UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO
SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 5, 2015
STAR MOUNTAIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 000-54405 | 90-0963619 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
605 W. Knox Rd, #202, Tempe, AZ | 85284 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (844) 443-7677
Not applicable.
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K/A filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY NOTE
On November 5, 2015, Star Mountain Resources, Inc. (“we” “us” or “our”) filed a Current Report on Form 8-K (the “Form 8-K”) related to the Purchase Agreements we had entered into with Balmat Holding Corporation (“Balmat Holdings”) and Northern Zinc, LLC (“Northern Zinc”). This Amendment No. 1 to the Form 8-K is filed to provide the financial statements and other information required under Item 9.01 of the Form 8-K.
Item 9.01. Financial Statements and Exhibits.
a) Financial Statements of Business Acquired.
The Audited Consolidated Financial Statements of Balmat Holdings as of December 31, 2014 and 2013 and the Unaudited Consolidated Financial Statements for the nine months ended September 30, 2015 and 2014 are filed as Exhibit 99.1 to this Amendment No. 1 of this current report and are incorporated herein by reference.
The Audited Financial Statements of Northern Zinc as of December 31, 2014 and from inception on July 9, 2014 through December 31, 2014 and the Unaudited Financial Statements for the nine months ended September 30, 2015 and from inception on July 9, 2014 through September 30, 2014 are filed as Exhibit 99.2 to this Amendment No. 1 of this current report and are incorporated herein by reference.
b) Pro Forma Financial Information.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2015 and Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2015 and for the year ended December 31, 2014 to give effect to the acquisition of Balmat Holdings and Northern Zinc are filed as Exhibit 99.3 to this Amendment No. 1 of this current report and are incorporated herein by reference.
c) Exhibits.
Exhibit No. | Description | |
2.1 | Purchase Agreement dated as of October 13, 2015 among Star Mountain Resources, Inc., Northern Zinc, LLC, and Aviano Financial Group, LLC. (Incorporated by reference to Exhibit 2.1 to the Company’s current report on Form 8-K as filed with the SEC on October 16, 2015) | |
2.2 | Purchase Agreement dated as of October 13, 2015 among Northern Zinc, LLC, Star Mountain Resources, Inc., HudBay Minerals Inc. Balmat Holding Corporation and St. Lawrence Zinc Company, LLC. (Incorporated by reference to Exhibit 2.2 to the Company’s current report on Form 8-K as filed with the SEC on October 16, 2015) | |
3.1 | Amendment to Certificate of Designation - Series C Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K as filed with the SEC on November 5, 2015) | |
10.1 | Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K as filed with the SEC on November 5, 2015). | |
99.1 | Press Release dated November 5, 2015 (furnished herewith) (Incorporated by reference to Exhibit 99.1 to the Company’s current report on Form 8-K as filed with the SEC on November 5, 2015). | |
99.2 * | Audited Consolidated Financial Statements of Balmat Holding Corporation as of December 31, 2014 and 2013 and the Unaudited Consolidated Financial Statements for the nine months ended September 30, 2015 and 2014. | |
99.3 * | Audited Financial Statements of Northern Zinc, LLC as of December 31, 2014 and from inception on July 9, 2014 through December 31, 2014 and the Unaudited Financial Statements for the nine months ended September 30, 2015 and from inception on July 9, 2014 through September 30, 2014. | |
99.4 * | Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2015 for Star Mountain Resources, Inc. and Unaudited Pro Forma Condensed Combined Statements of Operations for the nine months ended September 30, 2015 and for the year ended December 31, 2014 for Star Mountain Resources, Inc. |
* Filed Herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
STAR MOUNTAIN RESOURCES, INC. | ||
Date: January 19, 2016 | By: | /s/ Joseph Marchal |
Joseph Marchal, Chief Executive Officer |
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EXHIBIT 99.2
Consolidated Financial Statements of | |
Balmat Holding Corp. | |
December 31, 2013 and 2014 and September 30, 2015 |
BALMAT HOLDING CORP.
September 30, 2015
Table of contents
Report of Independent Registered Public Accounting Firm | 3 |
Consolidated Balance Sheets | 4 |
Consolidated Statements of Operations | 5 |
Consolidated Statements of Changes in Shareholders’ Equity | 6 |
Consolidated Statements of Cash Flows | 7 |
Notes to the Consolidated Financial Statements | 8-14 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee
Star Mountain Resources, Inc. and Subsidiaries
Tempe,
Arizona
We
have audited the accompanying balance sheets of Balmat Holdings Corporation as of December 31, 2014 and 2013, and the related
statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Balmat Holdings Corporation as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is dependent on the continued financial support of its parent company, or achieving profitable operations in the future which cannot be predicted at this time. This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
January 19, 2016
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BALMAT HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 2013 | December 31, 2014 | September 30, 2015 | ||||||||||
(unaudited) | ||||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 57 | $ | 102 | $ | 74 | ||||||
Prepaid expenses and other current assets | 170 | 157 | 123 | |||||||||
Total current assets | 227 | 259 | 197 | |||||||||
MATERIALS AND SUPPLIES INVENTORY | 742 | 742 | 742 | |||||||||
RESTRICTED CASH | 1,664 | 1,664 | 1,664 | |||||||||
MINERAL PROPERTIES | 2,500 | 2,500 | 2,500 | |||||||||
TOTAL ASSETS | $ | 5,133 | $ | 5,165 | $ | 5,103 | ||||||
LIABILITIES AND SHAREHOLDER’S EQUITY (DEFICIT) | ||||||||||||
CURRENT LIABIILITIES: | ||||||||||||
Accounts payable and accrued liabilities | $ | 190 | $ | 131 | $ | 73 | ||||||
Other liabilities | 34 | 42 | 14 | |||||||||
Total current liabilities | 224 | 173 | 87 | |||||||||
DUE TO HUDBAY MINERALS INC. | 109,974 | 103,626 | 92,433 | |||||||||
ASSET RETIREMENT OBLIGATION | 18,632 | 19,824 | 23,195 | |||||||||
TOTAL LIABILITIES | 128,830 | 123,623 | 115,715 | |||||||||
COMMITMENTS AND CONTINGENCIES (Note 9) | ||||||||||||
SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||
Common shares, no par value – 2,500 shares authorized; 100 shares issued and outstanding as of December 31, 2013 and 2014; and September 30, 2015 | - | - | - | |||||||||
Retained deficit | (123,697 | ) | (118,458 | ) | (110,612 | ) | ||||||
Total shareholders’ equity (deficit) | (123,697 | ) | (118,458 | ) | (110,612 | ) | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | $ | 5,133 | $ | 5,165 | $ | 5,103 |
See notes to consolidated financial statements.
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BALMAT HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per-share data)
For the years ended December 31, | For the nine months ended September 30, | |||||||||||||||
2013 | 2014 | 2014 | 2015 | |||||||||||||
(unaudited) | ||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Operating costs | $ | 21 | $ | 6 | $ | 2 | $ | (21 | ) | |||||||
Exploration and evaluation | 111 | 69 | 48 | 48 | ||||||||||||
Accretion | 290 | 325 | 244 | 202 | ||||||||||||
Revisions to asset retirement obligation estimates | (1,517 | ) | 867 | 891 | 3,169 | |||||||||||
Care & maintenance | 3,074 | 2,781 | 2,083 | 1,871 | ||||||||||||
Total operating expenses | 1,979 | 4,048 | 3,268 | 5,269 | ||||||||||||
NON-OPERATING INCOME | ||||||||||||||||
Gain on foreign exchange | 7,494 | 9,278 | 5,582 | 13,109 | ||||||||||||
Interest income | 11 | 9 | 6 | 7 | ||||||||||||
Total non-operating income | 7,505 | 9,287 | 5,588 | 13,116 | ||||||||||||
NET INCOME | $ | 5,526 | $ | 5,239 | $ | 2,320 | $ | 7,847 | ||||||||
INCOME PER SHARE – BASIC AND DILUTED | $ | 55.26 | $ | 52.39 | $ | 23.20 | $ | 78.47 | ||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 100 | 100 | 100 | 100 |
See notes to consolidated financial statements.
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BALMAT HOLDING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share and per-share data)
Common Shares | Accumulated | Total Stockholder’s | ||||||||||||||
Shares | Amount | Deficit | Equity (Deficit) | |||||||||||||
Balance at December 31, 2012 | 100 | $ | - | $ | (129,223 | ) | $ | (129,223 | ) | |||||||
Net Income | 5,526 | 5,526 | ||||||||||||||
Balance at December 31, 2013 | 100 | - | (123,697 | ) | (123,697 | ) | ||||||||||
Net Income | 5,239 | 5,239 | ||||||||||||||
Balance at December 31, 2014 | 100 | - | (118,458 | ) | (118,458 | ) | ||||||||||
Net Income (unaudited) | 7,847 | 7,847 | ||||||||||||||
Balance at September 30, 2015 (unaudited) | 100 | $ | - | $ | (110,612 | ) | $ | (110,612 | ) |
See notes to consolidated financial statements.
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BALMAT HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the years ended December 31, | For the nine months ended September 30, | |||||||||||||||
2013 | 2014 | 2014 | 2015 | |||||||||||||
(unaudited) | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net Income | $ | 5,526 | $ | 5,239 | $ | 2,320 | $ | 7,847 | ||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Accretion | 290 | 325 | 244 | 202 | ||||||||||||
Unrealized foreign exchange loss (gain) on advances from HudBay Minerals Inc. | (7,494 | ) | (9,278 | ) | (5,582 | ) | (13,109 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Asset retirement obligation | (1,517 | ) | 867 | 891 | 3,169 | |||||||||||
Prepaid expenses and other current assets | 155 | 13 | 58 | 34 | ||||||||||||
Accounts payable and accrued liabilities | (88 | ) | (50 | ) | (81 | ) | (87 | ) | ||||||||
Net cash used in operating activities | (3,128 | ) | (2,884 | ) | (2,150 | ) | (1,944 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Net cash used in investing activities | - | - | - | - | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Advances from HudBay Minerals Inc. | 3,137 | 2,929 | 2,157 | 1,916 | ||||||||||||
Net cash provided by financing activities | 3,137 | 2,929 | 2,157 | 1,916 | ||||||||||||
NET INCREASE (DECREASE) IN CASH | 9 | 45 | 7 | (28 | ) | |||||||||||
CASH - Beginning of year | 48 | 57 | 57 | 102 | ||||||||||||
CASH - End of period | $ | 57 | $ | 102 | $ | 64 | $ | 74 |
See notes to consolidated financial statements.
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BALMAT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014 AND FOR THE UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands, except per share data)
1. | ORGANIZATION AND NATURE OF BUSINESS |
Balmat Holding Corp. (the “Company”) was incorporated under the laws of the State of Delaware on January 30, 2003. The Company operates through its wholly owned subsidiary, St. Lawrence Zinc Company, LLC (“SLZ”), a company incorporated under the laws of the State of Delaware on January 30, 2003, whose primary business is mineral exploration and the mining and processing of zinc ore from the Balmat Mine in upper New York State. Balmat Holding Corp. is a wholly owned subsidiary of HudBay Minerals Inc. (HudBay), a Canadian corporation whose primary activity is base metals production. As discussed more fully in Note 13, on November 2, 1015, the Company was sold by HudBay to an unrelated third party.
In 2003, SLZ acquired the previously operating Balmat zinc mine and processing assets and held these under care and maintenance for a period of time. In November 2005, HudBay announced the intention to reopen the Balmat No. 4 Zinc Mine (the “Balmat Mine”). The Balmat Mine includes a 3,200 ft. deep shaft, underground development to five ore zones and extensive mining equipment as well as a 5,000 ton per day concentrator. In April, 2006, the Balmat Mine began producing ore for processing in its concentrator. In 2008, its second year of commercial production, the performance of the Balmat Mine continued to fall short of the Company’s expectations. Due to this operating shortfall and rapidly declining zinc prices, the Balmat Mine’s operations were suspended on August 22, 2008 and placed on care and maintenance. Thereafter, the carrying value of the Balmat Mine’s property, plant and equipment and materials and supplies inventory was written down to its approximate salvage value.
Going Concern - The ability of the Company to continue as a going concern is dependent on the continued financial support from its ultimate parent company, HudBay, or achieving profitable operations in the future which cannot be predicted at this time. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements have been prepared on the basis that the Company will be able to discharge its obligations and realize its assets in the normal course of business at the values at which they are carried in these financial statements, and that the Company will be able to continue its business activities. Should this going concern assumption not be appropriate and there was in-fact substantial doubt surrounding the ability of the Company to continue as a going concern, certain asset and liability accounts may require adjustment and reclassification.
Unaudited Interim Financial Statements – The accompanying interim Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and September 30, 2014, and the related interim information contained within the Notes to the Consolidated Financial Statements are unaudited. In our opinion, the unaudited interim Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements and include all adjustments necessary for fair presentation. All adjustments made to the unaudited interim Consolidated Financial Statements are of a normal and recurring nature. The results of the interim periods, the nine months ended September 30, 2015 and 2014, presented here are not necessarily indicative of the results for the full years ending December 31, 2015 and 2014.
2. | BASIS OF PRESENTATION |
Principles of consolidation
These consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“US GAAP”) and are inclusive of the accounts of Balmat Holding Corp. and its wholly-owned subsidiary, St. Lawrence Zinc Company, LLC. Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year. All numbers in the consolidated financial statements are presented in U.S. dollars and in thousands, unless otherwise denoted.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP 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 expenses during the reporting period. Actual results could differ from those estimates. The amounts which involve significant estimates include (i) expense allocations from HudBay, (ii) property, plant and equipment estimated salvage values and assessment of impairment, (iii) fair value of certain assets and liabilities, (iv) contingent liabilities and (v) asset retirement obligations. These estimates are reviewed at least annually and, as adjustments become necessary, they are reported in earnings in the period in which they became known. Actual results could differ from those estimates.
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Translation of foreign currencies
The Company’s functional currency is the U.S. dollar while the functional currency of HudBay was the Canadian dollar through June 30, 2015 at which time HudBay switched its functional currency from the Canadian dollar to the U.S. dollar. Therefore, transactions between HudBay and the Company during those periods in which HudBay and the Company had different functional currencies require currency translation, including those allocations of expense from HudBay to the Company as well HudBay’s funding of the Company’s operations, which resulted in a payable to HudBay.
Monetary assets and liabilities were translated at period-end exchange rates and non-monetary assets and liabilities were translated at historical rates. Gains and losses on translation of monetary assets and monetary liabilities are reflected in earnings.
Cash and cash equivalents
Cash and cash equivalents consist of cash and liquid investments with an original maturity of three months or less and were held in bank accounts with financial institutions in the U.S.
Restricted Cash
The Company maintains cash deposits and/or surety bonds as required by regulatory bodies as assurance for the funding of future reclamation costs associated with the Company’s asset retirement obligation. These funds are restricted to that purpose and are not available for the Company’s use until the reclamation obligations have been fulfilled. Restricted cash is classified as a noncurrent asset.
At December 31, 2013 and 2014 and September 30, 2015 the amounts of these restricted cash deposits totaled $1,664 with the funds invested in a certificate of deposit which renews automatically for additional terms of one year or more. The $1,664 is in lieu of a mined land reclamation bond and is held in escrow for the New York State Department of Environmental Conservation. Interest earned on the certificate of deposit is not part of the bonding obligation and as such is classified as a current asset.
Inventories
The value of materials and supplies inventory was assessed when operations were suspended, and written down to estimated net realizable value. Materials and supplies are expected to be held and consumed during development or resumption of mining activities. Supplies are valued at the lower of cost or replacement value. Cost is determined on an average basis.
Care and Maintenance
The Company’s idled Balmat mine and mill was placed on care and maintenance in the latter part of 2008. Costs incurred for maintaining the idled mine and mill such as personnel, site security, permitting, property taxes and electricity are expensed as incurred.
Property, Plant and Equipment
(i) | Mineral property, exploration and mine development expenditures: | |
Exploration costs are expensed as incurred. When it is determined that a mining deposit can be economically and legally extracted or produced based on established proven and probable reserves under SEC Industry Guide 7, development costs related to such reserves incurred after such determination will be considered for capitalization. The establishment of proven and probable reserves is based on results of feasibility studies which indicate whether a property is economically feasible. Upon commencement of commercial production, capitalized costs will be amortized over their estimated useful lives or units of production, whichever is a more reliable measure. Capitalized amounts relating to a property that is abandoned or otherwise considered uneconomic for the foreseeable future will be written off. |
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(ii) | Property, plant and equipment (PP&E): | |
Expenditures for PP&E additions, major replacements and improvements are capitalized at cost. PP&E is depreciated using the straight-line method and is depreciated over the estimated useful lives of the assets. With the Company’s operations currently on care and maintenance and with the remaining PP&E balance having been fully impaired and written off in 2008, no depreciation expense is currently being recognized. | ||
(iii) | Impairment of assets: | |
The Company reviews and evaluates the carrying value of its assets when events or circumstances indicate that the carrying amounts of related assets or groups of assets may not be recoverable, or at least annually. If the estimated future economic benefit is less than the carrying amount of the asset, an impairment charge is recorded based on the difference between the carrying amount and its estimated fair value (less costs to sell for assets to be disposed of by sale) as a charge to operations. |
Asset Retirement Obligations
In connection with the Company’s business, it is required to reclaim the sites at which it is conducting its mining activities once those activities have been completed. The fair value of that liability is measured based on an expected cash flow approach, discounted using a credit-adjusted risk-free rate. If a change in timing or estimated expected cash flows results in a downward revision of the asset retirement obligation, then the undiscounted revised estimate of expected cash flows is discounted using the credit-adjusted risk-free rate in effect at the date of initial measurement and recognition of the original asset retirement obligation.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that the entire or some portion of the deferred tax asset will not be recognized.
The Company’s policy is to recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. For the years ended December 31, 2013 and 2014, the Company did not recognize any interest or penalties, nor did we have any interest or penalties accrued as of December 31, 2013 and 2014, related to unrecognized benefits.
Income Per Share
The income per share is computed using the weighted average number of shares outstanding during the period. To calculate diluted income per share, the Company uses the treasury stock method and the if-converted method. The Company had no potentially dilutive securities as of December 31, 2013 and 2014.
Fair Value of Financial Instruments
Due to their short maturities, carrying amounts approximate fair value for cash, prepaid expenses, accounts payable and other accrued liabilities. The carrying value of the balance due to HudBay Minerals Inc. is also deemed to approximate the estimated fair value of the obligation.
Fair Value Measurements
The Financial Accounting Standards Board (FASB) guidance requires additional disclosures about the Company’s financial assets and liabilities that are measured at fair value. U.S. GAAP defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):
● | Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
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● | Level 2 — Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means. | |
● | Level 3 — Prices or valuation techniques requiring inputs that are both significant to the fair-value measurement and unobservable. |
4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
In the normal course of business, the Company pays in advance for goods and/or services to be received in the future. Our prepaid expense balance at December 31, 2013 and 2014 and September 30, 2015 consisted of the following:
December 31, | December 31, | September 30, | ||||||||||
2013 | 2014 | 2015 | ||||||||||
Prepaid Insurance | $ | 29 | $ | 15 | $ | 1 | ||||||
Prepaid Property Taxes | 141 | 142 | 122 | |||||||||
Total prepaid expenses and other current assets | $ | 170 | $ | 157 | $ | 123 |
5. | MATERIALS AND SUPPLIES INVENTORY |
Materials and supplies inventory, which includes critical spare parts and other replacement parts, was written down to its net realizable value in 2008 when the Company determined its operations would be limited to care and maintenance activities.
6. | RESTRICTED CASH |
The Company maintains a certificate of deposit of $1,664 as financial assurance for the New York State Department of Environmental Conservation’s (NYSDEC) mined land regulations. The certificate of deposit renews annually for additional terms of one year or more unless otherwise approved by the NYSDEC.
7. | MINERAL PROPERTIES / PROPERTY AND EQUIPMENT |
Mineral properties in the amount of $2,500 represent the value of exploration properties purchased on September 23, 2003. As the Company’s operations were limited to care and maintenance activities, no amortization expense was recognized for the years ended December 31, 2013 and 2014 or for the nine months ended September 30, 2015 and 2014.
As the Company’s operations were limited to care and maintenance activities and as all PP&E was written down to its net realizable value in 2008, no depreciation expense was recognized for the years ended December 31, 2013 and 2014 or for the nine months ended September 30, 2015 and 2014.
8. | RELATED PARTY TRANSACTIONS |
To date, the Company has relied on advances from HudBay to meet its obligations as they became payable. These advances are unsecured, non-interest bearing and have no fixed terms of repayment. As the majority of these advances are funded in Canadian dollars, any movements in exchange rates were recognized in the statement of operations through June 30, 2015 when HudBay switched its functional currency from the Canadian dollar to the U.S. dollar. The accumulated advances are outlined below as of December 31, 2013 and 2014 and September 30, 2015:
December 31, | December 31, | September 30, | ||||||||||
2013 | 2014 | 2015 | ||||||||||
Due to HudBay Minerals Inc. | $ | 109,974 | $ | 103,626 | $ | 92,433 |
The above related party transactions have been recorded at the amounts agreed to and exchanged between the parties.
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9. | COMMITMENTS AND CONTINGENCIES |
On a portion of the Balmat Mine’s mineral leases, the Company is subject to royalty payments of up to 4% of the net smelter return of ore removed from these properties.
Effective November 2, 2015 (the “closing date”) Star Mountain Resources, Inc., a Nevada corporation (“Star Mountain”) acquired a 100% interest in Northern Zinc LLC, a Nevada limited liability company (“Northern Zinc”) pursuant to an October 13, 2015 purchase agreement amongst Star Mountain, Northern Zinc and Northern Zinc’s sole member the Aviano Financial Group, LLC, a Delaware limited liability company (the “Northern Zinc Purchase Agreement”). On the closing date Northern Zinc acquired 100% of the issued and outstanding common stock of the Company, including the Company’s wholly owned subsidiary SLZ, pursuant to a second October 13, 2015 purchase agreement amongst Star Mountain, Northern Zinc, HudBay, the Company and SLZ (the “Balmat Purchase Agreement”). With the completion of these transactions, Balmat Holdings became a wholly subsidiary of Northern Zinc and Northern Zinc became a wholly owned subsidiary of Star Mountain.
In the normal course of business, the Company is subject to regulation and examination by the Mine Safety and Health Administration (MSHA), the organization responsible for enforcement of compliance with MSHA standards as a means to eliminate mine-related accidents and injuries.
10. | INCOME TAXES |
The provision for income taxes consists of the following as of December 31, 2013 and 2014:
December 31, | ||||||||
2013 | 2014 | |||||||
Current taxes | $ | - | $ | - | ||||
Deferred Tax Benefit | (2,926 | ) | (2,412 | ) | ||||
Benefits of Operating Loss Carryforwards | 2,926 | 2,412 | ||||||
Actual provision | $ | - | $ | - |
The Company’s deferred tax asset has been fully offset by a valuation allowance because at this time the Company believes that it is more likely than not that the future tax benefit will not be realized as the Company cannot predict when or if it will have taxable income in the future.
December 31, | ||||||||
2013 | 2014 | |||||||
Deferred Tax Assets | $ | - | $ | - | ||||
Current | - | - | ||||||
Noncurrent | - | - | ||||||
Net operating losses | 27,691 | 30,146 | ||||||
Total Deferred Tax Assets | 27,691 | 30,146 | ||||||
Deferred Tax Liabilities | ||||||||
Current | - | - | ||||||
Noncurrent | (459 | ) | (72 | ) | ||||
Valuation Allowance | (27,232 | ) | (30,074 | ) | ||||
Net Deferred Taxes | $ | - | - |
The Company’s provision for income taxes was $0 for the years ended December 31, 2013 and 2014 as the Company incurred net operating losses since inception that have a full valuation allowance through December 31, 2014. The Company’s net federal operating loss carry forward as of December 31, 2014 of approximately $77,298 begins to expire in 2024.
12 |
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
For 2013, the total deferred tax asset is calculated by multiplying a 39% marginal tax rate by the cumulative Net Operating Loss (“NOL”) of $27,691. The total valuation allowance is equal to the total deferred tax asset of $27,232, less the total deferred tax liability of $459, showing an increase of $763 from the year ended December 31, 2012.
For 2014, the total deferred tax asset is calculated by multiplying a 39% marginal tax rate by the cumulative Net Operating Loss (“NOL”) of $30,146. The total valuation allowance is equal to the total deferred tax asset of $30,074, less the total deferred tax liability of $72, showing an increase of $2,842 from the year ended December 31, 2013.
A reconciliation between income taxes at statutory tax rates (39%) and the actual income tax provision for continuing operations as of December 31, 2013 and 2014 is as follows:
December 31, | ||||||||
2013 | 2014 | |||||||
Expected provision (based on statutory rate) | $ | 2,155 | $ | 2,043 | ||||
Effect of: | ||||||||
Increase in valuation allowance | 2,926 | 2,412 | ||||||
Non-deductible expenses | (5,081 | ) | (4,455 | ) | ||||
Actual provision | $ | - | $ | - |
The Company has not made any adjustments to deferred tax assets or liabilities. The Company did not identify any material uncertain tax positions of the Company on returns that have been filed or that will be filed. The Company has not had income from operations and has deferred items consisting entirely of unused net operating losses as disclosed above. Since it is unknown whether this net operating loss will ever produce a tax benefit, even if examined by taxing authorities and disallowed entirely, there would be no effect on the financial statements.
The Company has filed the federal income tax return in the U.S for the years ended December 31, 2013 and 2014. The tax years ended December 31, 2013 and 2014 are open for examination for federal income tax purposes and by other major taxing jurisdictions to which we are subject.
11. | ASSET RETIREMENT OBLIGATION |
The Company’s asset retirement obligation relates to the final reclamation and closure of the Balmat Mine.
Activity in the asset retirement obligation account for the years ended December 31, 2013 and 2014 and for the nine months ended September 30, 2015 (unaudited) was as follows:
December 31, | December 31, | September 30, | ||||||||||
2013 | 2014 | 2015 | ||||||||||
Beginning Balance | $ | 19,859 | $ | 18,632 | $ | 19,824 | ||||||
Revisions in estimated cash flows | (1,517 | ) | 867 | 3,169 | ||||||||
Accretion due to passage of time | 290 | 325 | 202 | |||||||||
Liabilities settled | - | - | - | |||||||||
Ending balance | $ | 18,632 | $ | 19,824 | $ | 23,195 |
For the years ended December 31, 2013 and 2014 and for the nine months ended September 30, 2015, the Company revised its accounting estimates related to its asset retirement obligation due to revisions in estimated future cash flows. These estimated future cash flows reflect management’s expectations for when these reclamation and closure activities will be settled at or near the closure of the Balmat Mine’s mining and process facilities. Credit adjusted risk-free rates ranging from 9.5% to 9.625% have then been applied to these estimates to determine the obligation recorded on the balance sheet.
13 |
12. | LITIGATION |
The Company is party to various audits and reviews by Mine Safety and Health Administration and other government agencies arising in the normal course of business. In the opinion of management, there are no regulatory or environmental reviews or audits pending against the Company that are likely to have a material adverse effect on its financial position, results of operations or cash flows.
13. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through January 19, 2016, noting no events that require consideration in the 2013 or 2014 financial statements. For unaudited, interim periods in 2015, the Company has evaluated subsequent events through January 19, 2016, and noted the following:
On October 22, 2015, the Company exchanged 122 shares of its common stock for a promissory note issued by the Company to HudBay with a current amount due of $91,460 in respect of, among other things, financing the Company received from HudBay to fund the Company’s mining business. The Company intends to cancel the note and record the amount due as additional paid in capital in the period in which the transaction took place.
On November 2, 2015, the Company entered into Resignation and Mutual Releases with eight current and former employees of the Company whereby the employee resigned as an officer and director of the Company and the parties mutually agreed to release each other from any claims such party may have had against the other except for certain indemnification obligations of the Company to such employees arising in connection with their employment with the Company. The Company paid the former employees an aggregate of $440 pursuant to the terms of the Resignation and Mutual Releases as a severance payment.
Effective November 2, 2015 (the “closing date”) Star Mountain Resources, Inc., a Nevada corporation (“Star Mountain”) acquired a 100% interest in Northern Zinc LLC, a Nevada limited liability company (“Northern Zinc”) pursuant to an October 13, 2015 purchase agreement amongst Star Mountain, Northern Zinc and Northern Zinc’s sole member the Aviano Financial Group, LLC, a Delaware limited liability company (the “Northern Zinc Purchase Agreement”). On the closing date Northern Zinc acquired 100% of the issued and outstanding common stock of the Company, including the Company’s wholly owned subsidiary SLZ, pursuant to a second October 13, 2015 purchase agreement amongst Star Mountain, Northern Zinc, HudBay, the Company and SLZ (the “Balmat Purchase Agreement”). With the completion of these transactions, Balmat Holdings became a wholly subsidiary of Northern Zinc and Northern Zinc became a wholly owned subsidiary of Star Mountain.
In conjunction with the November 2, 2015 acquisition of the Company by Star Mountain, Star Mountain acquired all of the Company’s issued and outstanding shares in exchange for the purchase price of $17,000 in cash (the “Cash Component”) and the receipt of 550 shares of Star Mountain’s unregistered common stock. The Cash Component is payable at Star Mountain’s option in any of the following ways:
Option 1. Under this option, the $17,000 Cash Component will consist of the $1,500 paid on the closing date with the balance of $15,500 to be paid as follows:
● | $500 upon completion of the first shipment of ore concentrate from the Balmat Mine; | |
● | $5,000 on the 12 month anniversary shipment of ore concentrate from the Balmat Mine; and | |
● | $2,500 on each of the following dates from the first shipment of ore concentrate from the Balmat Mine: 18th month, 24 th month, 30 th month and the 36 th month. |
Option 2. At Star Mountain’s election to be confirmed by notice to Hudbay within three months after the closing date, the Cash Component will be reduced to $8,500 and will consist of the $1,500 in cash paid on the closing date with the balance of $7,000 to be paid within three days of the Option 2 election date.
In addition to the payment of the Option 2 purchase price, Star Mountain would assume all environmental liabilities in respect of the Balmat Mine; and all liabilities relating to or arising from any claims by existing or former employees relating to employment, termination, on-the-job injuries or death, unsafe working conditions or exposure to potentially harmful substances; and waive its right to indemnification by HudBay in respect of certain damages identified in the purchase agreement.
Option 3. At Star Mountain’s election to be confirmed by notice to Hudbay within 30 days before the 12-month anniversary of the first shipment of ore concentrate from the Balmat Mine, the Cash Component will be reduced to $16,000 and will consist of the $1,500 in cash paid on the closing date with the balance of $14,500 to be paid as follows:
● | $400 upon completion of the first shipment of ore concentrate from the Balmat Mine; and | |
● | $4,700 on each of the following dates from the first shipment of ore concentrate from the Balmat Mine: 12th month, 18 th month and 24 th month. |
14 |
EXHIBIT 99.3
Financial Statements of | |
Northern Zinc LLC | |
December 31, 2014 and September 30, 2015 |
NORTHERN ZINC LLC
September 30, 2015
Table of contents
Report of Independent Registered Public Accounting Firm | 3 |
Balance Sheets | 4 |
Statements of Operations | 5 |
Statements of Members’ Capital | 6 |
Statements of Cash Flows | 7 |
Notes to the Financial Statements | 8-9 |
2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Members
Northern Zinc, LLC
We have audited the accompanying balance sheet of Northern Zinc, LLC as of December 31, 2014, and the related statements of operations, members’ equity, and cash flows for the period from inception on July 9, 2014 through December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northern Zinc, LLC as of December 31, 2014, and the results of its operations and cash flows from inception on July 9, 2014 through December 31, 2014, in conformity with U.S. generally accepted accounting principles.
HJ
& Associates, LLC
Salt Lake City, Utah
January 19 , 201 6
3 |
NORTHERN ZINC LLC
BALANCE SHEETS
(In thousands)
December 31, 2014 | September 30, 2015 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | - | $ | - | ||||
Deposit on acquisition | 500 | 500 | ||||||
Total current assets | 500 | 500 | ||||||
TOTAL ASSETS | $ | 500 | $ | 500 | ||||
LIABILITIES AND MEMBERS’ CAPITAL | ||||||||
CURRENT LIABIILITIES: | ||||||||
Accounts Payable | $ | - | $ | - | ||||
Total current liabilities | - | - | ||||||
TOTAL LIABILITIES | - | - | ||||||
COMMITMENTS AND CONTINGENCIES (Note 5) | ||||||||
MEMBERS’ CAPITAL | ||||||||
Members’ capital contributions | 500 | 500 | ||||||
Total members’ capital | 500 | 500 | ||||||
TOTAL LIABILITIES AND MEMBERS’ CAPITAL | $ | 500 | $ | 500 |
See notes to financial statements.
4 |
NORTHERN ZINC LLC
STATEMENTS OF OPERATIONS
(In thousands)
July 9, 2014 (inception) through December 31, | From Inception on July 9, 2014 through September 30, | For the nine months ended September 30, | ||||||||||
2014 | 2014 | 2015 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
OPERTATING EXPENSES | ||||||||||||
Operating costs | $ | - | $ | - | $ | - | ||||||
Total operating expenses | - | - | - | |||||||||
NON-OPERATING INCOME (EXPENSES) | ||||||||||||
Other income (expense) | - | - | - | |||||||||
Total non-operating income (expenses) | - | - | - | |||||||||
NET INCOME (LOSS) | $ | - | $ | - | $ | - |
See notes to financial statements.
5 |
NORTHERN ZINC LLC
STATEMENTS OF MEMBERS’ CAPITAL
(In thousands)
Members’ Contributions | Total
Members’ Capital | |||||||
BALANCE AT JULY 9, 2014 (inception) | $ | - | $ | - | ||||
Members’ contributions | 500 | 500 | ||||||
Net income (loss) | - | - | ||||||
BALANCE AT DECEMBER 31, 2014 | 500 | 500 | ||||||
Net income (loss) (unaudited) | - | - | ||||||
BALANCE AT SEPTEMBER 30, 2015 (unaudited) | $ | 500 | $ | 500 |
See notes to financial statements.
6 |
NORTHERN ZINC LLC
STATEMENTS OF CASH FLOWS
(in thousands)
July
9, 2014 (inception) through December 31, | From
Inception on July 9, 2014 through September 30, | For
the nine months ended September 30, | ||||||||||
2014 | 2014 | 2015 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net Income | $ | - | $ | - | $ | - | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts payable and accrued liabilities | - | - | - | |||||||||
Net cash provided by (used in) operating activities | - | - | - | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Deposit on acquisition | (500 | ) | (250 | ) | - | |||||||
Net cash used by investing activities | (500 | ) | (250 | ) | - | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Member capital contributions | 500 | 250 | - | |||||||||
Net cash provided by financing activities | $ | 500 | $ | 250 | $ | - | ||||||
NET INCREASE (DECREASE) IN CASH | $ | - | $ | - | $ | - | ||||||
CASH - Beginning of year | $ | - | $ | - | $ | - | ||||||
CASH - End of period | $ | - | $ | - | $ | - |
See notes to financial statements.
7 |
NORTHERN ZINC LLC
NOTES TO FINANCIAL STATEMENTS
AS OF JULY 9, 2014 (INCEPTION) AND AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 2014 AND FOR THE UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands)
1. | ORGANIZATION AND NATURE OF BUSINESS |
Northern Zinc LLC (the “Company”), a Nevada limited liability company, was formed on July 9, 2014. From its inception until November 2, 2015, the Company was a wholly owned subsidiary of the Aviano Financial Group LLC( “Aviano” ), a Delaware limited liability company, and was formed for the purpose of acquiring the Balmat zinc mine and processing assets from HudBay Minerals Inc. (HudBay), a Canadian corporation whose primary activity is base metals production.
Effective November 2, 2015 (the “closing date”) Star Mountain Resources, Inc., a Nevada corporation (“Star Mountain”) acquired a 100% interest in the Company pursuant to an October 13, 2015 purchase agreement amongst Star Mountain, the Company and the Company’s sole member Aviano (the “Northern Zinc Purchase Agreement”). On the closing date the Company acquired 100% of the issued and outstanding common stock of Balmat Holding Corporation (“Balmat”), a company incorporated under the laws of the State of Delaware, and its wholly owned subsidiary, St. Lawrence Zinc Company, LLC (“SLZ”), a company incorporated under the laws of the State of Delaware, pursuant to a second October 13, 2015 purchase agreement amongst Star Mountain, the Company, HudBay, Balmat and SLZ (the “Balmat Purchase Agreement”). SLZ, in-turn, owns the Balmat zinc mine and processing assets located in upper New York State.
Unaudited Interim Financial Statements – The accompanying interim Statements of Operations and Statements of Cash Flows for the nine months ended September 30, 2015 and period ended July 9, 2014 (inception) through September 30, 2014, and the related interim information contained within the Notes to the Financial Statements are unaudited. In our opinion, the unaudited interim Financial Statements have been prepared on the same basis as the audited Financial Statements and include all adjustments necessary for fair presentation. All adjustments made to the unaudited interim Financial Statements are of a normal and recurring nature. The results of the interim period, the nine months ended September 30, 2015, presented here are not necessarily indicative of the results for the full year ending December 31, 2015.
2. | BASIS OF PRESENTATION |
These financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“US GAAP”) and are inclusive of the accounts of Northern Zinc LLC. All numbers in the financial statements are presented in U.S. dollars and in thousands, unless otherwise denoted.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP 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 expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed at least annually and, as adjustments become necessary, they are reported in earnings in the period in which they became known. Actual results could differ from those estimates.
Acquisition Advances
The Company at times advanced monies to HudBay for the purpose of maintaining its exclusive purchase option to acquire the Balmat zinc mine and processing assets while working to close the acquisition. The classification of these advances as current assets reflects management’s judgement that the acquisition would close within 12 months of making such advances.
Fair Value of Financial Instruments
Due to their short maturities, the carrying amounts of acquisition advances are deemed to approximate their fair values.
8 |
Fair Value Measurements
The Financial Accounting Standards Board (FASB) guidance requires additional disclosures about the Company’s financial assets and liabilities that are measured at fair value. U.S. GAAP defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):
● | Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | |
● | Level 2 — Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means. | |
● | Level 3 — Prices or valuation techniques requiring inputs that are both significant to the fair-value measurement and unobservable. |
4. | OTHER CURRENT ASSETS |
The Company at times advanced monies to HudBay for the purpose of maintaining its exclusive purchase option to acquire the Balmat zinc mine and processing assets while working to close the acquisition. These advances, while not refundable to the Company, are recoupable by the Company against the final purchase price on the closing of the acquisition.
5. | COMMITMENTS AND CONTINGENCIES |
On July 7, 2014, the Company entered into a letter of intent with HudBay for the purchase of all of the issued and outstanding shares of the Balmat Holding Corporation (“Balmat Holdings”), a company incorporated under the laws of the State of Delaware, and its wholly owned subsidiary, the St. Lawrence Zinc Company LLC (“SLZ”), a company incorporated under the laws of the State of Delaware. This transaction subsequently closed on November 2, 2015 when Star Mountain Resources, Inc., a Nevada corporation (“Star Mountain”), acquired Northern Zinc concurrently with Northern Zinc’s acquisition of Balmat Holdings and SLZ. With the completion of this transaction, Balmat Holdings became a wholly subsidiary of Northern Zinc and Northern Zinc became a wholly owned subsidiary of Star Mountain.
6. | LITIGATION |
In the opinion of management, there are no legal or regulatory reviews or audits pending against the Company that are likely to have a material adverse effect on its financial position, results of operations or cash flows.
7. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through January 19 , 2016, noting no events that require consideration in the 2014 financial statements. For the unaudited, interim period in 2015, the Company has evaluated subsequent events through January 19 , 2016, and noted the following:
Effective November 2, 2015 (the “closing date”) Star Mountain Resources, Inc., a Nevada corporation (“Star Mountain”) acquired a 100% interest in the Company pursuant to an October 13, 2015 purchase agreement amongst Star Mountain, the Company and the Company’s sole member Aviano (the “Northern Zinc Purchase Agreement”). On the closing date the Company acquired 100% of the issued and outstanding common stock of Balmat Holding Corporation (“Balmat”), a company incorporated under the laws of the State of Delaware, and its wholly owned subsidiary, St. Lawrence Zinc Company, LLC (“SLZ”), a company incorporated under the laws of the State of Delaware, pursuant to a second October 13, 2015 purchase agreement amongst Star Mountain, the Company, HudBay, Balmat and SLZ (the “Balmat Purchase Agreement”). SLZ, in-turn, owns the Balmat zinc mine and processing assets located in upper New York State.
With the November 2, 2015 acquisition of the Company by Star Mountain, Star Mountain acquired all of the members’ capital interest in the Company in exchange for 10,000 shares of Star Mountain’s unregistered common stock and the issuance of promissory notes totaling $1,390.
9 |
Exhibit 99. 4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Background
Effective November 2, 2015 (the “closing date”) Star Mountain Resources, Inc., a Nevada corporation (“Star Mountain”) acquired a 100% interest in Northern Zinc, LLC, a Nevada limited liability company (“Northern Zinc”), pursuant to an October 13, 2015 purchase agreement amongst Star Mountain, Northern Zinc and Northern Zinc’s sole member the Aviano Financial Group, LLC, a Delaware limited liability company (the “Northern Zinc Purchase Agreement”). On the closing date Northern Zinc acquired from HudBay Minerals Inc. (“HudBay”) 100% of the issued and outstanding common stock of Balmat Holding Corporation (“Balmat”), a company incorporated under the laws of the State of Delaware, and its wholly owned subsidiary, St. Lawrence Zinc Company, LLC (“SLZ”), a company incorporated under the laws of the State of Delaware, pursuant to a second October 13, 2015 purchase agreement amongst Star Mountain, Northern Zinc, HudBay, Balmat and SLZ (the “Balmat Purchase Agreement” and together with the Northern Zinc Purchase Agreement the “Balmat Acquisition”). SLZ, in-turn, owns the Balmat zinc mine and processing assets located in upper New York State. With the completion of the Balmat Acquisition, Balmat became a wholly owned subsidiary of Northern Zinc and Northern Zinc became a wholly owned subsidiary of Star Mountain.
The following unaudited pro forma condensed combined financial information is based on the historical financial statements of Star Mountain, Northern Zinc and the consolidated financial statements of Balmat and has been prepared to reflect the Balmat Acquisition. They are presented for illustrative purposes only and may not be indicative of the combined company’s financial position or results of operations that would have actually occurred had the Balmat Acquisition been completed at or as of the dates indicated, nor is it indicative of our future operating results or financial position. The data in the unaudited pro forma condensed combined balance sheet as of September 30, 2015 assumes the Balmat Acquisition was completed on that date. The data in the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 and for the year ended December 31, 2014 assume the Balmat Acquisition was completed as of January 1, 2014.
The unaudited pro forma condensed combined financial information should be read in conjunction with the other materials filed with this Current Report on Form 8-K/A.
The Balmat Acquisition will be accounted for as a business combination in accordance with FASB ASC Topic 805. For purposes of this unaudited pro forma condensed combined financial information, the Balmat Acquisition price has been allocated to the assets acquired and liabilities assumed based on a preliminary estimate of those assets and liabilities. The actual amounts recorded upon finalization of the purchase price allocation may differ materially from the information presented in the accompanying unaudited pro forma condensed combined financial information. Our financial statements issued after the completion of the Balmat Acquisition will reflect such fair values, which may materially differ from the amounts allocated to such tangible and intangible assets and liabilities in the historical financial statements of Northern Zinc and Balmat, and Star Mountain will determine a new basis in such assets and liabilities that will be reflected in our accounting. As a result, amounts presented in our future consolidated financial statements and footnotes will not be comparable with those of historical periods or with the pro forma financial information included in this Current Report on Form 8-K/A.
1 |
Star Mountain Resources, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2015
(in thousands, except per share data)
Historical | Pro Forma | |||||||||||||||||||||
Star Mountain | Northern Zinc | Balmat Holdings | Adjustment | Combined | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 492 | - | $ | 74 | $ | (500 | ) | a | $ | 138 | |||||||||||
72 | b | |||||||||||||||||||||
Restricted cash | 500 | - | - | (500 | ) | a | - | |||||||||||||||
Prepaid expenses | 1,530 | - | 123 | - | 1,653 | |||||||||||||||||
Deposits | - | 500 | - | (500 | ) | a | - | |||||||||||||||
Total current assets | 2,522 | 500 | 197 | (1,428 | ) | 1,791 | ||||||||||||||||
Materials and supplies inventory | - | - | 742 | 2,258 | a | 3,000 | ||||||||||||||||
Property and equipment, net | 74 | - | 2,500 | 13,521 | a | 16,095 | ||||||||||||||||
Land | - | - | - | 3,200 | a | 3,200 | ||||||||||||||||
Investment in acquisition | 550 | - | - | (550 | ) | c | - | |||||||||||||||
Mineral rights | 24 | - | - | 5,000 | a | 5,024 | ||||||||||||||||
Mineral reserves | - | - | - | 10,000 | a | 10,000 | ||||||||||||||||
Surety bond | 24 | - | 1,664 | - | 1,688 | |||||||||||||||||
Total Assets | $ | 3,194 | $ | 500 | $ | 5,103 | $ | 32,001 | $ | 40,798 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||
Accounts payable and accrued expenses | $ | 235 | - | $ | 73 | $ | (29 | ) | b | $ | 279 | |||||||||||
Accounts payable – related party | 32 | - | - | - | 32 | |||||||||||||||||
Loans payable – related party | 375 | - | - | - | 375 | |||||||||||||||||
Stipulated agreement liability – related party | 79 | - | - | - | 79 | |||||||||||||||||
Other liabilities | - | - | 14 | - | 14 | |||||||||||||||||
Total current liabilities | 721 | - | 87 | (29 | ) | 779 | ||||||||||||||||
Due to Hudbay Minerals, Inc. | - | - | 92,433 | (92,433 | ) | d | - | |||||||||||||||
Promissory note to Hudbay Minerals Inc. (net of note discount) | - | - | - | 11,452 | a | 11,452 | ||||||||||||||||
Notes payable | - | - | - | 1,390 | a | 1,390 | ||||||||||||||||
Asset retirement obligation | - | - | 23,195 | (8,195 | ) | a | 15,000 | |||||||||||||||
Total Liabilities | 721 | - | 115,715 | (87,815 | ) | 28,621 | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||
Members’ capital contributions | - | 500 | - | (500 | ) | e | - | |||||||||||||||
Preferred stock, authorized 50,000,000 shares, $.001 par value, 5,000 issued and outstanding | - | - | - | - | - | |||||||||||||||||
Common stock, authorized 350,000,000 shares, $.001 par value, 24,223,729 and 34,223,729 | 24 | - | - | 10 | a | 34 | ||||||||||||||||
Common stock subscribed | 55 | - | - | - | 55 | |||||||||||||||||
Additional paid in capital | 14,201 | - | - | 9,140 | a | 23,294 | ||||||||||||||||
503 | a | |||||||||||||||||||||
(550 | ) | c | ||||||||||||||||||||
Accumulated deficit | (11,807 | ) | - | (110,612 | ) | 110,612 | f | (11,206 | ) | |||||||||||||
500 | a | |||||||||||||||||||||
101 | b | |||||||||||||||||||||
Total Stockholders’ Equity (Deficit) | 2,473 | 500 | (110,612 | ) | 119,816 | 12,177 | ||||||||||||||||
Total Liabilities and Stockholders’ Equity (Deficit) | $ | 3.194 | $ | 500 | $ | 5,103 | $ | 32,001 | $ | 40,798 |
See notes to Unaudited Pro Forma Condensed Combined Financial Statements.
2 |
Star Mountain Resources, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine months ended September 30, 2015
(in thousands, except per share data)
Historical | Pro Forma | |||||||||||||||||||||
Star Mountain | Northern Zinc | Balmat Holdings | Adjustment | Combined | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||
Executive compensation | $ | 1,093 | - | - | - | $ | 1,093 | |||||||||||||||
Exploration and development | 160 | - | 48 | - | 208 | |||||||||||||||||
Care and maintenance | - | - | 5,019 | - | 5,019 | |||||||||||||||||
General and administrative | 613 | - | - | (101 | ) | g | 512 | |||||||||||||||
General and admin – related party | 2,076 | - | - | - | 2,076 | |||||||||||||||||
Depreciation | - | - | - | 501 | h | 501 | ||||||||||||||||
Accretion | - | - | 202 | (202 | ) | i | - | |||||||||||||||
Total Operating Expenses | 3,942 | - | 5,269 | 198 | 9,409 | |||||||||||||||||
Other Expense (Income) | ||||||||||||||||||||||
Interest income | - | - | (7 | ) | - | (7 | ) | |||||||||||||||
Interest expense – related parties | 25 | - | - | - | 25 | |||||||||||||||||
Interest expense | 2 | - | - | 599 | j | 601 | ||||||||||||||||
Foreign exchange | - | - | (13,109 | ) | 13,109 | k | - | |||||||||||||||
Total Other Expense (Income) | 27 | - | (13,116 | ) | 13,708 | 619 | ||||||||||||||||
Income (Loss) Before Income Taxes | (3,969 | ) | - | 7,847 | (13,906 | ) | (10,029 | ) | ||||||||||||||
Provision for Income Taxes | - | - | - | - | - | |||||||||||||||||
Net Income (Loss) | $ | (3,969 | ) | - | $ | 7,847 | $ | (13,906 | ) | $ | (10,028 | ) | ||||||||||
Net Income (Loss) per Share: | ||||||||||||||||||||||
Basic | $ | (0.21 | ) | $ | (0.35 | ) | ||||||||||||||||
Weighted Average Share Outstanding: | ||||||||||||||||||||||
Basic | 19,006 | 10,000 | a | 29,006 |
See notes to Unaudited Pro Forma Condensed Combined Financial Statements.
3 |
Star Mountain Resources, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 2014
(in thousands, except per share data)
Historical | Pro Forma | |||||||||||||||||||||
Star Mountain | Northern Zinc | Balmat Holdings | Adjustment | Combined | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||
Executive compensation | $ | 554 | - | - | - | $ | 554 | |||||||||||||||
Exploration and development | 67 | - | 69 | - | 136 | |||||||||||||||||
Care and maintenance | - | - | 3,654 | - | 3,654 | |||||||||||||||||
General and administrative | 955 | - | - | - | 955 | |||||||||||||||||
General and admin – related party | 1,097 | - | - | - | 1,097 | |||||||||||||||||
Depreciation | - | - | - | 668 | h | 668 | ||||||||||||||||
Accretion | - | - | 325 | (325 | ) | i | - | |||||||||||||||
Total Operating Expenses | 2,673 | - | 4,048 | 343 | 7,064 | |||||||||||||||||
Other Expense (Income) | ||||||||||||||||||||||
Interest income | - | - | (9 | ) | - | (9 | ) | |||||||||||||||
Interest expense – related parties | 962 | - | - | - | 962 | |||||||||||||||||
Interest expense | 497 | - | - | 786 | j | 1,283 | ||||||||||||||||
Foreign exchange | - | - | (9,278 | ) | 9,278 | k | - | |||||||||||||||
Loss on disposition of asset | 24 | - | - | - | 24 | |||||||||||||||||
Total Other Expense (Income) | 1,483 | - | (9,287 | ) | 10,064 | 2,260 | ||||||||||||||||
Income (Loss) Before Income Taxes | (4,156 | ) | - | 5,239 | (10,407 | ) | (9,324 | ) | ||||||||||||||
Provision for Income Taxes | - | - | - | - | - | |||||||||||||||||
Net Income (Loss) | $ | (4,156 | ) | - | $ | 5,239 | $ | (10,407 | ) | $ | (9,324 | ) | ||||||||||
Net Loss per Share: | ||||||||||||||||||||||
Basic | $ | (0.12 | ) | $ | (0.21 | ) | ||||||||||||||||
Weighted Average Share Outstanding: | ||||||||||||||||||||||
Basic | 33,819 | 10,000 | a | 43,819 |
See notes to Unaudited Pro Forma Condensed Combined Financial Statements.
4 |
Star Mountain Resources, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1. Basis of Presentation
The unaudited pro forma condensed combined financial information presented here is based on the historical financial statements of Star Mountain, Northern Zinc and the consolidated financial statements of Balmat and has been prepared to reflect the Balmat Acquisition. These financial statements are presented for illustrative purposes only and may not be indicative of our financial position or results of operations that would have actually occurred had the Balmat Acquisition been completed at or as of the dates indicated, nor is it indicative of our future operating results. The data in the unaudited pro forma condensed combined balance sheet as of September 30, 2015 assume the Balmat Acquisition was completed on that date. The data in the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 and for the year ended December 31, 2014 assume the Balmat Acquisition was completed as of January 1, 2014.
Pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet are based on items that are directly attributable to the Balmat Acquisition and factually supportable. Pro forma adjustments reflected in the unaudited pro forma condensed combined statement of operations are based on items directly attributable to the Balmat Acquisition, factually supportable and expected to have a continuing impact on us.
At this time, we have not completed a detailed valuation analysis to determine the fair values of Balmat’s assets and liabilities and accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates which, while considered reasonable under the circumstances, are subject to changes, and such changes may be material. Additionally, we have not completed the due diligence necessary to identify items that could significantly impact the purchase price allocation or the assumptions and adjustments made in preparation of this unaudited pro forma condensed combined financial information.
Upon completion of a detailed valuation analysis, there may be additional increases or decreases to the recorded book values of Balmat’s assets and liabilities, including, but not limited to, mineral reserves, mineral rights, land, property and equipment, inventory, asset retirement obligations, outstanding payments due to the seller (HudBay) and other intangible assets that will give rise to future amounts of depletion, depreciation and amortization expenses or credits; or interest income and expense; that are not reflected in this unaudited pro forma condensed combined financial information. Accordingly, once the necessary due diligence is completed, the final purchase price is determined and the purchase price allocation is completed, actual results may differ materially from the information presented in this unaudited pro forma condensed combined financial information. Additionally, the unaudited pro forma condensed combined statement of operations and the pro forma condensed combined balance sheet do not reflect the cost of any integration activities or benefits from the Balmat Acquisition and synergies that may be derived from any integration activities, both of which may have a material impact on the combined results of operations in periods following the completion of the Balmat Acquisition.
Certain amounts in Northern Zinc’s and Balmat’s consolidated balance sheet and income statement have been reclassified to conform to our presentation.
5 |
Note 2. Pro forma adjustments (in thousands)
Unaudited Pro Forma Condensed Combined Balance Sheet
a | On November 2, 2015, we completed the Balmat Acquisition for $11,153. The purchase price was allocated as follows: |
Consideration: | ||||
Cash | $ | 1,500 | ||
550 shares to HudBay | 503 | |||
10,000 shares (to Aviano) | 9,150 | |||
Total consideration paid | $ | 11,153 | ||
Assets received: | ||||
Cash and cash equivalents | 74 | |||
Prepaid expenses and other current assets | 123 | |||
Material and supplies inventories | 3,000 | |||
Restricted cash (environmental deposit) | 1,664 | |||
Plant and equipment | 16,021 | |||
Land | 3,200 | |||
Mineral rights | 5,000 | |||
Mineral reserves | 10,000 | |||
Total assets received | $ | 39,082 | ||
Liabilities Assumed: | ||||
Accounts payable and other liabilities | 87 | |||
Asset retirement obligations | 15,000 | |||
Promissory Note to HudBay Minerals Inc. | 11,452 | |||
Assumed Northern Zinc debt (Aviano N/P) | 1,390 | |||
Total liabilities assumed | $ | 27,929 | ||
Total Consideration paid | $ | 11,153 |
b | In connection with the Balmat Acquisition, we incurred estimated additional transaction costs of $101 of which $72 had been paid as of September 30, 2015 and $29 was in accounts payable and accrued expenses as of September 30, 2015. |
c | In connection with the Balmat Acquisition, HudBay was issued 550 shares of our common stock in September 2015 and prior to the actual closing date of the acquisition on November 2, 2015. This issuance, originally recorded as an investment in acquisition, became part of the purchase consideration to Hudbay on the acquisition closing date. |
d | Just prior to the closing date of the Balmat Acquisition, HudBay exchanged the entire balance of the amount owed by Balmat Holdings to HudBay for additional common stock shares of Balmat Holdings. These additional common stock shares were then acquired by us on the acquisition closing date. |
e | To eliminate the members’ capital contributions of the acquired Northern Zinc entity. |
f | To eliminate the historical losses of Balmat Holdings. |
6 |
Unaudited Pro Forma Condensed Combined Statement of Operations
g | The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 reflect a reduction to selling, general and administrative expenses of $101 for estimated transaction costs that we incurred. |
h | The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 reflect increased depreciation expense of $501 and $668, respectively, to give effect to the acquired Balmat assets subject to a depreciation method not tied to production. For purposes of this analysis, we have assumed the Balmat mine was on care and maintenance since January 1, 2014 with no production taking place. |
i | The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 reflect reductions in accretion expense of $202 and $325, respectively, reflecting our assumption that the Balmat mine was care and maintenance since January 1, 2014 with no ore being mined. |
j | The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 reflect an increase to interest expense of $599 and $786, respectively, consisting of interest of 8.0% per annum on the $1,390 assumed Northern Zinc debt and amortization of the $1,948 discount on the promissory note to HudBay. |
k | Historically, Balmat incurred foreign exchange gains/losses as its functional currency was USD while its parent, HudBay, used a Canadian dollar functional currency. These adjustments eliminate foreign exchange gains/losses as Balmat, Northern Zinc and Star Mountain all use a USD functional currency. |
7 |