NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2021
(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 six months ended June 30, 2021, the Company had a net loss of $797,447. At June
30, 2021, the Company had an accumulated deficit of $105,147,849 and a working capital deficit of $10,967,401. Additionally, all of the
Company’s assets are under lien pursuant to a First Deed of Trust and UCC filings; and 100% of the common stock of the Company’s
subsidiary Aurielle Enterprises, Inc. (“AE”), and that of its wholly owned subsidiaries Tonopah Custom Processing, Inc.,
(“TCP”) and Tonopah Resources, Inc. (“TR”) has been pledged in favor of Granite Peak Resources, LLC (“GPR”),
a related party, whose secured Note is in default. 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 six months ended June 30, 2021, a related party
advanced $490,255 from the convertible note line of credit GPR also established for the Company in 2020 (See Note 4).
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 would likely 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, however, 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 Aurielle
Enterprises Inc. (f/k/a Tonopah Milling and Metals Group, Inc.) (“AE”) 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 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, 2020 filed
January 26, 2021. In the opinion of management, all adjustments (consisting of normal recurring adjustments unless otherwise indicated)
considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2021 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 balance sheet amounts of accounts payable and accrued expenses have been reclassified for consistency with the current year
balance sheet 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 amortized 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 the rights to some tailings located in Manhattan,
Nevada. The Company has not disturbed or processed any of this material, but recently authorized GPR to examine the economic feasibility
of processing the tailings to reclaim their residual content of valuable metals in exchange for the exclusive right to process the tailings
should their economic assessment prove positive. In addition, the Company and Sustainable Metal Solutions, LLC (“SMS”), an
affiliate of GPR, agreed to form a joint venture into which the Company will contribute the solar energy rights attributable to its 1,086
acres in exchange for SMS’s agreement to develop, manage and underwrite the venture.
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 amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue
Recognition and Deferred Revenue
As
of June 30, 2021, 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 June 30,
2021 and December 31, 2020. The Company recognizes interest and penalties due on unrecognized tax benefits as well as interest receivable
from favorable tax settlements within income tax expense.
Recent
Accounting Standards
During
the period ended June 30, 2021 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 previously prepared 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
2021, the Company believes the carrying value of the rights recorded on its books is not impaired. However, the Company determined that
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 and may be increased by
up to another $1,000,000 and extended an additional two years, respectively at GPR’s sole option. 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.
The LOC bears interest at 10% per annum, is convertible into shares of the Company’s common stock at a per share price of $2.00,
and is secured by the real and personal property, and subsidiaries’ stock GPR already has under lien (See Note 7). During the six
months ended June 30, 2021 and year ended December 31, 2020, GPR advanced $490,255 and $206,022, respectively, pursuant to the LOC in
direct payments on the Company’s behalf, to fund certain operating expenses and reduce certain accounts payable. At June 30, 2021
and December 31, 2020 the balance due GPR under the LOC is $709,852 and $219,597 principal and $42,911 and $16,073 accrued interest,
respectively.
Advances
by GPR to pay directly certain operating expenses and reduce certain accounts payable on the Company’s behalf have been included
in the convertible promissory issued by the Company in connection with the LOC and classified accordingly in the accompanying consolidated
condensed financial statements.
Including
the foregoing advances under the LOC, there was $809,852 of principal and $148,545 of accrued interest outstanding on convertible debentures
at June 30, 2021. With exception of the $709,852 of principal advanced under the LOI to date, a pre-existing convertible note is in default.
NOTE
5 – SHAREHOLDERS’ DEFICIT
Common
Stock – Reverse Split
On April
6, 2021, holders of a majority of the Company’s common stock authorized a 1 for 50 reverse stock split of the Company’s common
stock, with all fractional shares rounded to the nearest whole share, as of April 12, 2021 (the “Record Date”). This action
was taken in accordance with the Nevada Revised Statutes (“NRS”), Sections 78.315 and 78.320, however, a complete Information
Statement has been mailed to all shareholders as of the Record Date. The outstanding shares and per share amounts in the accompanying
consolidated condensed financial statements previously reported prior to the Record Date have been adjusted to give effect to the afore
mentioned reverse split.
Common
Stock - Option Grants
The
Company recorded no compensation expense for the six months ended June 30, 2021 and 2020. As of June 30, 2021, there was $0 in unrecognized
compensation expense.
The
Company did not grant any options during the six months ended June 30, 2021, and 25,000 options expired; none were cancelled. There are
no vested or unvested options outstanding as of June 30, 2021.
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 six months ended June 30, 2021 and no warrants were exercised, none expired, and none were
cancelled. At June 30, 2021 there were 5,000 warrants outstanding, with exercise prices of $61.50, a weighted exercise price of $61.50
and a weighted remaining contractual life of 0.6 years.
The
aggregate intrinsic value of the 5,000 outstanding and exercisable warrants at June 30, 2021 and December 31, 2020 was $0. The intrinsic
value is the difference between the closing stock price on June 30, 2021 and December 31, 2020, and the exercise price, multiplied by
the number of in-the-money warrants had all warrant holders exercised their warrants on June 30, 2021 or December 31, 2020.
The
following table summarizes information about the Company’s stock purchase warrants outstanding at June 30, 2021.
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Range
of
Exercise
Price
|
|
Weighted
Remaining
Contractual
Life (1)
|
|
Outstanding
at December 31, 2019
|
|
|
97,313
|
|
|
$
|
42.00
|
|
|
$
|
10.00 - 61.50
|
|
|
.5 years
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
or expired
|
|
|
54,655
|
|
|
|
38.00
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
37,658
|
|
|
|
44.50
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at December 31, 2020
|
|
|
5,000
|
|
|
|
61.50
|
|
|
|
61.50 - 61.50
|
|
|
1.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Cancelled
or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Outstanding
and exercisable at June 30, 2021
|
|
|
5,000
|
|
|
$
|
61.50
|
|
|
$
|
61.50 - 61.50
|
|
|
0.6 years
|
|
|
(1)
|
The aggregate intrinsic value of the 5,000 outstanding and exercisable warrants at June 30, 2021, and December 31, 2020, respectively, was $0. The intrinsic value is the difference between the closing stock price on June 30, 2021, and December 31, 2020, and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised their warrants on June 30, 2021, and December 31, 2020.
|
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 the Company 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, the Company filed an Answer
and a Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the U.S. District Court for the Northern District of Alabama,
Middle Division. On January 16, 2015, the Company filed a Motion for Summary Judgment. On January 23, 2015, the Court issued an Order
granting in part and denying in part the Company’s Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the U.S.
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 the Company’s
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 U.S. 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 June 30, 2021, totaling $1,050,945, resulting in a total
amount of $3,443,191 being included in the Accrual for settlement of lawsuits relating to this matter in the accompanying June 30, 2021
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, through its members,
including Pure Path Capital Management LLC (“GPR”) acquired 1,389,289 shares of common stock (including 90,000 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 and are listed in the Schedule 13D filed by GPR on March 29, 2019. Since March 2019, through June 30, 2021, GPR and its members,
through several unsolicited transactions purchased another 43,206 shares of common stock. GPR has not communicated to the Company any
plans to change any of the current officers or directors or governing documents. GPR has expressed the purpose of its acquisition is
to assist the Company in resolving its current obligations and claims, as a critical step in determining its future business plans.
GPR
also acquired the senior secured creditor position previously held by Pure Path Capital Group LLC (the “Secured Note”), 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
as of both June 30, 2021, and December 31, 2020, and related accrued interest of $1,418,345 and $1,329,303 respectively. The Secured
Note is securitized by all the Company’s tangible or intangible assets, already or hereinafter acquired, including but not limited
to machinery, inventory, accounts receivable, cash, computers, hardware, land and mineral rights, etc., and all of the outstanding shares
of the Company’s subsidiary AE and its subsidiaries TCP and TR which are held in Pledge by GPR’s Nevada counsel. The outstanding
principal balance on the Secured Note of $2,229,187 together with related accrued interest of $1,418,345 at June 30, 2021 is in default.
As
further detailed in Note 4, in March 2020, the Company executed a Line of Credit (“LOC”) with GPR, a related party, evidenced
by a 10% convertible promissory note. The LOC is for up to $2,500,000, matures over three years and may be increased by up to another
$1,000,000 and extended an additional two years, respectively at GPR’s sole option. As the LOC, like the Secured Note, is secured
by all the Company’s assets including a pledge of 100% of its subsidiaries’ stock. As such, the LOC’s outstanding balance
and accrued interest increase the amount of secured debt owned by GPR. During the six months ended June 30, 2021, GPR advanced $490,255
pursuant to the LOC in direct payments on the Company’s behalf, to pay for certain operating expenses and reduce certain accounts
payable. At June 30, 2021, the balance due GPR under the LOC is $709,852 principal and $42,911 accrued interest.
Although
the LOC is for funding operating expenses critical to the Company’s redirection and the resolution of certain creditors’
claims under GPR’s sole discretion, neither GPR nor the Company can give any assurances that such creditors or claimants may be
amicably resolved. As of the date of this filing, GPR is the beneficial owner of 53.6% (58.3% including the common share equivalent of
GPR conversion rights) of the Company’s common stock and the holder of $4,400,295 of the Company’s secured debt and related
interest, $3,647,532 of which is in default at June 30, 2021.
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 June 30, 2021 and December 31, 2020, accrued interest on the Note is $239,331 and $220,029, respectively. This Note is also
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
June 30, 2021 the weighted average shares from stock options of -0-, warrants of 5,000 and Convertible Promissory note equivalent shares
of 383,456, and at December 31, 2020 the weighted average shares from stock options of 65,000, warrants of 5,000 and Convertible Promissory
note equivalent shares of 124,909 were excluded from the diluted weighted average common share calculation, respectively, due to the
antidilutive effect such shares would have on net loss per common share.
NOTE
9 – SUBSEQUENT EVENTS
The
Company entered into an agreement with Granite Peak Resources (“GPR”) on July 12, 2021 wherein GPR agreed to: (a)
increase its LOC from $2,500,000 due March 16, 2023 to $5,000,000 due March 16, 2025, (b) revise its right to increase the LOC from
$1,000,000 with an extension for two additional years to $5,000,000 for an additional five years, and (c) to forebear until December
31, 2021, on exercising its foreclosure rights under its defaulted Senior Secured Note and accrued interest of $3,647,532 at June
30, 2021. The Company’s Board of Directors approved a revision in the conversion price at which the LOC may convert into the
Company’s common stock from $2.00 per share to $1.65 per share, based upon the market price of the Company’s common
stock over the 15 days preceding the agreement.