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EX-31.1 - EXHIBIT 31.1 - Standard Metals Processing, Inc.v418392_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Standard Metals Processing, Inc.v418392_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Standard Metals Processing, Inc.v418392_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Standard Metals Processing, Inc.v418392_ex32-2.htm

 

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

  x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 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 August 19, 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

June 30, 2015

 

    Page
PART I     
Item 1. Financial Statements 4
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operation 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk 34
Item 4. Controls and Procedures 34
     
PART II    
Item 1. Legal Proceedings 34
Item 1A. Risk Factors 37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
Item 3. Defaults Upon Senior Securities 38
Item 4. Mine Safety Disclosures 38
Item 5. Other Information 38
Item 6. Exhibits 38

 

 2 

 

 

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.

 

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STANDARD METALS PROCESSING, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

 

   June 30,   December 31, 
   2015   2014 
       
Assets          
Current assets:          
Cash  $789   $36,095 
Prepaid expenses   15,461    59,010 
           
Total current assets   16,250    95,105 
Shea Mining and Milling Assets (Note 3)   2,108,300    35,159,427 
Property, plant and equipment:          
Machinery and equipment   1,758,818    1,758,818 
Construction in progress   2,057,791    1,778,532 
    3,816,609    3,537,350 
Accumulated depreciation   (21,000)   (17,613)
Net property, plant and equipment   3,795,609    3,519,737 
Total Assets  $5,920,159   $38,774,269 
           
Liabilities and Shareholders’ Equity (Deficit)          
Current liabilities:          
Senior secured convertible promissory note payable, related party  $2,229,187   $2,174,597 
Current portion of trade payable, net of debt discount of $101,063   827,080    - 
Promissory notes payable - related party, net of debt discount of $67,995   230,005    - 
Convertible notes payable, current portion   175,000    175,000 
Accrued Judgements (Note 11)   2,257,000    0 
Due to Wits Basin Precious Minerals Inc.   16,616    16,616 
Accounts payable   1,834,931    2,154,512 
Accrued interest   360,851    246,273 
Accrued expenses   797,218    710,286 
Accounts payable to related party   22,601    6,307 
           
Total current liabilities   8,750,489    5,483,591 
           
Commitments and Contingencies (Note 8)          
           
Preferred stock, 50,000,000 shares authorized:          
Series A, $.001 par value, 10,000,000 and 10,000,000 shares issued and outstanding at June 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: 103,900,936 and 103,660,936 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively   103,901    103,661 
Additional paid-in capital   87,390,550    75,255,143 
Accumulated deficit   (100,324,781)   (52,068,126)
Total shareholders’ Equity (Deficit)   (12,830,330)   23,290,678 
Total Liabilities and Shareholders’ Equity (Deficit)  $5,920,159   $38,774,269 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 4 

 

 

STANDARD METALS PROCESSING, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   June 30, 2015   June 30, 2014   June 30, 2015   June 30, 2014 
                 
Revenues  $-   $-   $-   $- 
                     
Operating expenses:                    
General and administrative   5,640,439    9,491,114    12,753,801    12,021,604 
Impairment of Shea Mining and Milling assets (Note 3)   33,051,127    -    33,051,127    - 
Depreciation and amortization   -    4,406    3,387    8,813 
Judgement on legal actions   2,257,000    -    2,257,000    - 
                     
Total operating expenses   40,948,566    9,495,520    48,065,315    12,030,417 
Loss from operations   (40,948,566)   (9,495,520)   (48,065,315)   (12,030,417)
                     
Other income (expense):                    
Other income   1,825    1,587    4,258    3,174 
Loss on settlement of debt   -    (32,924)   -    (959,020)
Interest expense   (64,440)   (47,006)   (118,157)   (91,951)
Amortization of debt discount   (50,796)   -    (77,441)   - 
                     
Total other income (expense)   (113,411)   (78,343)   (191,340)   (1,047,797)
Loss before income tax provision   (41,061,977)   (9,573,863)   (48,256,655)   (13,078,214)
                     
Income tax provision   -    -    -    - 
Net loss  $(41,061,977)  $(9,573,863)  $(48,256,655)  $(13,078,214)
                     
Basic net loss per common share  $(0.40)  $(0.10)  $(0.46)  $(0.14)
                     
Basic weighted average common shares outstanding   103,891,266    94,901,898    103,803,256    95,629,266 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 5 

 

 

STANDARD METALS PROCESSING, INC.

Consolidated Statements of Cash Flows

(unaudited)

 

   For the six months ended 
   June 30, 2015   June 30, 2014 
OPERATING ACTIVITIES:          
Net loss  $(48,256,655)  $(13,078,214)
Adjustments to reconcile net loss to cash flows used in operating activities:          
Depreciation and amortization   3,387    8,813 
Amortization of debt issuance costs   77,454    - 
Compensation expense related to issuance of common stock, warrants and stock option grants   11,764,548    10,860,224 
Impairment of Shea Mining and Milling assets   33,051,127      
Loss on extinguishment of debt and accrued expenses   -    959,020 
Judgement on legal actions   2,257,000    - 
Changes in operating assets and liabilities:          
Prepaid expenses   43,549    (55,015)
Accounts payable   372,831    646,289 
Accrued expenses   201,497    (30,499)
Accounts payable related party   16,294    - 
           
Net cash used in operating activities   (468,968)   (689,382)
           
INVESTING ACTIVITIES:          
Payment for construction in progress   (43,528)   (1,156,411)
           
Net cash used in investing activities   (43,528)   (1,156,411)
           
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    1,832,917 
Cash proceeds from debt   54,590    - 
Proceeds from Notes Payable from related party   298,000    - 
           
Net cash provided by financing activities   477,190    1,807,917 
           
Increase (Decrease) in CASH AND CASH EQUIVALENTS   (35,306)   (37,876)
CASH AND CASH EQUIVALENTS, beginning of period   36,095    143,099 
CASH AND CASH EQUIVALENTS, end of period  $789   $105,223 
           
Supplemental Disclosure of Non-Cash Investing and Financing Activities:          
Cash paid for interest cost  $3,579    - 
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 debt  $928,130      
Shares issued for accounts payable settlement   83,532      
Warrants issued in connection with debt settlement   162,967      

Accrued construction in progress costs

   235,731      
Conversions into common stock of amounts originally due to Shea   -    225,000 
Common stock issued in lieu of accounts payable and accrued expenses   -    114,237 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 6 

 

 

STANDARD METALS PROCESSING, INC.

Notes to Condensed Consolidated Financial Statements

June 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.

 

Modification of Corporate Strategy

 

The Company will seek to establish 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. The Company will also seek opportunities to acquire current income-producing metals streams and royalty contracts.

 

Supporting the initiative, the Company has put in place a proven executive team with expertise in the industry. The Company seeks to take advantage of the current dislocation in the mining sector by providing liquidity into the market for smaller mine operators who have promising development stage projects but limited access to capital.

 

The new management team will focus on 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. It will also seek to provide toll milling services on a selective basis in exchange for long term feed contracts.

 

 

 7 

 

 

The above business will be complemented as necessary with a secondary focus on strengthening the management teams of those junior and mid-level mines which will be operating the mines with whom Standard will be engaged.

 

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 six months ended June 30, 2015, the Company incurred losses from operations of $48,256,655. At June 30, 2015, the Company had an accumulated deficit of $100,324,781 and a working capital deficit of $8,734,239. 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 six months ended June 30, 2015, the Company received net cash proceeds of $477,190 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. and wholly owned subsidiaries Tonopah Milling and Metals Group, Inc., Tonopah Milling and Metals Group, Inc.’s wholly owned subsidiaries Tonopah Custom Processing, Inc. and Tonopah Resources, Inc. and Esmeralda Renewable Energy, 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 June 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.

 

 8 

 

 

 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.

 

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 June 30, 2015 and through August 17, 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.

 

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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. Approximately 334 acres of this land has sitting on it an estimated 2,200,000 tons of tailings known as the Millers Tailings from the historic gold rush of Goldfield and Tonopah, Nevada.

 

The 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 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.

 

 10 

 

 

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.

 

 11 

 

 

As part of the Company’s change in strategy as discussed in Note 1, 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.

 

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 our 21,875 square foot building and servicing and drilling various wells for our future operations.

 

Components of our property, plant and equipment are as follows:

 

   June 30,   December 31 
   2015   2014 
Equipment  $1,758,818   $1,758,818 
Construction in Progress   2,057,791    1,778,532 
Less accumulated depreciation   (21,000)   (17,613)
   $3,795,609   $3,519,737 

 

NOTE 5 – LONG-TERM TRADE PAYABLE

 

The following table summarizes the Company’s long-term trade payable: 

 

   June 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   (101,063)   - 
    827,080    - 
 Less current portion   (827,080)   - 
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 Company valued the common stock at market value of $83,532. 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%.

 

 12 

 

 

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.  $298,000   $- 
 Less discount   (67,995)   - 
Totals  $230,005   $- 

 

On February 11, 2015, the Company issued an unsecured promissory 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. The Company then analyzed the warrant under ASC 470-20-25 Debt with conversion and other options for consideration of a warrants issue. The Company recorded a discount from the relative fair value of the warrants of $116,560. The Company valued the warrants using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $1.25; warrant term of 7 years; expected volatility of 75%; and discount rate of 1.83% and accounted for them as debt discount, which will be amortized over the term of the loan. 

 

 NOTE 7 – 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, 2013 filed with the Commission on April 11, 2014 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, 2013 filed with the Commission on April 11, 2014 and in the Company’s filings with the Secretary of State of Nevada.

 

 13 

 

 

Common Stock and Common Stock Purchase Warrant Issuances  

 

Stock issued to Trade Vendor 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 restricted common stock and 150,000 common stock purchase warrants exercisable at $1.25 for three years, see Note 5 Long-Term Trade Payable.

 

Option Grants

 

2010 Plan

 

The Company had one stock option plan: the 2010 Stock Incentive Plan, as amended (the “2010 Plan”). Stock options, stock appreciation rights, restricted stock and other stock and cash awards may be granted under the Plan. In general, options vest over a period ranging from immediate vesting to five years and expire 10 years from the date of grant. Effective January 21, 2011, the Company’s Board of Directors (the “Board”) authorized an amendment to the 2010 Stock Incentive Plan, to increase the number of options available for granting under the 2010 Plan from 3,000,000 to 13,500,000 and authorized the Company to file an S-8 Registration Statement with the U.S. Securities and Exchange Commission (subsequently filed on January 27, 2011, File No. 333-171906) for the registration of the shares available in the Plan. On March 15, 2011, with the closing of the Shea Exchange Agreement a “change of control” event was deemed to have occurred and 13,500,000 previously granted stock options vested in full. Effective July 25, 2011, the 2010 Plan was amended to increase the total shares of stock which may be issued under the 2010 Plan from 13,500,000 to 14,500,000.

 

The Company has been receiving files from former officers and attorneys. Upon review of the files, the original 2010 Plan and Board Resolution were located. The 2010 Plan approved by the Board of Directors on March 22, 2010 authorized 3,000,000 shares of common stock for issuance under the 2010 Plan. The Board of Directors voted to increase the number of shares available under the 2010 Plan on January 21, 2011. Section 9.11 of the 2010 Plan as approved by the Board states:

 

9.11 Amendment of the Plan. The Board of Directors may amend or discontinue the Plan at any time. However, no such amendment or discontinuance shall adversely change or impair, without the consent of the recipient, an Incentive previously granted. Further, no such amendment shall, without approval of the stockholders of the Company, (a) increase the maximum number of shares of Common Stock which may be issued to all participants under the Plan, (b) change or expand the types of Incentives that may be granted under the Plan, (c) change the class of persons eligible to receive Incentives under the Plan, or (d) materially increase the benefits accruing to participants under the Plan. 

 

Pursuant to the terms of the 2010 Plan, the stockholders of the Company must approve this increase. As the stockholders of the Company did not approve the increase of shares available under the 2010 Plan, the increase on January 21, 2011 was not effective.

 

As of January 21, 2011 the Company had issued a total of 2,800,000 options to purchase shares under the 2010 Plan and had 200,000 shares remaining authorized and unissued. However, also on January 21, 2011, the Board of Directors authorized the issuance of 10,500,000 options. This issuance far exceeded the number of shares available and the excess issuances were not valid. As a correction measure, the Company has divided the 200,000 shares that were available pro-rata between the persons named in the resolution.

 

As a result of this correction there are a total of 1,631,842 options granted and available for exercise under the 2010 Plan outstanding as of the date of this filing.

 

The Board of Directors terminated the 2010 option plan on August 23, 2013.

 

 14 

 

 

2014 Option Plan

 

By Board Resolution effective January 27, 2014, the Company adopted a 2014 Stock Incentive Plan (the “Plan”) to compensate employees and consulting groups in their efforts to enhance the long-term shareholder value of the Company. Pursuant to the Plan, selected persons are offered opportunities to participate in the Company's growth and success and are encouraged to acquire and maintain stock ownership in the Company. The Plan grants options to purchase shares of the Company’s common stock vesting at dates beginning on the date of grant and issuable at chronological or performance increments. The Plan Administrator may also grandfather in existing options granted during 2013. The shareholders approved the 2014 Plan at the 2014 annual meeting.

 

Under administration by the Compensation Committee (the “Plan Administrator”), a maximum of 75,000,000 shares of common stock are available for issuance under the Plan, subject to adjustment from time to time. Awards may be granted under the Plan to officers, directors, employees and consultants of the Company and as the Plan Administrator selects. The Plan Administrator is authorized, in its sole discretion, to issue options as incentive stock options, which shall be appropriately designated. The term of each option to purchase common stock of the Company is established by the Plan Administrator or, if not so established, is 10 years from the grant date. 

 

The Plan Administrator establishes the time at which each option shall vest and become exercisable. If not established in the instrument evidencing the option, the option shall vest and become exercisable according to the following schedule: (i) after one year of the participant’s continuous employment or service with the company or its related corporations, one quarter of the total options will be vested and exercisable; (ii) after each additional six-month period of continuous service completed thereafter, an additional one eighth of the total options will be vested and exercisable; and (iii) after four years, 100% of the options will be vested and exercisable. Under the terms of the Plan, the exercise price for shares shall be paid in cash or check to the Company unless the Plan Administrator determines otherwise.

 

The Plan Administrator shall determine whether the options will continue to be exercisable, and the terms and conditions of such exercise, if a participant ceases to be employed or provide services to the Company. If not so established in the instrument evidencing such options, any portion of an option that is not vested and exercisable on the date of termination of the participant’s employment or service relationship (the “Employment Termination Date”) shall expire on such date. Any portion of an option that is vested and exercisable on the Employment Termination Date shall expire upon the earliest to occur of: (i) if the participant’s Employment Termination Date occurs by reason of retirement, disability or death, the one-year anniversary of such Employment Termination Date; (ii) if the participant’s Employment Termination Date occurs for reasons other than cause, retirement, disability or death, the three-month anniversary of such Employment Termination Date; or (iii) the last day of the option term. Notwithstanding the foregoing, if the participant dies after the Employment Termination Date while the Option is otherwise exercisable, the portion of the option that is vested and exercisable on such Employment Termination Date shall expire upon the earlier to occur of: (a) the last day of the option term; or (b) the first anniversary of the date of death, unless the Plan Administrator determines otherwise.

 

If a participant is terminated for cause, the options shall automatically expire at the time the Company first notifies the participant of the termination. If a participant’s employment is suspended pending investigation of whether they will be terminated for cause, the participant’s rights under any option shall be suspended during the period of investigation. Awards granted under the Plan may not be assigned, except, to the extent permitted by Section 422 of the Internal Revenue Code (the “IRC”), and the Plan Administrator may permit such assignment, transfer and exercisability, and may permit a participant to designate a beneficiary who may exercise the award or receive compensation under the award after the participant’s death. Any award permitted to be assigned shall be subject to the terms and conditions contained in the instrument evidencing the award.

 

The Plan may only be amended by the Company’s Board of Directors, as it deems advisable. Shareholder approval shall be required for any amendment to the extent required for compliance with Section 422 of the IRC, as amended or any applicable law or regulation. The Board may suspend or terminate the Plan at any time. Incentive stock options may not be granted more than 10 years after the later of the Plan’s adoption by the Board or the adoption by the Board of any amendment to the Plan that constitutes adoption of a new plan for the purpose of Section 422 of the IRC. Participants who are residents of California shall be subject to additional terms and conditions until the Common Stock becomes a publicly traded security, under the California Securities Code.

 

 15 

 

 

The Company grandfathered the following options issued to consultants during the 4 th quarter of 2013 in to the 2014 Plan:

 

The Company entered into a Strategic Advisory Services Agreement with P5, LLC (“P5”) dated effective October 15, 2013, to provide strategic advisory services. As consideration for such services, the Company granted P5 a total of 17,500,000 options to purchase common stock of the Company, with 7,500,000 shares available for purchase at an exercise price of $0.65 per share and 10,000,000 shares available for purchase at an exercise price of $1.25 per share, with a grant term of seven years and subject to a vesting schedule. With respect to the options to purchase up to 7,500,000 shares at $0.65 per share, 2,500,000 options vest upon each of the following: (i) October 15, 2013 (the “P5 Grant Date”); (ii) 90 days after the P5 Grant Date; and (iii) 180 days after the P5 Grant Date. With respect to the options to purchase up to 10,000,000 shares at an exercise price of $1.25 per share, 2,500,000 options vest upon each of the following: April 1, 2014, July 1, 2014, October 1, 2014 and January 1, 2015.

 

The Company entered into a Strategic Advisory Services Agreement with a consultant dated effective October 15, 2013. As consideration for the consultant’s assistance in expanding the Company’s operations and securing new business arrangements, the Company granted the consultant an aggregate of 3,500,000 options to purchase common stock of the Company, with 1,500,000 shares available for purchase at an exercise price of $0.65 per share and 2,000,000 shares available for purchase at an exercise price of $1.25 per share, with a grant term of seven years and subject to a vesting schedule. With respect to the options to purchase up to 1,500,000 shares at $0.65 per share, 500,000 options vest upon each of the following: (i) October 15, 2013 (the “Consultant Grant Date”); (ii) 90 days after the Consultant Grant Date; and (iii) 180 days after the Consultant Grant Date. With respect to the options to purchase up to 2,000,000 shares at an exercise price of $1.25 per share, 500,000 options vest upon each of the following: April 1, 2014, July 1, 2014, October 1, 2014 and January 1, 2015. 

 

On December 26, 2013, the Company entered into a Consulting Services Agreement with LR Advisors, LLC (“LRA”). Pursuant to the terms of the agreement, LRA agreed to provide the Company advisory services in connection with the Company’s investor relations. As compensation for such services, LRA was granted a total of 1,500,000 options to purchase common stock of the Company at an exercise price of $1.25 per share, with a grant term of seven years. The options vested in full upon execution of the agreement.

 

The Company entered into a Consulting Agreement with EAS Advisors, LLC (“EAS”) on January 1, 2014, whereby EAS agreed to provide the Company general corporate advice, guidance and strategic services relating to the Company’s milling assets and the development of mining clients and contacts. As consideration for such services, the Company granted EAS an aggregate of 2,000,000 options to purchase common stock of the Company, with 1,000,000 shares available for purchase at an exercise price of $1.25 per share and 1,000,000 shares available for purchase at an exercise price of $2.25 per share, with a grant term of seven years and subject to a vesting schedule. With respect to the options to purchase up to 1,000,000 shares at $1.25 per share, 250,000 options vest upon each of the following: (i) January 1, 2014 (the “EAS Grant Date”); (ii) 90 days after the EAS Grant Date; (iii) 180 days after the EAS Grant Date; and (iv) 270 days after the EAS Grant Date. With respect to the options to purchase up to 1,000,000 shares at an exercise price of $2.25 per share, 250,000 options vest upon each of the following: July 1, 2014, October 1, 2014, November 1, 2014 and December 1, 2014. The Company estimated the fair value of these options of $1,398,584 using the above Black-Scholes pricing model and will amortize over the vesting term.

 

On June 18, 2014, the Company granted 250,000 options to purchase common stock of the Company at an exercise price of $1.67 per share with a term of seven years to a legal advisor. The options vest in full on grant.

 

On June 18, 2014, the Company granted 750,000 options to purchase common stock of the Company at an exercise price of $1.67 per share with a term of seven years to the President of our Tonopah Custom Processing, Inc. subsidiary. The options vest in full on grant.

 

 16 

 

 

On June 18, 2014, the Company granted 1,000,000 options to purchase common stock of the Company at an exercise price of $1.67 per share with a term of seven years to an officer of the Company. The options vest in full on grant.

 

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. Further, the addendum vested all options in the original 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.

 

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.

 

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 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 

 

 17 

 

 

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 $11,764,548 and $6,267,724 related to compensation expense for the six months ended June 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 June 30, 2015, there was $4,817,523 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   16,750,000    1.02 
Canceled or expired   -    - 
Exercised   -    - 
Options outstanding – June 30, 2015   50,881,842   $0.98 
           
Weighted average fair value of options granted during the period ended June 30, 2015       $1.02 
Weighted average fair value of options granted during the year ended December 31, 2014       $0.94 

 

 18 

 

 

A summary of the Company’s nonvested options at June 30, 2015, and changes during the six months ended June 30, 2015, is presented below:

 

   Options   Weighted
Average
Grant Date
 Fair Value
 
Non-vested, beginning of period   5,250,000   $0.24 
Granted   16,750,000   $1.01 
Vested   (14,437,500)  $1.01 
Forfeited      $ 
Non-vested, end of period   7,562,500   $0.89 

 

The following tables summarize information about stock options outstanding and exercisable at June 30, 2015: 

 

   Options Outstanding at June 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   5.3 years  $0.48   $1,929,234 
$0.61 to $1.00   25,100,000   4.8 years  $0.83   $1,350,000 
$1.01 to $1.50   16,750,000   5.5 years  $1.24   $- 
$1.51 to $2.25   3,000,000   5.8 years  $1.86   $- 
$0.40 to $2.25   50,881,842   5.1 years  $0.98   $3,279,234 

 

   Options Exercisable at June 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   5.4 years  $0.46   $1,779,234 
$0.61 to $1.00   19,600,000   5.2 years  $0.89   $1,350,000 
$1.01 to $1.50   15,437,500   5.4 years  $1.24   $- 
$1.51 to $2.25   3,000,000   5.8 years  $1.86   $- 
$0.40 to $2.25   43,319,342   5.3 years  $1.00   $3,129,234 

 

  (1) The aggregate intrinsic value in the table represents the difference between the closing stock price on June 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 June 30, 2015.

 

On July 15, 2014, a holder with an option to purchase a total of 400,000 shares under the 2010 Plan originally granted on September 14, 2010 executed a cashless exercise wherein 282,000 restricted shares were issued and 118,000 shares were surrendered as payment for the issued shares.

 

 19 

 

 

Common Stock Purchase Warrants

 

For warrants granted to non-employees in exchange for services, we recorded the fair value of the equity instrument using the Black-Scholes pricing model unless the value of the services is more reliably measurable.

 

On October 7, 2014, 466,667 warrants to purchase common stock were exercised at a per share price of $0.60 for a total of $280,000.

 

On October 17, 2014, 112,360 warrants to purchase common stock were exercised at a per share price of $0.89 for a total of $100,000.

 

On November 26, 2014, 35,000 warrants to purchase common stock were exercised at a per share price of $0.89 for a total of $31,150.

 

On November 26, 2014, 283,333 warrants to purchase common stock were exercised at a per share price of $0.60 for a total of $170,000.

 

On December 5, 2014, 57,000 warrants to purchase common stock were exercised at a per share price of $0.89 for a total of $50,730.

 

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 June 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        -    -    
Exercised   (140,000)  $0.89   $0.89    
Outstanding at June 30, 2015   5,743,980   $0.84   $0.20 - 2.00    4.04 years
                   
Warrants exercisable at June 30, 2015             5,743,980    

 

The aggregate intrinsic value of the 5,743,980 outstanding and exercisable warrants at June 30, 2015 was $473,502. The intrinsic value is the difference between the closing stock price on June 30, 2015 and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised their warrants on June 30, 2015.

 

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NOTE 8 – 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. Further, the addendum vested all options in the original 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.

 

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.

 

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.

 

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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.

 

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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 9 – RELATED PARTY TRANSACTIONS

 

Tina Gregerson/Tina Gregerson Family Properties, LLC

 

On February 11, 2015, the Company issued an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity controlled by a director of the Company. The Note for up to $750,000 will be provided in tranches. Maturity of each tranche is one year from the date of receipt. Interest will accrue at 8% per annum on each tranche. As consideration, the Company agreed to issue common stock purchase warrants for the purchase of up to 250,000 shares of common stock exercisable for seven years at $1.23 per share. Under the terms of the Note, the Company received $200,000 on February 11, 2015, $48,000 on February 13, 2015 and $50,000 on April 13, 2015.

 

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.

 

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Under the terms of the Pure Path Note, the Company received $54,590 on February 4, 2015.

 

NOTE 10 – 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 June 30, 2015, the weighted average shares from stock options of 43,319,342 and warrants of 5,743,980 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 11 –JUDGEMENT 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.

 

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NOTE 12 – SUBSEQUENT EVENTS 

 

Notes Payable – Related Party

 

On July 31, 2015, the Company received $150,000 under the unsecured promissory note with Tina Gregerson Family Properties, LLC, an entity controlled by a director of the Company see Note 9 Related Party Transactions.

 

Issuance of common stock

 

On July 31, 2015 the Company issued 250,000 of common stock as a debt conversion of $50,000.

 

Modification of Material Contract

 

On August 17, 2015, Ms. Ullman and the Company agreed to forgive all back salary and reduce Ms. Ullman’s compensation to $1/year until the end of 2015. At the end of 2015, the Company and Ms. Ullman will renegotiate.

 

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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.

 

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.

 

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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

 

With the global collapse of commodity prices, the Company has altered its strategy to take advantage of the instability in the precious metals market and the lack of liquidity for the junior and mid-level projects in this space. The Company will seek to establish 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. The Company will also seek opportunities to acquire current income-producing metal streams and royalty contracts.

 

Supporting the initiative, the Company has put in place a proven executive team with expertise in the industry. The Company seeks to take advantage of the current dislocation in the mining sector by providing liquidity into the market for smaller mine operators who have promising development stage projects but limited access to capital.

 

The new management team will focus on 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. It will also seek to provide toll milling services on a selective basis in exchange for long term feed contracts.

 

The above business will be complemented as necessary with a secondary focus on strengthening the management teams of those junior and mid-level mines which will be operating the mines upon which Standard will be dependent for revenues.

 

Overview of the Company

 

Standard Metals Processing, Inc. (“we,” “us,” “our,” “Standard Metals” or the “Company) has offices in Gadsden, Alabama, New York, New York 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.

 

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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.

  

Equipment, Facility and 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.

 

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The Company accepted delivery of additional large heavy equipment on April 1, 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. With the additional large heavy equipment onsite, we have completed the removal of all the extra and unnecessary materials and old equipment that has accumulated on the land.

    

In April 2014, we purchased a complete Concrete Batch Plant, including four cement trucks, to reduce the overall cost of construction activities on site. This purchase is estimated to reduce the overall cost of construction by at least $500,000. In August 2014, we purchased an extensive array of heavy-duty construction and milling equipment for use in the construction and operation of the Tonopah facility. The heavy equipment allows us to construct the processing plant and tailings ponds using our own equipment, saving the cost of expensive lease payments. The heavy equipment includes the necessary machinery for construction including dozers, loaders, water trucks and heavy transport tractors as well as equipment required for production including crushers, screening plants, and conveyors.

 

PRODUCTS AND SERVICES

 

Standard Metals Processing, Inc. (“Standard Metals” or the “Company” - OTC: SMPR), seeks to establish itself as a specialized mining house that can provide financing in exchange for metals streaming and royalty contracts, and toll processing services to small- to medium-sized mining companies. The Company seeks to take advantage of the current dislocation in the mining sector by providing liquidity into the market for smaller mine operators who have promising development stage projects but limited access to capital. The Company will focus on generating low cost, non-operating income by providing financing and specialized services to mining companies in exchange for passive income such as royalty and metal stream contracts, and, in some instances, common stock and warrants. The Company will also seek opportunities to acquire current income-producing metal streams and royalty contracts. It will provide toll milling services on a selective basis in exchange for long term feed contracts.

 

The above business will be complemented as necessary with a focus on strengthening the management teams of those junior and mid-sized mining companies which will be operating the mines upon which with whom Standard will engage. Under this secondary focus, the Company 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.

 

The Company is continuing to assess the opportunity to purchase equipment and build a facility on our Tonopah, Nevada property to serve as a permitted custom toll milling facility which includes an analytical lab, pyrometallurgical, and hydrometallurgical recovery plant.

 

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 our facilities to conduct permitted custom processing toll milling operations.

 

ROYALTY AND METALS STREAM FUNDING

 

Royalty and metals stream funding where the owner/recipient to-be underwrites a portion of the operator’s start-up costs is a relatively recent financing innovation in the last twenty years. Where property owners have habitually received royalties from operators, this new structure permits the royalty or streaming company to create a passive income interest which incorporates attractive features, such as the right to audit, while providing the operator access to additional capital without his having to sell equity or take on debt.

 

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Buying or creating royalties or metal streams is the classic case of paying a lump sum, up front discounted amount now for a stream of income to be paid later. The income will be derived from within a defined property boundary. Part of the upside is that any additional ores found within that boundary will also be subject to the contract at no further cost to the royalty owner. In absolute amounts, the buyer expects the cost to incorporate a large discount (e.g. 30-50%) to the nominal value of the mineable reserve and typically there are additional resources or exploration potential which are incorporated in the deal without further payment. In relative terms, the amount paid as a lump sum can typically represent anywhere from one half to several times annual the value of one year of annual production, depending on the life of the reserves.

 

Royalty or streaming payments will fluctuate in value with changes in metal prices.

 

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.

 

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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 SIX MONTHS ENDED JUNE 30, 2015 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2014.  

 

Revenues

 

We had no revenues from any operations for the three and six months ended June 30, 2015 and 2014. Furthermore, we do not anticipate any significant future revenue until we have sufficiently funded operations, executed several royalty and streaming contracts at least one of which has begun monetizing the asset and paying on the contract, and receive all permits required for us to construct our facility and begin operations.

 

General and administrative expenses were $12,753,801 for the six months ended June 30, 2015 as compared to $12,021,604 for the same period in 2014. For the six months ended June 30, 2015, the majority of general and administrative expense was compensation expense related to options and warrants totaling $11,764,548 as compared to $10,860,224 compensation expenses related to options and warrants in the same period in 2014. In the six months ended June 30, 2015, compensation expenses as well as operating expenses increased due to the employment agreements the Company entered into with its key officers and the increase in construction costs as we have begun site preparation for the toll milling facility and costs associated with permits, research and agreements. We anticipate that future compensation expenses will increase and that certain operating expenses will continue to increase for fiscal 2015 as we continue to build the infrastructure to proceed with permitted custom processing toll milling services. 

 

General and administrative expenses were $5,640,439 for the three months ended June 30, 2015 as compared to $9,491,114 for the same period in 2014. For the three months ended June 30, 2015, the majority of general and administrative expense was compensation expense related to options and warrants totaling $5,220,705 as compared to $8,755,169 compensation expenses related to options and warrants in the same period in 2014. In the three months ended June 30, 2015, compensation expenses as well as operating expenses changed due to the employment agreements the Company entered into with its key officers and the increase in construction costs as we have begun site preparation for the toll milling facility and costs associated with permits, research and agreements. We anticipate that future compensation expenses will increase and that certain operating expenses will continue to increase for fiscal 2015 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. 

 

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Interest Expense  

 

Interest expense for the six months ended June 30, 2015 was $118,157, compared to $99,951 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 June 30, 2015; (ii) the short-term note payable; and (iii) the convertible notes issued in 2011 and 2012 and the $298,000 notes with Tina Gregerson Family Properties, LLC, an entity controlled by a director of the Company

 

Interest expense for the three months ended June 30, 2015 was $64,440, compared to $47,006 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 June 30, 2015; (ii) the short-term note payable; and (iii) the convertible notes issued in 2011 and 2012 and the $298,000 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 $33,051,127and 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.

 

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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 three months periods ended June 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 $8,734,239 at June 30, 2015. Cash and cash equivalents were $789 at June 30, 2015, representing a decrease of $104,434 from the cash and cash equivalents of $105,223 at June 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 six months ended June 30, 2015, we had net cash used in operating activities of $468,968, as compared to $689,382 for the six months ended June 30, 2014. 

 

For the six months ended June 30, 2015 and 2014 we had net cash used in investing activities of $43,528 and $1,156,411 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 six months ended June 30, 2015 and 2014, we had net cash provided by financing activities of $477,190 and $1,807,917, 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 June 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. 

 

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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 June 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.

 

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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).

 

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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.

 

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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

 

Warrant Exercises

 

During the first quarter of 2015, 100,000 warrants were exercised at a per share price of $0.89 for a total of $89,000. During the second quarter of 2015, 40,000 warrants were exercised at a per share price of $0.89 for a total of $35,600.

 

Option Grants

 

On January 16, 2015 Jonathan Spier was appointed as Chief Operating Officer 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. Further, the addendum vested all options in the original 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 shall vest on the Date of Grant; (ii) 150,000 shall vest 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.

 

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.

 

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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.

 

Issuance of common stock

 

On July 31, 2015 the Company issue 250,000 of common stock as a debt conversion of $50,000.

 

Promissory Notes

 

On February 11, 2015, the Company issued an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity controlled by a director of the Company. The Note for up to $750,000 will be provided in tranches. Maturity of each tranche is one year from the date of receipt. Interest will accrue at 8% per annum on each tranche. As consideration, the Company agreed to issue common stock purchase warrants for the purchase of up to 250,000 shares of common stock exercisable for seven years at $1.23 per share. Under the terms of the Note, the Company received $200,000 on February 11, 2015, $48,000 on February 13, 2015 and $50,000 on April 13, 2015. .

 

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

 

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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:    August 19, 2015    
     
  By: /s/ Sharon L. Ullman
    Sharon L. Ullman
    Chief Executive Officer
     
  By: /s/ Robert Geiges
    Robert Geiges
    Chief Financial Officer

 

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