The accompanying footnotes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying footnotes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying footnotes are an integral
part of these unaudited condensed consolidated financial statements.
The
accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
2020
(unaudited)
NOTE 1 – NATURE OF BUSINESS
Standard Metals Processing,
Inc. (“we,” “us,” “our,” “Standard Metals” or the “Company”) is an
exploration stage company, incorporated in Nevada having offices in Gadsden, Alabama and through its subsidiary, a property in
Tonopah, Nevada. The business plan is to purchase and install the equipment necessary to complete a facility on the Tonopah property
to serve as a permitted custom processing toll milling facility (which includes an analytical lab, pyrometallurgical plant, and
hydrometallurgical recovery plant).
The Company plans
to perform permitted custom processing toll milling which is a process whereby mined material is crushed and ground into fine
particles to ease the extraction of any precious minerals contained therein, such as minerals in the gold, silver and platinum
metal groups. Custom milling and refining can include many different processes that are designed specifically for each ore load
and to maximize the extraction of precious metals from carbon or concentrates. These toll-processing services also distill, dry,
mix, or mill chemicals and bulk materials on a contractual basis and provide a chemical production outsourcing option for industrial
companies, which lack the expertise, capacity, or regulatory permits for in-house production.
We are required to
obtain several permits before we can begin construction of a small-scale mineral processing facility to conduct permitted processing
toll milling activities and construction of the required additional buildings and well relocation necessary for us to commence
operations.
Going Concern
The
accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America, assuming we will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2020, the Company
had a net loss of $244,451. At March 31, 2020, the Company had an accumulated deficit of $104,106,578 and a working capital deficit
of $10,148,410. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent on their ability to raise the required additional capital
or debt financing to meet short and long-term operating requirements. During the three months ended March 31, 2020, a related
party advanced $50,780 on the Company’s behalf to pay certain
operating expenses directly. As the related party intends to apply its advance toward a convertible note, it has been classified
as such at March 31, 2020.
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 consolidated
financial statements include the accounts of Standard Metals Processing, Inc., and its wholly owned subsidiary Tonopah
Milling and Metals Group, Inc. and its wholly owned subsidiaries Tonopah Custom Processing, Inc., (“TCP”) and
Tonopah Resources, Inc. (“TR”) All significant intercompany transactions, accounts and balances have been
eliminated in consolidation.
Basis of Presentation
The accompanying unaudited
condensed consolidated 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 consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the
year ended December 31, 2019 filed April 2, 2020. In the opinion of management, all adjustments (consisting of normal recurring
adjustments unless otherwise indicated) considered necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year as a whole.
Reclassification of Prior Year Presentation
Certain prior
period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect
on previously reported consolidated financial condition, results of operations, cash flows, and shareholders’ deficit.
Mineral Properties
Mineral property acquisition
costs are recorded at cost and are deferred until the viability of the property is determined. No properties have produced operating
revenues at this time. Exploration, mineral property evaluation, option payments, related acquisition costs for mineral properties
acquired under an option agreement, general overhead, administrative and holding costs to maintain a property on a care and maintenance
basis are expensed in the period they are incurred. When reserves are determined for a property and a bankable feasibility study
is completed, subsequent exploration and development costs on the property would be capitalized. If a project were to be put into
production, capitalized costs would be depleted on the unit of production basis.
Management reviews
the net carrying value of each mineral property as changes may materialize with a property or at a minimum, on an annual basis.
Where information and conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated
future prices, proven and probable reserves and value beyond proven and probable reserves, and operating, capital and reclamation
costs on an undiscounted basis. If it is determined that the future cash flows are less than the carrying value, a write-down
to the estimated fair value is made with a charge to loss for the period. Where estimates of future net cash flows are not available
and where other conditions suggest impairment, management assesses if the carrying value can be recovered.
Management’s
estimates of gold prices, recoverable reserves, probable outcomes, operating capital and reclamation costs are subject to
risks and uncertainties that may affect the recoverability of mineral property costs. The Company does not own any mining
claims. It owns tailings located on the Tonopah property and some tailings located in Manhattan, Nevada. The Company has not
disturbed or processed any of this material and does not intend to do so in the foreseeable future.
Impairment of Long-Lived Assets and Long-Lived Assets
The Company will periodically
evaluate the carrying value of long-lived assets to be held and used, including but not limited to, mineral properties, mine tailings,
mine dumps, capital assets and intangible assets, when events and circumstances warrant such a review and at least annually. The
carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying
value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner,
except that fair values are reduced for the cost to dispose.
Use of Estimates
Preparing 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.
Revenue Recognition and Deferred Revenue
As of March 31, 2020,
the Company has not recognized any revenues from custom permitted processing toll milling. If we achieve revenue generation, the
Company plans to report such revenues consistent with ASC Topic 606.
Income Taxes
Income taxes are accounted
for based upon an asset and liability approach. Accordingly, deferred tax assets and liabilities arise from the difference between
the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax amounts are determined
using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently
enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change
in deferred tax assets and liabilities during the period.
Accounting guidance
requires the recognition of a financial statement benefit of a tax position only after determining that the relevant tax authority
would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold,
the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement with the relevant tax authority. The Company believes its income tax filing positions and deductions
will be sustained upon examination and accordingly, no reserves, or related accruals for interest and penalties have been recorded
at March 31, 2020 and December 31, 2019. The Company recognizes interest and penalties on unrecognized tax benefits as well as
interest received from favorable tax settlements within income tax expense.
On December 22, 2017,
the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law,
effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes
to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduces
the federal corporate tax rate from 34% to 21% effective January 1, 2018. Management believes the provisions of the Tax Reform
Law will have a favorable impact on the Company’s consolidated financial statements should it attain a level of profitable
operations.
Recent Accounting Standards
In February 2016,
the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of over 12 months
to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially
measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease
will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing
lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest
expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January
1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has adopted the standard
during 2018, but as the Company does not have any significant leases, it does not expect it to have a material impact on its financial
position or results of operations.
During the period
ended March 31, 2020 and through the date of this filing, 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 – MINING AND MINERAL RIGHTS
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 planned 21,875 square foot building and servicing and drilling various
wells for our future operations.
The Company has continued to assess the realizability of its mining and mineral rights. Based
on an assessment the Company conducted in January 2020. The Company decided its land, mineral rights and water rights are inseparable
and depend on each other in value creation. Accordingly, during the year ended December 31, 2018, the Company combined the carrying
value of the assets to present more clearly their intended use together.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
On March 16, 2020
the Company executed a Line of Credit (“LOC”) with Granite Peak Resources, LLC (“GPR”), a related party,
evidenced by a convertible promissory note. The LOC is for up to $2,500,000, matures over three years, bears interest at 10% per
annum, is convertible into shares of the Company’s common stock at a per share price of $0.04, and will be secured by the
real and personal property GPR already has under lien. See Note 7. The LOC is for funding operating expenses critical to the Company’s
redirection and all requests for funds may be approved or disapproved in GPR’s sole discretion.
At December 31, 2019,
GPR had advanced $13,575 in contemplation of the LOC. During the three months ended March 31, 2020 GPR advanced an additional
$50,780 which it used to pay directly certain operating expenses on the Company’s behalf. Both advances, amounting to $64,355
in total, have been included in the convertible promissory issued by the Company in connection with the LOC and classified accordingly
at March 31, 2020.
Including the foregoing advances under the LOC, there
was $164,355 of principal and $57,856 of accrued interest outstanding on convertible debentures at March 31, 2020. With exception
of the $64,355 of principal advanced under the LOI to date, the pre-existing convertible note is in default.
NOTE 5 – SHAREHOLDERS’
DEFICIT
Common Stock
Common Stock
issued on conversion of notes payable
None.
Option Grants
Option Grants
The Company recorded
no compensation expense for the three months ended March 31, 2020 and 2019. As of March 31, 2020, there was $0 in unrecognized
compensation expense.
The Company did not
grant any options during the three months ended March 31, 2020, and 26,233 options expired; none were cancelled. There are no
unvested options as of March 31, 2020.
The following tables summarize information
about stock options outstanding and exercisable:
|
|
Options Outstanding and Exercisable at March 31, 2020
|
|
Range of
Exercise Prices
|
|
Number
Exercisable
|
|
|
Weighted
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
$0.40 to $0.60
|
|
|
750,000
|
|
|
.5 years
|
|
$
|
0.64
|
|
|
$
|
—
|
|
$0.61 to $1.00
|
|
|
9,800,000
|
|
|
.4 years
|
|
$
|
0.67
|
|
|
$
|
—
|
|
$1.01 to $1.50
|
|
|
14,500,000
|
|
|
.5 years
|
|
$
|
1.25
|
|
|
$
|
—
|
|
$1.51 to $2.25
|
|
|
3,000,000
|
|
|
1.0 years
|
|
$
|
1.63
|
|
|
$
|
—
|
|
$0.40 to $2.25
|
|
|
28,050,000
|
|
|
.6 years
|
|
$
|
1.07
|
|
|
$
|
—
|
|
(1)
|
The
aggregate intrinsic value in the table represents the difference between the closing stock price on March 31, 2020 and December
31, 2019, and the exercise price, multiplied by the number of in-the-money options that would have been received by the option
holders had all option holders exercised their options on March 31, 2020 and December 31, 2019.
|
Common Stock Purchase Warrants
For warrants granted
to non-employees in exchange for services, the Company recorded the fair value of the equity instrument using the Black-Scholes
pricing model unless the value of the services is more reliably measurable.
The Company did not grant
any warrants during the three months ended March 31, 2020 and no warrants were exercised, 100,000 expired, and none were cancelled.
At March 31, 2020 there were 4,765,640 warrants outstanding, with exercise prices ranging from $0.89 to $1.23, a weighted exercise
price of $0.84 and a weighted remaining contractual life of 0.5 years.
The aggregate intrinsic
value of the 4,765,640 outstanding and exercisable warrants at March 31, 2020 and December 31, 2019 was $0. The intrinsic value
is the difference between the closing stock price on March 31, 2020 and December 31, 2019 and the exercise price, multiplied by
the number of in-the-money warrants had all warrant holders exercised their warrants on March 31, 2020 or December 31, 2019.
The following table
summarizes information about the Company’s stock purchase warrants outstanding at March 31, 2020.
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Range
of
Exercise
Price
|
|
|
Weighted
Remaining
Contractual
Life (1)
|
|
Outstanding at December 31, 2018
|
|
|
4,865,640
|
|
|
$
|
0.77
|
|
|
$
|
0.20 – 1.23
|
|
|
|
1.5 years
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2019
|
|
|
4,865,640
|
|
|
|
0.84
|
|
|
|
0.20 --1.23
|
|
|
|
1.5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(100,000
|
)
|
|
|
0.20
|
|
|
|
0.20 – 0.20
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2020
|
|
|
4,765,640
|
|
|
$
|
0.84
|
|
|
$
|
0.89 - 1.23
|
|
|
|
0.5 years
|
|
(1)
|
The
aggregate intrinsic value of the 4,765,640 and 4,865,640 outstanding and exercisable
warrants at March 31, 2020 and December 31, 2019, respectively, was $0. The intrinsic
value is the difference between the closing stock price on March 31, 2020 and December
31, 2019 and the exercise price, multiplied by the number of in-the-money warrants had
all warrant holders exercised their warrants on March 31, 2020 and December 31, 2019.
|
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Legal Matters
Stephen E. Flechner v. Standard Metals
Processing, Inc.
On April 29, 2014,
Stephen E. Flechner filed suit in the United States District Court for the District of Colorado against Standard Metals Processing,
Inc. alleging that Standard Metals had refused to allow him to exercise stock options granted to him pursuant to a Stock Option
Agreement, dated April 1, 2010, and a second Stock Option Agreement, dated January 21, 2011. On June 12, 2014, Standard Metals
filed an Answer and a Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United States District Court
for the Northern District of Alabama, Middle Division. On January 16, 2015, Standard Metals filed a Motion for Summary Judgment.
On January 23, 2015, the Court issued an Order granting in part and denying in part Standard Metals’ Motion to Dismiss or,
Alternatively, to Stay or Transfer the action to the United States District Court for the Northern District of Alabama, Middle
Division. The Court in its Order stayed further proceedings in Colorado pending the issuance of orders by the Alabama court. Thereafter,
on January 26, 2015, the Court issued an Order vacating the February 20, 2015 Trial Preparation Conference and the March 9, 2015
Bench Trial. On March 23, 2015, the Court issued an Order denying Standard Metals’ Motion for Summary Judgment. On March
30, 2015, Flechner filed a Motion to Lift the Stay. On March 31, 2015, the Court issued an Order granting Flechner’s Motion
to Lift the Stay. On April 6, 2015, the Court issued an Order scheduling a Bench Trial for July 29, 2015. On April 9, 2015, Flechner
filed a Motion for Reconsideration of the Court’s March 23, 2015 Order Denying Flechner’s Motion to Enforce the Confidential
Settlement Agreement to Settle Certain Issues. On May 1, 2015, the Court issued an Order Granting Flechner’s Motion to Enforce
the Confidential Settlement Agreement to Settle Certain Issues. On August 12, 2015 the United Stated District Court for the District
of Colorado issued a judgment in favor of Stephen E. Flechner for $2,157,000. An amended final judgment was ordered in adjudication
of the Complaint by the U.S. District Court for the District of Colorado (the “Court”) on August 28, 2015 in favor
of Flechner in the amount of $2,157,000, plus interest through the date of judgment of $235,246, plus interest of $472.76/day
from August 28, 2015 until paid in full. The Company, in good faith anticipation of a settlement did not appeal the judgment and
therefore, the Company’s notice of appeal was dismissed on November 17, 2015. This judgment is now non-appealable. The Company
has recognized the daily interest due from the date of the August 28, 2015 judgment through March 31, 2020, totaling $815,083,
resulting in a total amount of $3,207,329 being included in the Accrual for settlement of lawsuits relating to this matter in
the accompanying March 31, 2020 condensed consolidated balance sheet.
NOTE 7 – RELATED PARTY TRANSACTIONS
During March 2019,
the Company was informed that a change of control of the Company had occurred. Granite Peak Resources, LLC (“GPR”)
through its members (including Pure Path Capital Management LLC) acquired 69,464,434 shares of common stock (including 4,500,000
warrants to purchase common stock). The members transferred their shares of common stock of the Company in exchange for a pro-rata
ownership interest in GPR. GPR also acquired the senior secured creditor position previously held by Pure Path Capital Group LLC,
which includes a $2,500,000 first deed of trust on the Tonopah property and an outstanding promissory note with a principal balance
of $2,229,187 and accrued interest of $1,096,235 as of March 31, 2019. The members of Granite Peak Resources LLC are listed in
the Schedule 13D filed by GPR on March 29, 2019. GPR has not communicated to the Company any plans to change any of the current
officers or directors or governing documents and has expressed the purpose of its acquisition is to assist the Company execute
on its business plan and resolve its current obligations and other claims. As of the date of this filing, GPR is the beneficial
owner of 52.3% of the Company’s common stock and the Company’s largest secured creditor. The background regarding
Pure Path’s Senior Secured Note is described below.
During
the Company’s acquisition of the Shea assets in 2011, Pure Path purchased the Loan Modification Agreement and the NJB Forbearance
Agreement directly from NJB Mining, Inc. In connection with the assignment of a forbearance agreement the Company and Pure Path
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, 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. The outstanding principal balance on the Pure Path
Note was $2,229,187 as of both March 31, 2020 and December 31, 2019, with related accrued interest of $1,190,032 and $1,143,474,
respectively. This Senior Secured Note is in default.
On February 11, 2015,
the Company issued an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity controlled
by a former director of the Company. The Note for up to $750,000 was provided in tranches. Maturity of each tranche is one year
from the date of receipt. Interest accrues at 8% per annum on each tranche. Under the terms of the Note, the Company received
$477,500. At March 31, 2020 and December 31, 2019, there is $191,607 and $182,084 interest accrued. This Note is in default.
NOTE 8 – EARNINGS (LOSS) PER
SHARE
Basic net loss per
common share is computed by dividing net loss applicable to common shareholders by the weighted average number of common shares
outstanding during the periods presented. Diluted net loss per common share is determined using the weighted average number of
common shares outstanding during the periods presented, adjusted for the dilutive effect of common stock equivalents, consisting
of shares that might be issued upon exercise of options, warrants and conversion of convertible debt. In periods where losses
are reported, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion
would be anti-dilutive.
At March 31, 2020
the weighted average shares from stock options of 28,050,000, warrants of 4,765,640 and Convertible Promissory note shares of
1,950,721, and at December 31, 2019 the weighted average shares from stock options of 32,576,223 warrants of 4,865,640 and Convertible
Promissory note shares of 650,869 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 9 - SUBSEQUENT EVENTS
On April 10, 2020, Tonopah
Resources, Inc. (“TR”) and Sustainable Metal Solutions, LLC (“SMS”), an affiliate of GPR, agreed to form
a joint venture styled Esmeralda Renewal Energy Zone (“EREZ”) (effective date April 17, 2020). TR has agreed to contribute
the solar energy rights attributable to the land in Esmeralda County, NV that will not be utilized for mineral processing to EREZ
in exchange for SMS’s agreement to develop, manage and underwrite the EREZ venture. This agreement has been approved by the
Company and its senior secured Lender, Granite Peak Resources LLC.