Balmat Acquisition

12 Months Ended

Dec. 31, 2015

NOTE 3 – BALMAT ACQUISITION

On November 2, 2015, the Company completed the acquisition of Northern Zinc. Concurrent with the Company’s acquisition of Northern Zinc, Northern Zinc acquired Balmat and its wholly owned subsidiary, SLZ (together referred to as the “Balmat Acquisition.”). Each of the agreements is outlined further below.

Northern Zinc Purchase Agreement

Pursuant to the terms of the Northern Zinc Purchase Agreement, we issued 10,000,000 shares of our unregistered common stock to Aviano and assumed $1,390 in debts of Northern Zinc in exchange for 100% of Northern Zinc’s membership interests previously owned by Aviano. We also entered into a corporate development consulting agreement with David Linsley, a principal of Northern Zinc; appointed Wayne Rich as our Chief Financial Officer; agreed to appoint two members to our board of directors designated by Aviano; and offered advisory board positions for a period of at least three years to three other individuals associated with Aviano.

Balmat Purchase Agreement

Upon closing, we acquired 100% of the issued and outstanding common stock of Balmat from Hudbay for a purchase price of $17,000 payable in cash (the “Balmat Cash Amount”) and issued Hudbay 550,000 shares of our unregistered common stock. Subsequent to closing, and in accordance with the purchase agreement, we issued HudBay an additional 78,857 shares of our unregistered common stock.

The Balmat Cash Amount is able to be satisfied in any of the following ways:

Option 1. Under this option, $1,500 was paid at closing and the balance of $15,500 will 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 of the first 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: 18^th month, 24^thmonth, 30^th month and the 36^thmonth.

Option 2. Under this option, with proper notice to Hudbay within three months of the closing, the purchase price will be reduced to $9,000: $1,500 in cash upon closing, which was paid; issuance of the Balmat Acquisition Shares valued at $500 which were issued; and the balance of $7,000 to be paid within three days after proper notice to Hudbay.

Under Option 2, Northern Zinc would also immediately 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 with Hudbay.

Option 3. Under this option, with proper notice to Hudbay within 30 days before the 12-month anniversary of the first shipment of ore concentrate from the Balmat Mine, the purchase price will be reduced to $16,500: $1,500 in cash upon closing, which was paid; issuance of the Balmat Acquisition Shares valued at $500, which were issued; and the balance of $14,500 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: 12^th month, 18^thmonth and 24^th month.

Notwithstanding the above Balmat Cash Amount options, if any portion of the purchase price has not been paid under Options 1 or 3 within 48 months of the closing date (or 54 months of the closing date if we have not elected one of the options) then the entire unpaid balance shall be immediately due and payable no later than the end of the 48^th or 54^th month, respectively.

Fair Value Determination and Allocation of Consideration

The purchase price allocation presented below is preliminary and includes the use of estimates. This preliminary allocation is based on information that was available to management at the time these audited consolidated financial statements were prepared. We believe the estimates used are reasonable and the significant effects of the transaction are properly reflected. However, the estimates are subject to change as additional information becomes available and is assessed by the Company. These amounts will be finalized as soon as possible, but no later than one year from the acquisition date.

Upon the completion of this acquisition, the Company acquired the following assets and assumed the following liabilities:

Assets received:
Cash	$	72
Prepaid expense		163
Spare parts inventory		500
Land		1,855
Buildings		850
Machinery and equipment		23,903
Mineral reserves		3,165
Mineral rights		3,660
Restricted cash – surety bond		1,664
Total assets received	$	35,832

Liabilities assumed:
Loans payable		1,390
Asset retirement obligation		17,906
Liabilities		28
Total liabilities assumed	$	19,324

Total consideration paid	$	16,508

The consideration paid was comprised of $1,000 in cash, $12,431 in a deferred payment liability, and 10,628,857 shares of the Company’s stock (including 78,857 shares subscribed as of December 31, 2015) valued at $3,078.

Acquisition-related costs of $210 were incurred during the year ended December 31, 2015 and are included in General and administrative line item in our statement of operations.

The acquisition generated no revenue since the November 2, 2015 acquisition date.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2014. The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on January 1, 2014, or of future results of operations. Balmat Acquisition related costs of $210 have been excluded from the pro forma amounts.

	Year Ended December 31,
	2015			2014
Total revenues:
As reported	$	-		$	-
Pro forma	$	-		$	-
Net Loss:
As reported	$	(6,696	)	$	(4,157	)
Pro forma	$	(10,499	)	$	(9,324	)
Basic and diluted loss per share:
As reported	$	(0.29	)	$	(0.12	)
Pro forma	$	(0.46	)	$	(0.28	)

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

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+ Details

Star Mountain Resources, Inc. 10-K