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 SIX MONTHS ENDED JUNE 30, 2022
(unaudited)
NOTE 1 – NATURE OF BUSINESS
American Clean Resources Group,
Inc. (f/k/a Standard Metals Processing, Inc.) (“we,” “us,” “our,” “American Clean Resources”
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 mill (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, 2022, the Company had a net loss of $675,167. At June 30, 2022, the
Company had an accumulated deficit of $106,153,023 and a working capital deficit of $11,972,575. 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”) have 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 its 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, 2022, $247,942 was
advanced from the convertible note line of credit GPR 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 condensed consolidated
financial statements include the accounts of American Clean Resources Group, Inc., and its wholly owned subsidiary, Aurielle Enterprises
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, 2021, filed April 14, 2022.
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, 2022, are not necessarily indicative of
the results that may be expected for the year as a whole.
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 certain 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. The terms of such processing to be mutually agreed upon between GPR and the Company in the future
based on the results of the assessment. 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 fair values are reduced for
the cost of disposition.
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, 2022, the Company
has not recognized any revenues from permitted custom 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, 2022 and December 31, 2021.
The Company recognizes interest and penalties due on unrecognized tax benefits as well as interest receivable 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
During the period ended June
30, 2022, 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 2022, the Company
believes the carrying value of the rights recorded on its books is not impaired. However, the Company determined that its combined land,
mineral, and water rights of $3,883,524 was fairly stated and not exposed to impairment.
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 at GPR’s sole option. The LOC is for funding operating expenses
critical to the Company’s basic operations and 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 $1.65 and is secured by the real and personal property of the Company and its subsidiaries, and the
subsidiaries’ stock GPR already has under lien (See Note 7). During the six months ended June 30, 2022, and year ended
December 31, 2021, GPR advanced $247,942 and $665,497, 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, 2022, and December 31, 2021, the balance
due GPR under the LOC is $1,133,036 and $885,094 principal and $126,596 and $77,172 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 $100,000
of principal and $84,240 of accrued interest outstanding on convertible debentures at June 30, 2022. Included in the foregoing year-end
balances was a pre-existing convertible note in default held by a non-affiliate third party with a principal balance of $100,000 and accrued
interest which GPR purchased in September 2021.
NOTE 5 – SHAREHOLDERS’ DEFICIT
Common Stock -
Option Grants
The Company recorded no compensation
expense for the six months ended June 30, 2022 and 2021. As of June 30, 2022, there was $0 in unrecognized compensation expense.
The Company did not grant
any options during the six months ended June 30, 2022, none expired, and none were cancelled. There are no unvested options as of June
30, 2022.
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, 2022, and no warrants were exercised, 5000 expired, and none were cancelled. At June
30, 2022, there were 5,000 warrants outstanding, with a weighted exercise price of $56.00 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, 2022, and December 31, 2021 was $0. The intrinsic value is the difference
between the closing stock price on June 30, 2022, and 2021, and the exercise price, multiplied by the number of in-the-money warrants
had all warrant holders exercised their warrants on June 30, 2022, or December 31, 2021.
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, 2022, totaling $1,243,848 resulting in a total amount of $3,636,094 being included in the Accrual for
settlement of lawsuits relating to this matter in the accompanying condensed consolidated balance sheets as of December 31, 2021 and June
30, 2022.
On November 29, 2021, the
Company was notified that its majority shareholder, Granite Peak Resources, LLC, had executed definitive documents with Stephen Flechner
to acquire his judgment against the Company. Documents have been filed with the Court to reflect this acquisition.
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, 2022, 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, 2022 and December 31, 2021, and related
accrued interest of $1,598,867 and $1,509,542, 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, mineral, and water 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 $1,598,867 at June 30, 2022, are 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.
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, 2022 and December 31, 2021, accrued
interest on the Note is $277,531and $258,588, respectively. The TG Note is in default and was purchased from Ms. Gregerson by Granite
Peak Resources, LLC, the Company’s majority shareholder in September 2021.
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 both June 30, 2022, and December 31, 2021, the share equivalent
of the assumed exercise of stock options or warrants outstanding was 5,000 shares. At June 30, 2022, and December 31, 2021, the share
equivalent of the assumed conversion of our convertible notes and accrued interest was 768,812 and 590,387 shares, respectively, The foregoing
share equivalents 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 August 5, 2022, the Company’s
Board of Directors discussed and confirmed their commitment to redirect the Company through its proposed expanded business plan in correlation
with its process of acquiring a controlling interest in Sustainable Metal Solutions, LLC, and its subsidiaries (the “SMS Group”).
The Company previously disclosed its execution of a definition agreement on January 10, 2022 to acquire the SMS Group. The SMS Group is
committed to being a leading environmental development platform with a focus on producing carbon neutral precious minerals and metals
by adhering to a set of clear environmental, social and governance (“ESG”) procedures and policies. The SMS Group is active
in the exploration and advancement of mining rights to metals and minerals that may be refined and marketed using the most efficient and
sustainable sources of clean energy and operating methods to promote clean land, clean water, and clean air conservation. The SMS Group
is working with technologies to extract valuable metals and minerals efficiently and responsibly, both by mining them from their original
underground state and by processing them from historically abandoned mine tailings containing substantial amounts of valuable metals and
minerals. These metals were overlooked by earlier mining operations due to less developed separation technologies available at that time
and the high cost of moving and reprocessing them. Management believes that recovering metals and minerals from previously discarded tailings
enhances the domestic supply of such metals and minerals at a lower economic cost than importation or traditional domestic mining operations.
Management believes this also enables the revitalization of the environment and helps mitigate our carbon footprint. The land, tailings,
soil and material left behind after processing may be repurposed as fill for housing development, land conservation efforts, and road
fill, thereby promoting environmental stewardship with sensible land use and biodiversity.
The SMS Group brings the capital
and management experience necessary to not only commence the processing of the vast amount of mine tailings located on the Company’s
Nevada property but also develop the Company’s property for utilization of its location in and geographically strategic access to
the Solar Energy Zone, as well as optimizing the value of the water rights controlled by the Company. The Company is actively engaged
in its due diligence relating to its acquisition of 80.1% of the SMS Group. Due to the complexity of the industry, the auditing and due
diligence process is an extensive process. Furthermore, the Company is also exploring and evaluating other businesses and operations that
produce products, processes and outputs that are sustainability leaders in their fields. Management believes these businesses will help
enhance the overall operational lifecycle of our companies, strengthen our economics, and decrease our environmental impact. The above
initiatives will further the Company’s ability to strengthen our nation’s supply of valuable metals and minerals processed
in an environmentally conscious manner and at a lower cost versus traditional mining operations. This is consistent with its mutually
agreed upon 80.1% acquisition of the SMS Group. The Company has changed its name to American Clean Resources Group, Inc., and its OTCQB
Symbol to ACRG. As a condition to close, ACRG will need to apply to and be accepted to trade on NASDAQ Capitals markets (f/k/a NASDAQ
Small Cap). ACRG will issue one share of ACRG Commons Stock for each membership unit of SMS Group acquired, and in anticipation of accessing
the capital it will need to support its current and future business initiatives, the Company increased its authorized Shares of Preferred
Stock and Common Stock from 50,000,000 to 110,000,000 and 500,000,000 to 1,000,000,000, respectively.