgical,
and hydrometallurgical recovery plant.
The Company’s intention is to become
a full service permitted custom toll milling and processing company that facilitates the extraction of precious and strategic
minerals from mined material. The Company is in the process of obtaining the permits needed for construction and operation of
our permitted custom processing toll milling facility with state of the art equipment capable of processing gold, silver and platinum
metal groups. Many junior miners do not have the capital or the ability to permit a processing facility, yet they have a large
supply of mined material that requires milling be performed. It is often cost prohibitive or impractical for these mine operators
to send their materials to processing mills owned by the large mining companies, or to other customers with badly needed milling
and processing services.
While Nevada has a historic role as a mining
center with good proximate geology and ample mined product, very little custom processing toll milling capacity remains in the
state. During the last several decades, other processing facilities have been shuttered due to high costs of regulations and the
vertical integration of milling within large mining companies leaving junior miners with few options for local milling services.
As a result, Standard Metals is in a unique position among processing facilities because it is capable of true permitted custom
processing. We have the only ball mill located within a custom toll milling facility within 300 miles allowing us to serve miners
in the western United States, Canada, Mexico, and Central America.
Many junior miners are undercapitalized, have
limited access to capital markets and have a large supply of mined material that requires milling be performed. Many large mining
companies reserve their milling capacity for their inventory, which does not make providing third party services worthwhile. This
provides the Company with an opportunity to provide these potential customers with badly needed milling and processing services.
Currently, the Company is waiting for the
approval of pending applications for the permits required for us to commence construction of a larger scale facility to conduct
permitted custom processing toll milling operations.
TOLL MILLING
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 minerals
in the gold, silver and platinum metal groups. Custom milling and refining that are designed specifically for each ore load can
include many different processes to maximize the extraction of precious metals from ore, carbon or concentrates.
Procedure
Ore is sent to our facility at the responsibility
and cost of the customer. The Company will take a sample of the ore through a specific ore sampling procedure. The Company’s
metallurgist will test the sample on site. To obtain a quantitative determination of the amount of a given substance in a particular
sample, the Company can perform wet methods and dry methods. In the wet method, the sample is dissolved in a reagent, like acid,
until the purified metal is separated out. In the dry method, the sample is mixed with a flux (a substance such as borax or silica
that helps lower the melting temperature) and then heated so that the impurities in the metal fuse with the flux, leaving the
purified metal as residue.
If it is determined that the sample is approved
for processing, the customer and the Company will then agree upon a value of the metal grade per ton. If there is any disagreement
on the value, a third party referee determines the value by testing the sample. The Company charges either a flat fee per ton
of the ore processed or a percentage of the precious metals extracted during processing, or a combination of both based on the
amount of work that is performed.
There are various methods of extraction. The
Company will determine which method to use based upon the sample received. In most situations, a series of tests will be performed
on a bulk sample ranging in size from 250 to 1,000 pounds. A metallurgist will determine the best process or processes to use
for the extraction based on several factors. These include the composition of the host rock, mineralization of the host rock,
whether or not it is an oxide or sulphide ore body, and the particle size of the precious metal. After the metallurgist reviews
these characteristics, the Company will run ore on a gold table and assays the concentrates, middlings, and tails. An assay is
an investigative procedure for qualitatively assessing or quantitatively measuring the presence or amount of precious metals in
ore. If there is too much gold in the middling or tails, the size of the grind is adjusted to increase yield or if there is not
enough gold in the middlings or tails the Company grinds the material to a coarser mesh.
Some of our miner customers will be able to
take their tailings (the material left over after the desired minerals have been extracted) from the material they deposited with
the Company and put it back in the exact same mines those particular tailings came from. This eliminates the need for the Company
to dispose of those tailings.
Concentrate/Leach Circuit
Concentration is the separation of precious
minerals from other materials by utilizing different properties of the minerals to be separated including density, magnetic or
electric and physiochemical. The Company will attempt to create a “concentrate” of minerals to reduce the size of
each ton processed. The Company may also receive concentrates from customers, especially those where transport of tons of raw
ore is not feasible.
The leaching process uses chemicals to extract
the metals from the solid materials (concentrates) and bring them into a solution. Once the metals are in the solution, it is
passed through carbon or resin columns where the precious metals are deposited onto the carbon/resin.
The metals will then be stripped from the
carbon back into a different solution where they are pumped through an electrowinning circuit in a process called carbon stripping.
The metals are then deposited onto stainless steel in the electrowinning circuit. After this stage, the metals are either sold
or further refined off-site. The solution is recycled and used again to process additional material.
RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2015 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014.
Revenues
We had no revenues from any operations for
the three and nine months ended September 30, 2015 and 2014. Furthermore, we do not anticipate any significant future revenue
until we have sufficiently funded construction and begin operations.
General and administrative expenses were $13,649,311
for the nine months ended September 30, 2015 as compared to $13,412,422 for the same period in 2014. For the nine months ended
September 30, 2015, the majority of general and administrative expense was compensation expense related to options and warrants
totaling $12,242,135 as compared to $11,829,508 compensation expenses related to options and warrants in the same period in 2014.
In the nine months ended September 30, 2015, compensation expenses as well as operating expenses stayed relatively the same. We
anticipate that future compensation expenses will increase and that certain operating expenses will increase for fiscal 2016 as
we continue to build the infrastructure to proceed with permitted custom processing toll milling services.
General and administrative expenses were
$895,510 for the three months ended September 30, 2015 as compared to $1,390,818 for the same period in 2014. For the three
months ended September 30, 2015, the majority of general and administrative expense was compensation expense related to
options and warrants totaling $159,317 as compared to $969,284 compensation expenses related to options and warrants in the
same period in 2014. In the three months ended September 30, 2015, compensation expenses as well as operating expenses
decreased due to the suspension of an officer’s salary and the decrease in construction costs for the period. We
anticipate that future compensation expenses will increase and that certain operating expenses will increase for fiscal 2016
as we continue to build the infrastructure to proceed with permitted custom processing toll milling services.
Other Income and Expenses
Other Income
We receive monthly payments of from $400 to
$608 per month from American Tower Corporation for a cellular tower located on our Tonopah land.
Interest Expense
Interest expense for the nine months ended
September 30, 2015 was $196,253, compared to $136,430 for the respective period in 2014. The 2015 and 2014 amounts relate primarily
to the interest due on our notes payable: (i) the $2,500,000 secured, convertible promissory note issued to Pure Path on October
10, 2013 in accordance with the settlement agreement of same date. All prior debt was subsumed under this note, the outstanding
of which was $2,229,187 plus accrued interest at 8% per annum on September 30, 2015; (ii) the short-term note payable; and (iii)
the convertible notes issued in 2011 and 2012 and the $448,000 notes with Tina Gregerson Family Properties, LLC, an entity
controlled by a director of the Company.
Interest expense for the three months ended
September 30, 2015 was $78,096, compared to $44,479 for the respective period in 2014. The 2015 and 2014 amounts relate primarily
to the interest due on our notes payable: (i) the $2,500,000 secured, convertible promissory note issued to Pure Path on October
10, 2013 in accordance with the settlement agreement of same date. All prior debt was subsumed under this note, the outstanding
of which was $2,229,187 plus accrued interest at 8% per annum on September 30, 2015; (ii) the short-term note payable; and (iii)
the convertible notes issued in 2011 and 2012 and the $448,000 notes with Tina Gregerson Family Properties, LLC, an entity controlled
by a director of the Company.
Impairment of Shea Mining and Milling assets
As part of the Company change in strategy
as discussed in Note 1, management analyzed the Shea Mining and Milling assets and determine 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.
Judgment on legal actions
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 August 28, 2014, the United Stated
District Court for the Southern District of Indiana issued a judgment in favor of Midwest Investment Partners, LLC in the amount
of the note, plus interest and attorney’s fees. The Company is evaluating its options but recorded a liability in the amount
of $100,000 on the judgment.
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. The Company intends to appeal the judgment
and has recorded a liability in the amount of $2,157,000 for the judgment.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of an entity’s
ability to secure enough cash to meet its contractual and operating needs as they arise. We have funded our operations and satisfied
our capital requirements through the issuance of short-term debt, convertible debt and through equity capital we have received
via certain shareholders exercising their warrants and loans from related parties during the nine months periods ended September
30, 2015 and 2014. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve
months. We had a working capital deficit of $8,503,491 at September 30, 2015. Cash and cash equivalents were $6,656 at September
30, 2015, representing a increase of $865 from the cash and cash equivalents of $5,791 at September 30, 2014.
Our cash reserves will not be sufficient to
meet our operational needs and thus, we need to raise additional capital to pay for our operational expenses and provide for capital
expenditures. Our basic operational expenses are estimated at approximately $500,000 per month. Above the basic operational expenses,
we estimate that we need approximately $10,000,000 to begin limited toll milling operations. If we are not able to raise additional
working capital, we may have to cease operations altogether.
For the nine months ended September 30, 2015,
we had net cash used in operating activities of $613,101, as compared to $87,107 for the nine months ended September 30, 2014.
For the nine months ended September 30, 2015
and 2014 we had net cash used in investing activities of $43,528 and $3,183,516 respectively. The amount in 2015 and 2014 was
due to the funds required to conduct site preparation on our Tonopah, Nevada property and purchase of machinery and equipment.
For the nine months ended September 30, 2015
and 2014, we had net cash provided by financing activities of $627,190 and $3,133,313, respectively.
Summary
Our existing sources of liquidity will not
provide enough cash to fund our development and operations and make the required payments on our debt service for the next twelve
months. Our ability to continue as a going concern is dependent entirely on raising funds through the sale of equity or debt.
We will continue our attempt to raise additional capital. Some of the possibilities available to us are through private equity
transactions, to develop a credit facility with a lender or the exercise of options and warrants. However, such additional capital
may not be available to us at acceptable terms or at all. In the event that we are unable to obtain additional capital, we would
be forced to cease operations altogether.
Off-Balance Sheet Arrangements
During the three months ended September 30,
2015, we did not engage in any off balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation S-K.
Item 3. Quantitative and Qualitative
Not Applicable.
Item 4. Controls and Procedures
Under the supervision of, and the participation
of, our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934,
as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure
that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms,
and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation and taking into account
that certain material weaknesses existed as of December 31, 2014, our Chief Executive Officer and Chief Financial Officer have
each concluded that our disclosure controls and procedures were not effective. As a result of this conclusion, the financial statements
for the period covered by this Quarterly Report on Form 10-Q were prepared with particular attention to the material weaknesses
previously disclosed. Notwithstanding the material weaknesses in internal controls that continue to exist as of September 30, 2015,
we have concluded that the financial statements included in this Quarterly Report on Form 10-Q present fairly, the financial position,
results of operations and cash flows of the Company as required for interim financial statements.
Due to the small number of employees dealing
with general administrative and financial matters and the expenses associated with increases to remediate the disclosure controls
and procedures that have been identified, the Company continued to operate without changes to its internal controls over financial
reporting for the period covered by this Quarterly Report on Form 10-Q while continuing to seek the expertise it needs to remediate
the material weaknesses at an appropriate cost benefit basis.
PART II. OTHER
INFORMATION
Item 1. Legal Proceedings
Mark Dacko
Mark Dacko, the Company’s former Chief
Financial Officer, made a Demand for Arbitration on December 21, 2012 with the American Arbitration Association for legal claims
against the Company involving his previous employment. The Company and Mr. Dacko were in dispute regarding his employment with
the Company as well as the details of his termination. On December 30, 2013, the Company entered into a settlement agreement with
Mark Dacko.
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 United Stated District Court for the Southern
District of Indiana issued a judgment in favor of Midwest Investment Partners, LLC in the amount of the note, plus interest and
attorney’s fees. The Company is evaluating its options but recorded a liability in the amount of $100,000 on the judgment.
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.
Standard Metals Processing, Inc. v. Steven
E. Flechner, and fictitious parties A-Z who are individuals, entities, corporations, trusts, organizations or others who may have
been issued stock options by Plaintiff pursuant to the January 21, 2011 Plan Amendment
On April 21, 2014, Standard Metals Processing,
Inc. filed a Complaint for Declaratory Judgment in the Circuit Court of Etowah County, Alabama requesting that the Court
issue a declaratory judgment finding that the January 21, 2011 amendment to the Stock Option Agreement approved by the Board of
Directors on March 22, 2010 was invalid because it lacked required shareholder approval and rescinding any stock option awards
issued thereafter; declaring that Stephen E. Flechner’s option rights allowed only for a pro-rata portion of available options,
which must include appropriate and customary restrictive legends and declaring that the fictitious parties’ option rights
allowed only for a corresponding pro-rata portion; or in the alternative, declaring that Flechner and the fictitious parties’
option rights were void.
On May 28, 2014, Stephen E. Flechner filed
a Notice of Removal to the United States District Court for the Northern District of Alabama, Middle Division . On May
28, 2014, Flechner also filed a Motion to Dismiss the Complaint for Declaratory Judgment or, in the Alternative, a Motion to Change
Venue to the United States District Court for the District of Colorado . On June 10, 2014, Standard Metals Processing,
Inc. filed a Motion to strike Flechner’s declaration filed as an exhibit to his Notice of Removal, and a Motion to Remand
the action back to the Circuit Court of Etowah, Alabama . On November 7, 2014, Standard Metals filed a Motion for leave
to file an amended Complaint. On November 21, 2014, Flechner filed his opposition to Standard Metals’ Motion for leave to
file an amended Complaint. On November 26, 2014, Standard Metals filed a Response to Flechner’s Opposition to Standard Metals’
Motion for leave to file an amended Complaint. On December 22, 2014, Standard Metals filed a Response to Flechner’s Motion
to Dismiss the Complaint for Declaratory Judgment or, in the Alternative, a Motion to Change Venue to the United States District
Court for the District of Colorado . On December 30, 2014, the Court entered an Order denying Standard Metals’ Motion
to strike Flechner’s declaration filed as an exhibit to his Notice of Removal and Standard Metals’ Motion to Remand.
The Court also ordered Standard Metals to show cause why this matter should not be transferred to the United States District
Court for the District of Colorado . On January 8, 2015, Standard Metals filed a Brief to show cause why this case should
not be transferred. On January 16, 2015, Flechner filed a Response to Standard Metals’ Brief to show cause why this case
should not be transferred. On January 21, 2015, Standard Metals filed a Sur-Response to Flechner’s Response to Standard
Metals’ Brief to show cause why this case should not be transferred. On January 23, 2015, Flechner filed a Motion for leave
to file a Reply to Standard Metals’ Sur-Response to Flechner’s Response to its Brief to show cause why this case should
not be transferred. On March 26, 2015, the Court entered an Order of Dismissal ordering that all claims asserted by Standard Metals,
Inc. were dismissed, without prejudice, for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2).
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. A bench trial of this action was competed on
July 29, 2015. On August 12, 2015, the Court issued an order directing that judgment be entered in favor of Stephen E. Flechner
and against Standard Metals Processing, Inc. on Flechner’s First Claim for Relief, and found that Flechner’s Second,
Third, Fourth and Fifth Claims for relief were moot. The Company intends to appeal the judgment and has recorded a liability in
the amount of $2,157,000 for the judgment.
Deborah A. King v. Standard Metals Processing,
Inc. f/k/a Standard Gold, Inc., Nevada Corporation
On May 14, 2014, Deborah A. King filed suit
against Standard Metals Processing, Inc. in the United States District Court for the District of Nevada. On June 25, 2014,
Ms. King filed an Amended Complaint alleging that Standard Metals had refused to allow her to exercise the stock options assigned
to her by her former husband, Stephen King, on January 21, 2011, pursuant to a Stock Option Agreement entered into on that date
by Mr. King and Standard Metals. On July 16, 2014, Standard Metals filed a Motion to Dismiss the Action or Stay the Proceeding,
or, in the Alternative, for a More Definite Statement. On December 9, 2014, the Court issued an Order granting Standard Metals’
Motion to Dismiss the Action and denying its Motion for a More Definite Statement as moot. On December 9, 2014, the Clerk of the
Court issued a Judgment in a Civil Case stating that the issues in the case had been heard and a decision to dismiss the action
had been rendered by the Court.
Wits Basin Precious Minerals, Inc., Lee
Levine, Michael Lepore, Mark McLain, Morton Waldman, Allan Staller, Thomas McAdam, Arthur Brown, DJ Sikka, and Bryan Reichel v.
Standard Metals Processing, Inc. f/k/a Standard Gold, Inc., Nevada Corporation
On September 10, 2014, Wits Basin Precious
Minerals, Inc. filed suit against Standard Metals Processing, Inc. in the United States District Court for the District of
Nevada asserting breach of contract, anticipatory breach of contract and equitable relief. On October 16, 2014, Wits Basin
filed an Amended Complaint, adding new parties and alleging that Standard Metals had refused to allow it to exercise its option
to purchase shares granted to it pursuant to an Exchange Agreement, dated March 15, 2011, so that Wits Basin could obtain shares
to meet its requirements under private option agreements it had entered into with option holders, allowing those option holders
certain rights, options and warrants to purchase stock in Standard Metals. On November 5, 2014, Standard Metals filed a Second
Motion to Dismiss Wits Basin et al.’s Amended Complaint. On March 13, 2015, the Court issued an Order granting in part and
denying in part Standard Metals’ Motion to Dismiss the action. The Court dismissed with prejudice Wits Basin et al.’s
claims of breach of contract and anticipatory repudiation of the contract. However, the Court allowed Plaintiffs’ claim
against Standard Metals of interference with contract to go forward. On March 25, 2015, Standard Metals filed its Answer to Wits
Basin’s Amended Complaint. On April 24, 2015, Wits Basin and Standard Metals entered into a Stipulation for Dismissal with
Prejudice of the Claims of Plaintiff Bryan Reichel. On April 29, 2015, the Court entered an Order Granting the Stipulation for
Dismissal of Claims of Plaintiff Bryan Reichel with Prejudice. Standard Metals Processing, Inc. intends to continue to vigorously
defend against the remaining claim asserted by Plaintiffs.
Blair Mielke v. Standard Metals Processing,
Inc., a Nevada corporation, and Does 1 through 20, and Roes Corporations 1 through 20, inclusive
On October 3, 2014, Blair Mielke filed suit
against Standard Metals Processing, Inc. in the Eighth Judicial District Court for the State of Nevada in and for the County
of Clark , alleging that Standard Metals had refused to issue and deliver to him shares of the Company’s common stock
pursuant to the filing of a Form 8-K with the United States Securities and Exchange Commission on August 30, 2011. On October
24, 2014, Standard Metals filed a Petition for Removal to the United States District Court for the District of Nevada (Las
Vegas) . On October 30, 2014, Standard Metals filed a First Motion to Dismiss. On April 24, 2015, the Court entered an Order
granting Standard Metals’ First Motion to Dismiss as to Mielke’s claim for specific performance and denying Standard
Metals’ Motion as to all other claims. On May 5, 2015, Standard Metals filed its Answer and Counterclaims. On May 28, 2015,
Mielke filed his Motion to Dismiss or, in the Alternative, for Summary Judgment. On June 11, 2015, Standard Metals filed its Response
to Mielke’s Motion. Standard Metals Processing, Inc. intends to continue to vigorously defend against the remaining claims
by Blair Mielke.
Item 1A. Risk Factors
The most significant risk factors applicable
to the Company are described in Part I Item 1A entitled “Risk Factors” of the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2014 (the “2014 Form 10-K”). There have been no material changes to the
risk factors previously disclosed in the 2014 Form 10-K. The risks described in the 2014 Form 10-K are not the only risks facing
the Company. Additional risks and uncertainties not currently known to management may materially adversely affect the Company’s
business, financial condition, and/or operating results.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
Issuance of common stock
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.
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, $50,000 on April 13, 2015 and $150,000
on July 31, 2015.
Under the terms of the Pure Path Note, the
Company received $54,590 on February 4, 2015.
Payment Agreement
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, as an inducement to enter into the agreement the Company granted the vendor 100,000 shares of it restricted common stock
and 150,000 common stock purchase warrants exercisable for three years at a per share price of $1.25.
Item 3. Defaults Upon Senior
Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit |
|
Description |
31.1** |
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
31.2** |
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
32.1** |
|
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
32.2** |
|
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
|
|
|
101.INS** |
|
XBRL Instance Document |
101.SCH** |
|
XBRL Taxonomy Extension Schema |
101.CAL** |
|
XBRL Taxonomy Extension Calculation |
101.DEF** |
|
XBRL Taxonomy Extension Definition |
101.LAB** |
|
XBRL Taxonomy Extension Label |
101.PRE** |
|
XBRL Taxonomy Extension Presentation |
** Filed
herewith electronically
SIGNATURES
In accordance with the requirements of the
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Standard Metals Processing, Inc. |
|
|
|
Date: November 23, 2015 |
|
|
|
|
|
|
By: |
/s/ Tina Gregerson |
|
|
Tina Gregerson |
|
|
Acting Chief Executive Officer |
|
|
|
|
By: |
/s/ Sharon Ullman |
|
|
Sharon Ullman |
|
|
Acting Chief Financial Officer |
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Tina Gregerson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Standard
Metals Processing, Inc.
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
| d) | Disclosed
in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
| a) | all
significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and |
| b) | any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: November 23, 2015 |
/s/ Tina Gregerson |
|
Tina Gregerson |
|
Acting Chief Executive Officer |
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Sharon Ullman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Standard
Metals Processing, Inc.
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
| d) | Disclosed
in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a quarterly report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
| a) | all
significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and |
| b) | any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: November 23, 2015 |
/s/ Sharon Ullman |
|
Sharon Ullman |
|
Acting Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of
Standard Metals Processing, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with
the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the dates
indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operation of the Company.
Dated: November 23, 2015
/s/ Tina Gregerson |
|
|
|
Name: Tina Gregerson |
|
Title: Acting Chief Executive Officer |
|
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of
Standard Metals Processing, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with
the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the dates
indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operation of the Company.
Dated: November 23, 2015
/s/ Sharon Ullman |
|
|
|
Name: Sharon Ullman |
|
Title: Acting Chief Financial Officer |
|
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