10-K
American Clean Resources Group, Inc. (ACRG)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2020
Commission File Number: 000-14319
STANDARDMETALS PROCESSING, INC. (a.k.a. CAMBRIAN MINERALS GROUP, INC.)
(Exact Name of Small Business Issuer as
Specified in its Charter)
N/A
(Former Name)
| Nevada | 84-0991764 |
|---|---|
| (State or Other Jurisdiction of<br><br><br>Incorporation or Organization) | (I.R.S. Employer<br><br><br>Identification Number) |
611 Walnut Street, Gadsden, Alabama35901
(Address of Principal Executive Offices)
Issuer’s telephone number including
area code: (888) 960-7347
Securities registered under Section 12(b)
of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
Title of Class
Indicate by check mark if the Registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes ☐ No ☒
Indicate by check mark whether the issuer
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
|---|---|---|---|
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of January 25, 2021, the Registrant’s
non-affiliates owned shares of its common stock having an aggregate market value of approximately $5,300,000 (based upon the closing
sales price of the Registrant’s common stock on that date).
On January 25, 2021, there were 133,630,343
shares of common stock outstanding, which is the Registrant’s only class of voting stock.
Documents Incorporated by Reference: None.
STANDARD METALS PROCESSING, INC.
Annual Report on Form 10-K
For the Year Ended December 31, 2020
Table of Contents
| Page | |
|---|---|
| PART I | |
| ITEM 1. BUSINESS | 1 |
| ITEM 1A. RISK FACTORS | 5 |
| ITEM 2. PROPERTIES | 9 |
| ITEM 3. LEGAL PROCEEDINGS | 9 |
| ITEM 4. MINE SAFETY DISCLOSURES | 9 |
| PART II | |
| ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 10 |
| ITEM 6. SELECTED FINANCIAL DATA | 11 |
| ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 11 |
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 17 |
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 17 |
| ITEM 9A. CONTROLS AND PROCEDURES | 17 |
| ITEM 9B. OTHER INFORMATION | 18 |
| PART III | |
| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 19 |
| ITEM 11. EXECUTIVE COMPENSATION | 21 |
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 22 |
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 23 |
| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES | 25 |
| PART IV | |
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 26 |
| SIGNATURES | 28 |
i
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report
on Form 10-K contains both historical statements and statements that are forward-looking in nature. Historical statements are based
on events that have already happened. Certain of these historical events provide some basis to our management, with which assumptions
are made relating to events that are reasonably expected to happen in the future. Management also relies on information and assumptions
provided by certain third party operators of our projects as well as assumptions made with the information currently available
to predict future events. These future event predictions, or forward-looking statements, include (but are not limited to) statements
related to the uncertainty of the quantity or quality of ore or tailings grades, the fluctuations in the market price of such reserves,
as well as gold, silver and other precious minerals, general trends in our operations or financial results, plans, expectations,
estimates and beliefs. You can identify forward-looking statements by terminology such as “may,” “could,”
“should,” “anticipate,” “believe,” “estimate,” “continue,” “expect,”
“intend,” “plan,” “predict,” “potential” and similar expressions and their variants.
These forward-looking statements reflect our judgment as of the date of this Annual Report with respect to future events, the outcome
of which is subject to risks, which may have a significant impact on our business, operating results and/or financial condition.
Readers are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described
herein. We undertake no obligation to update forward-looking statements. The risks identified in Item 1A, among others, may impact
forward-looking statements contained in this Annual Report.
ITEM 1. BUSINESS
Business Overview
General
Standard Metals Processing,
Inc. (“we,” “us,” “our,” “Standard Metals” or the “Company”) is an
exploration stage company having offices in Gadsden, Alabama and, through its subsidiaries, a property in Tonopah, Nevada. Our
business plan is to purchase equipment and build a facility on our 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 for us to commence operations.
Any reference herein
to “Standard Metals,” “the Company,” “we,” “our,” or “us” is intended
to mean Standard Metals Processing, Inc. a Nevada corporation, and all of our subsidiaries unless otherwise indicated.
Corporate History
The Company was incorporated
in the State of Colorado on July 10, 1985 as Princeton Acquisitions, Inc. On December 7, 2009, the Company changed its name to
Standard Gold, Inc. Effective March 5, 2013 the Company moved its domicile from Colorado to Nevada and changed its name from Standard
Gold, Inc. to Standard Gold Holdings, Inc. Effective December 6, 2013, the Company changed its name to Standard Metals Processing,
Inc. to more accurately reflect the business of the Company.
1
On March 15, 2011,
we closed a series of transactions, whereby we acquired certain assets of Shea Mining & Milling, LLC (“Shea Mining”),
which assets include land, buildings, a dormant milling facility, abandoned milling equipment, water permits, mine tailings, mine
dumps and the assignment of a note payable, a lease and a contract agreement with permits. We completed the Shea Exchange Agreement
to acquire the Shea assets to develop a permitted custom processing toll milling of precious minerals business in Tonopah, Nevada.
Toll milling 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 gold, silver, and platinum group metals. Custom milling and refining can include many different
processes to extract precious metals from carbon or concentrates. These toll-processing services also distil, 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. The land encompasses 1,183 deeded acres, one
of the largest private land holdings in Esmeralda County, Nevada. Approximately 334 acres of this land has an estimated 2.2 million
tons of tailings known as the Millers Tailings from the historic gold rush of Goldfield and Tonopah, Nevada sitting on it.
Subsidiaries
The Company has one
wholly owned subsidiary, Aurielle Enterprises, Inc. f/k/a/ Tonopah Milling and Metals Group, Inc. (“AE”), a Nevada
corporation. AE has two wholly owned subsidiaries, Tonopah Resources, Inc., a Nevada corporation and Tonopah Custom Processing,
Inc., a Nevada corporation.
Products and Services
We seek to establish
ourselves as a custom processing and permitted toll milling service provider. Our business plan is to build a facility on our Tonopah
property, which includes an analytical lab, pyrometallurgical, and hydrometallurgical recovery plant.
The Company’s
intention is to become a full service permitted custom toll milling and processing company that facilitates the extraction of precious
and strategic minerals from mined material. The Company will need to obtain permits for the planned construction and operation
of our permitted custom processing toll milling facility with state-of-the-art equipment capable of processing gold, silver and
platinum metal groups. Many junior miners do not have the capital or the ability to permit a processing facility, yet they have
a large supply of mined material that requires milling be performed. It is often cost prohibitive or impractical for these mine
operators to send their materials to processing mills owned by the large mining companies, or to other customers badly needing
milling and processing services.
While Nevada has a
historic role as a mining center with good proximate geology and ample mined product, very little custom processing toll milling
capacity remains in the state. During the last several decades, other processing facilities have been shuttered due to high costs
of regulations and the vertical integration of milling within large mining companies leaving junior miners with few options for
local milling services. As a result, we are in a unique position among processing facilities because we are capable of true permitted
custom processing. We have the only ball mill located within a custom toll milling facility within 300 miles allowing us to serve
miners in the western United States, Canada, Mexico, and Central America.
Many junior miners
are undercapitalized, have limited access to capital markets and have a large supply of mined material that requires milling be
performed. Many large mining companies reserve their milling capacity for their inventory, which does not make providing third
party services worthwhile. This provides the Company with an opportunity to provide these potential customers with badly needed
milling and processing services. Some of our mining customers will be able to take their tailings (the material left over after
the desired minerals have been extracted) from the material they deposited with the Company and put it back in the exact same mines
those particular tailings came from. This eliminates the need for the Company to dispose of those tailings.
2
Water Pollution Control Permit withNevada Department of Environmental Protection
Through Tonopah Custom
Processing, Inc. (“TCP”), a Water Pollution Control Permit (“WPCP”) Application was filed with the Nevada
Department of Environmental Protection (“NDEP”) Bureau of Mines and Mining Reclamation (“BMMR”) for the
approval of the permits necessary for a small-scale mineral processing facility planned for the Tonopah property. The plant will
perform laboratory testing, pilot testing, and custom processing of precious metal ores and concentrates from mining industry clients.
Processing of ore materials will employ standard mineral processing techniques including gravity concentration, froth flotation
and chemical leaching and carbon stripping.
The WPCP must be approved
prior to commencing the planned construction of our processing plant in Tonopah, Nevada. While the Company awaits approval, we
are preparing for construction of our processing facility which includes working with contractors that will be building the planned
21,875 square foot processing plant, cleaning and preparing the property, and refurbishing a trailer that will act as our construction
office.
In connection with
our WPCP application, NDEP suggested that we take the following actions: (i) retain a Nevada Certified Environmental Manager (“CEM”),
(ii) perform Meteoric Profile II water testing on ground water directly below the mill as well as surrounding wells located off
site, and (iii) determine baseline values of water using the Meteoric Profile II results. NDEP regulations require that the Company
delay any new construction planned for “metal extraction” until after the permits are in place.
Survey
Advanced Surveying
& Professional Services, a Professional Land Surveyor (“PLS”), completed surveys and testing of the Tonopah property
required for the application of our required permits. After completion of the survey, it was determined the property is 1,183 acres.
The scope of work the PLS completed includes: (i) setting a total of 19 permanent monuments at angle points along lines, (ii) setting
eight permanent monuments locating US Hwy 95, (iii) recording a professional map indicating longitude and latitude for all corners,
and (iv) providing a digital map accessible in Auto Cad software.
Site Preparation
We have completed the
initial grading of specific designated areas on the 40 undisturbed acres of land including clearing all vegetation, removing of
all scrap metal, and the excavation of the building pad for the preparation of the new 21,875 square foot processing plant and
have completed the removal of all the extra and unnecessary materials and old equipment that has accumulated on the land.
Toll Milling
Toll milling 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 that are designed specifically for
each ore load can include many different processes to maximize the extraction of precious metals from ore, carbon or concentrates.
Procedure
Ore is sent to our
facility at the responsibility and cost of the customer. The Company will take a sample of the ore through a specific ore sampling
procedure. The Company’s metallurgist will test the sample on site. To obtain a quantitative determination of the amount
of a given substance in a particular sample, the Company can perform wet methods and dry methods. In the wet method, the sample
is dissolved in a reagent, like acid, until the purified metal is separated out. In the dry method, the sample is mixed with a
flux (a substance such as borax or silica that helps lower the melting temperature) and then heated so that the impurities in the
metal fuse with the flux, leaving the purified metal as residue.
3
If it is determined that the sample is approved
for processing, the customer and the Company will then agree upon a value of the metal grade per ton. If there is any disagreement
on the value, a third-party referee determines the value by testing the sample. The Company charges either a flat fee per ton of
the ore processed or a percentage of the precious metals extracted during processing, or a combination of both based on the amount
of work that is performed.
There are various methods
of extraction. The Company determines which method to use based upon the sample sent to the Company. In most situations, a series
of tests will be performed on a bulk sample ranging in size from 250 to 1,000 pounds. A metallurgist will determine the best process
or processes to use for the extraction based on several factors. These include the composition of the host rock, mineralization
of the host rock, whether or not it is an oxide or sulfide ore body, and the particle size of the precious metal. After the metallurgist
reviews these characteristics, the Company will run ore on a gold table and assays the concentrates, middlings, and tails. An assay
is an investigative procedure for qualitatively assessing or quantitatively measuring the presence or amount of precious metals
in ore. If there is too much gold in the middling or tails, the size of the grind is adjusted to increase yield or if there is
not enough gold in the middlings or tails the Company grinds the material to a finer mesh.
Some of our miner customers
will be able to take their tailings (the material left over after the desired minerals have been extracted) from the material they
deposited with the Company and put it back in the exact same mines those particular tailings came from. This eliminates the need
for the Company to dispose of those tailings.
Concentrate/Leach
Circuit
Concentration is the
separation of precious minerals from other materials by utilizing different properties of the minerals to be separated including
density, magnetic or electric and physiochemical. The Company will attempt to create a “concentrate” of minerals to
reduce the size of each ton processed. The Company may also receive concentrates from customers, especially those where transport
of tons of raw ore is not feasible.
The leaching process
uses chemicals to extract the metals from the solid materials (concentrates) and bring them into a solution. Once the metals are
in the solution, it is passed through carbon or resin columns where the precious metals are deposited onto the carbon/resin.
The metals will then
be stripped from the carbon back into a different solution where they are pumped through an electrowinning circuit in a process
called carbon stripping. The metals are then deposited onto stainless steel in the electrowinning circuit. After this stage, the
metals are either sold or further refined off-site. The solution is recycled and used again to process additional material.
Recent Actions
The Company is working
on general maintenance and updating of the Tonopah property in line with the Company’s business plan. In an effort to move
the Company’s business plan forward, Management may evaluate opportunities to acquire, license or joint venture with other
parties involved in toll milling, processing, or mining related activities, which may include Granite Peak Resources, LLC and its
affiliated entities, including, but not limited to, Sustainable Metal Solutions, LLC, NovaMetallix. Inc., and BlackBear Natural
Resources, LTD
Employees
As of December 31,
2020, we did not have any employees. The Company’s and its subsidiaries’ officers, directors and independent contractors
conduct all operations.
Available Information
You can request a free
copy of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically
file such material, or furnish it to the Securities and Exchange Commission (“SEC”) the above filings by writing or
calling us at:
4
ITEM 1A. RISK FACTORS
An investment in our common stock ishighly speculative and involves a high degree of risk. Before making an investment decision, you should carefully consider therisks described below together with all of the other information included in this prospectus. The statements contained in or incorporatedinto this prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties thatcould cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of thefollowing risks actually occur, our business, financial condition or results of operations could be harmed. In that case, the valueof our common stock could decline, and an investor in our securities may lose all or part of their investment.
Risks Related to Our Capital Stock
INVESTORS MAY BE UNABLE TO ACCURATELYVALUE OUR COMMON STOCK.
Investors often value
companies based on the stock prices and results of operations of other comparable companies. Currently, we do not believe another
publicly traded permitted custom processing toll milling company exists that is directly comparable to our size and scale. Prospective
investors, therefore, have limited historical information about our permitted custom processing toll milling capabilities on which
to base an evaluation of our performance and prospects and an investment in our common stock. As such, investors may find it difficult
to accurately value our common stock.
INVESTORS MAY FACE SIGNIFICANT RESTRICTIONSON THE RESALE OF OUR COMMON STOCK DUE TO FEDERAL REGULATION OF PENNY STOCKS.
The SEC has defined
any equity security with a market price of less than $5.00 per share as a “penny stock.” Penny stocks are subject to
the requirements or Rule 15(g)-9 of the Securities Exchange Act of 1934. Our common stock is quoted on the Over the Counter (“OTC”)
Markets under the symbol SMPR and is currently below $5.00 per share. Therefore, our common stock is deemed a “penny stock”
and is subject to the requirements of Rule 15(g)-9. Under such rule, broker-dealers who recommend low-priced securities to persons
other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement
that they make an individualized written suitability determination for the purchaser and receive the purchaser’s consent
prior to the transaction. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market
liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
WE DO NOT INTEND TO PAY DIVIDENDS FORTHE FORESEEABLE FUTURE.
We have never declared
or paid any dividends on our common stock. We intend to retain all of our earnings, if any, for the foreseeable future to finance
the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. Our Board of Directors
retains the discretion to change this policy.
THE MARKET FOR OUR COMMON STOCK MAYFLUCTUATE.
Currently, our common
stock is traded on the Over the Counter (“OTC”) Market. Stock prices on the OTC Markets can be more volatile than stocks
trading on national market systems such as NSADAQ, NYSE or AMEX. Our stock price may be affected by factors outside of our control
and unrelated to our business operations.
5
Risks Related to Our Financial Condition
WE CURRENTLY DO NOT HAVE ENOUGH CASHTO FUND OPERATIONS AND/OR REDUCE OUR DEBT DURING 2021.
We have very limited
funds, and such funds are not adequate to develop our current business plan, or even to satisfy our existing working capital requirements.
We will be required to raise additional funds to effectuate our current business plan for permitted custom processing toll milling
and to satisfy our working capital requirements. Without significant additional capital, we will be unable to start operations.
With respect to our proposed permitted custom processing toll milling operations, the costs and ability to successfully operate
have not been fully verified because none of our proposed tolling operations have begun and we may incur unexpected costs or delays
in connection with starting operations. The cost of designing and building our operations and of finding customers and sources
of ore for our toll milling sources can be extensive and will require us to obtain additional financing, and there is no assurance
that we will have the resources necessary or the financing available to attain operations or to acquire customers and ore sources
necessary for our long-term business. Our ultimate success will depend on our ability to raise additional capital. Additionally,
such additional capital may not be available to us at acceptable terms or at all. Further, if we increase our capitalization and
sell additional shares of our capital stock, a shareholder’s position in our Company will be subject to dilution. In the
event we are unable to obtain additional capital, we may be forced to cease our search for additional business opportunities, reduce
our operating expenditures or to cease operations altogether.
WE HAVE NOT YET BEGUN OPERATIONS ANDWE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE FUTURE.
We have yet to commence
active operations. We have no prior operating history from which to evaluate our success, or our likelihood of success in operating
our business, generating any revenues, or achieving profitability. This provides a limited basis for you to assess our ability
to commercialize our services and the advisability of investing in our securities. We have not generated revenue from our toll
milling services to date and there can be no assurance that our plans for permitted custom processing toll milling will be successful,
or that we will ever attain significant revenue or profitability. Also, toll milling is a new area of business for us, and our
management team has little experience in permitted custom processing toll milling operations. Although we intend to hire knowledgeable
and experienced employees and/or consultants with significant experience in toll milling operations, there is no guarantee that
we will reach profitability in the near future, if at all. As we develop our Tonopah property to prepare for operations, we are
subject to unforeseen costs, expenses, problems and difficulties inherent in new business ventures.
OUR INDEPENDENT AUDITORS HAVE SUBSTANTIALDOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
The financial statements for each of these periods were prepared assuming that we would continue as a going concern. We have had net losses for each of the years ended December 31, 2020 and 2019, and we have an accumulated a deficit as of December 31, 2020 of $104,350,402. Virtually all of the Company’s assets are encumbered or pledge under senior secured debt that is in default. In the view of our independent auditors, these conditions raise substantial doubt about our ability to continue as a going concern. Furthermore, since we do not expect to generate any significant revenues from operations for the foreseeable future, our ability to continue as a going concern depends, in large part, on our ability to raise additional capital through equity or debt financing transactions. If we are unable to raise additional capital, we may be forced to discontinue our business.
Risks Related to the Company
WE HAVE LIMITED ASSETS.
Our assets to be used
in the development of a toll milling service have not yet been utilized, we will need to acquire additional equipment and construct
additional facilities and there can be no guarantee that we will be successful in utilizing our current assets or obtaining the
additional equipment and facilities that we will need to operate going forward. We do not anticipate having any revenues from our
permitted custom toll milling processing for the foreseeable future. Additionally, without adequate funding, we may never produce
any significant revenues.
6
OUR MAJOR ASSETS ARE ENCUMBERED UNDERA DEED OF TRUST OR PLEDGED.
The Tonopah property
is subject to a first deed of trust securing a $2,500,000 promissory note in default and a $2,500,000 Line of Credit plus interest
accrued through December 31, 2020 of $1,329,303 and $16,073, respectively, held by Granite Peak Resources, LLC (“GPR”),
a related party. In addition, the Company entered into a Forbearance Agreement with GPR effective December 20, 2019. GPR agreed
to forbear any foreclosure proceedings for six months in exchange for the Company pledging the stock of its subsidiary and its
subsidiaries as additional collateral under its outstanding obligations. The Forbearance Agreement expired June 30, 2020 and has
not been renewed.
On March 16, 2020 the
Company executed a Line of Credit (“LOC”) with GPR evidenced by a promissory note. The LOC is for up to $2,500,000,
matures over three years and is secured by the Company’s real and personal property GPR already has under lien.
OUR MANAGEMENT TEAM MAY NOT BE ABLETO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGIES.
If our management team
is unable to execute our business strategies, then our development could be materially and adversely affected. In addition, we
may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any
future growth. We may seek to augment or replace members of our management team or we may lose key members of our management team,
and we may not be able to attract new management talent with sufficient skill and experience.
OUR SUCCESS IN THE FUTURE MAY DEPENDON OUR ABILITY TO ESTABLISH AND MAINTAIN STRATEGIC ALLIANCES, AND ANY FAILURE ON OUR PART TO ESTABLISH AND MAINTAIN SUCH RELATIONSHIPSWOULD ADVERSELY AFFECT OUR MARKET PENETRATION AND REVENUE GROWTH.
We may be required
to establish strategic relationships with third parties in the mining and toll milling industries. Our ability to establish strategic
relationships will depend on a number of factors, many of which are outside our control, such as the suitability of our property,
facilities and equipment relative to our competitors, or the quality grade of precious minerals we are able to extract from the
ore we process. We can provide no assurance that we will be able to establish strategic relationships in the future.
In addition, any strategic
alliances that we establish, will subject us to a number of risks, including risks associated with sharing proprietary information,
loss of control of operations that are material to developed business and profit-sharing arrangements. Moreover, strategic alliances
may be expensive to implement and subject us to the risk that the third party will not perform its obligations under the relationship,
which may subject us to losses over which we have no control or expensive termination arrangements. As a result, even if our strategic
alliances with third parties are successful, our business may be adversely affected by a number of factors that are outside of
our control.
Risks Relating to Our Business
WE WILL REQUIRE ADDITIONAL FINANCINGTO FUND OUR PERMITTED CUSTOM PROCESSING TOLL MILLING DEVELOPMENT AND OPERATIONS.
Substantial additional
financing will be needed to fund the current plan to begin toll milling services and develop and maintain the Tonopah property.
Our means of acquiring investment capital is limited to private equity and debt transactions. We have no significant sources of
currently available funds to engage in additional development. Without significant additional capital, we will be unable to fund
our current property interests or effectuate our current business plan for permitted custom processing toll milling and mining
services. See “Risks Relating to Our Financial Condition – We Currently Do Not Have Enough Cash to Fund Operations,
and/or Reduce Debt During 2021”
7
OUR PERFORMANCE MAY BE SUBJECT TO FLUCTUATIONS IN MINERALPRICES.
The profitability of
any permitted custom processing toll milling services could be significantly affected by changes in the market price of minerals.
Demand for minerals can be influenced by economic conditions and attractiveness as an investment vehicle. Other factors include
the level of interest rates, exchange rates and inflation. The aggregate effect of these factors is impossible to predict with
accuracy.
In particular, mine
production and the willingness of third parties such as central banks to sell or lease gold affects the supply of gold. Worldwide
production levels also affect mineral prices. In addition, the price of gold, silver and other precious minerals have, on occasion,
been subject to very rapid short-term changes due to speculative activities.
OUR PERMITTED CUSTOM PROCESSING TOLLMILLING OPERATIONS ARE SUBJECT TO ENVIRONMENTAL REGULATIONS AND PERMITTING, WHICH COULD RESULT IN THE INCURRENCE OF ADDITIONALCOSTS AND OPERATIONAL DELAYS.
All phases of our operations
are subject to current environmental protection regulation. There is no assurance that future changes in environmental regulation,
such as greenhouse gas emissions, carbon footprint and the like, will not adversely affect our operations. Some of our proposed
operations will require additional permits, which could incur additional cost and may delay start up and cash flow. In addition,
each toll milling mineral source must be fully permitted for its own operation, a process over which we have no control.
OUR PERMITTED CUSTOM PROCESSING TOLLMILLING OPERATIONS WILL REQUIRE US TO DEPEND ON THIRD PARTIES AND OTHER ELEMENTS BEYOND OUR CONTROL, WHICH COULD RESULT IN HARMTO OUR BUSINESS.
Our permitted custom
processing toll milling operations will rely on mineral material produced by others, and we have no control over their operations.
Delivery of ore to our processing facilities is also subject to the risks of transportation, including trucking and aviation operations
run by others, regulations and permits, fuel cost, weather, and travel conditions. Toll milling requires that the mineral producer
and the mineral processor agree on the grade of the incoming material, which can be a source of conflict between parties. Although
a third party will be utilized for any such conflict, any disagreements with mineral producers, or problems with the delivery of
ore, could result in additional costs, disruptions and other problems in the operation of our business.
U.S. FEDERAL LAWS
Under the U.S. Resource
Conservation and Recovery Act, companies such as ours may incur costs for generating, transporting, treating, storing, or disposing
of hazardous waste. Our permitted custom processing toll milling operations may produce air emissions, including fugitive dust
and other air pollutants, from stationary equipment, storage facilities, and the use of mobile sources such as trucks and heavy
construction equipment which are subject to review, monitoring and/or control requirements under the Federal Clean Air Act and
state air quality laws. Permitting rules may impose limitations on our production levels or create additional capital expenditures
in order to comply with the rules.
The U.S. Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA) imposes strict joint and several liability on
parties associated with releases or threats of releases of hazardous substances. The groups who could be found liable include,
among others, the current owners and operators of facilities which release hazardous substances into the environment and past owners
and operators of properties who owned such properties at the time the disposal of the hazardous substances occurred. This liability
could include the cost of removal or remediation of the release and damages for injury to the surrounding property. We cannot predict
the potential for future CERCLA liability with respect to our property.
THE GLOBAL FINANCIAL MARKET MAY HAVEIMPACTS ON OUR BUSINESS AND FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT.
The global financial
market, especially the precious metal market and its market price fluctuations have, and may continue to have, an impact on our
business and our financial condition. We may face significant challenges if the price of the minerals we intend to process do not
achieve or stay at adequate price levels. Our ability to access the capital markets may be severely restricted at a time when we
would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business
conditions. The market price of ores, metals and precious metals could have an impact on any potential lenders or investors or
on our customers, causing them to fail to meet their obligations to us.
8
ITEM 2. PROPERTIES
On March 15, 2011,
in an effort to enter the precious metal toll milling business, we completed the Shea Exchange Agreement, whereby we acquired the
Tonopah property, consisting of land, buildings, mining tailings, a dormant milling facility, abandoned milling equipment and water
permits.
Our Tonopah property
consists of 1,183 acres of land, buildings, mining tailings, a dormant milling facility, abandoned milling equipment and water
permits. The Tonopah property was transferred to Aurielle Enterprises Inc f/k/a Tonopah Milling and Metals Group, Inc. (“AE”),
the Company’s wholly owned subsidiary and then transferred to Tonopah Resources, Inc., a wholly owned subsidiary of AE.
Our corporate office
is located at 611 Walnut Street, Gadsden, Alabama 35901. We believe that our facilities are adequate for our current needs.
ITEM 3. LEGAL PROCEEDINGS
Stephen E. Flechner v. Standard MetalsProcessing, 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 December 31, 2020, totalling $965,376, resulting in
a total amount of $3,357,622 being included in the accrual for settlement of lawsuits relating to this matter in the accompanying
December 31, 2020 consolidated balance sheet.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
9
PART II
ITEM 5. MARKET FOR REGISTRANT’SCOMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTC Market under the symbol “SMPR.” As of January 25, 2021, the last closing sale price of our common stock as reported by the OTC Market was $0.0575 per share. The following table sets forth for the periods indicating the range of high and low closing sale prices of our common stock:
| Period | High | Low | ||
|---|---|---|---|---|
| Quarter Ended March 31, 2020 | $ | 0.0345 | $ | 0.079 |
| Quarter Ended June 30, 2020 | $ | 0.023 | $ | 0.08 |
| Quarter Ended September 30, 2020 | $ | 0.031 | $ | 0.057 |
| Quarter Ended December 31, 2020 | $ | 0.03 | $ | 0.05 |
| Quarter Ended March 31, 2019 | $ | 0.085 | $ | 0.036 |
| Quarter Ended June 30, 2019 | $ | 0.0799 | $ | 0.031 |
| Quarter Ended September 30, 2019 | $ | 0.06 | $ | 0.036 |
| Quarter Ended December 31, 2019 | $ | 0.077 | $ | 0.0399 |
The quotations from
the OTC Market above reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not reflect actual transactions.
Transfer Agent
Our transfer agent
is American Stock Transfer & Trust Company, LLC, and is located at 6201 15th Avenue, Brooklyn, New York, NY 11219. Their telephone
number is (718) 921-8124 and their website is www.astfinancial.com.
Holders of Common Stock
As of January 25, 2021
there were approximately 192 shareholders of record of our common stock. As of such date, 133,630,343 shares were issued and outstanding.
Dividends
We have never paid
cash dividends on our common stock and have no present intention of doing so in the foreseeable future. Rather, we intend to retain
all future earnings to provide for the growth of our Company. Payment of cash dividends in the future, if any, will depend, among
other things, upon our future earnings, requirements for capital improvements and financial condition.
Recent Sales of Unregistered Securities
During the year ended
December 31, 2020, Granite Peak Resources, LLC (“GPR”), a related party, advanced $206,022 pursuant to a secured line
of credit in direct payments on the Company’s behalf to reduce certain accounts payable. The balance due GPR under this line
of credit is comprised of principal of $219,597 and accrued interest of $16,073 at December 31, 2020
During the year ended
December 31, 2019, Granite Peak Resources, LLC (“GPR”), a related party, advanced $205,655 in direct payments on the
Company’s behalf, to reduce certain accounts payable by $137,655 and outstanding convertible promissory notes by $68,000.
In December 2019, GPR was issued a convertible promissory note for $192,080 which it exchanged as consideration for exercising
a stock option for 4,500,000 restricted common shares at an approved reduced conversion price of $0.0426, which was the market
price on the date of exercise (based on the average of the median price and VWAP for the preceding 90 days). The remaining $13,575
of advance was subsequently included in a secured line of credit evidenced by a convertible promissory note. Accordingly, the $13,575
advance has been so classified as such at December 31, 2019.
10
After the foregoing
note conversions and advance received, there was $319,597 of principal and $118,732 of accrued interest outstanding on convertible
debentures at December 31, 2020. With exception of the $219,597 of principal advanced under the secured line of credit by a related
party during the year ended December 31, 2020, a pre-existing $100,000 convertible note is in default.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion
should be read in conjunction with the Financial Statements of the Company and notes thereto included elsewhere in this Annual
Report. See “Consolidated Financial Statements and Supplementary Data.”
Cautionary Notice Regarding ForwardLooking Statements
Readers are cautioned
that the following discussion contains certain forward-looking statements and should be read in conjunction with the “Special
Note Regarding Forward-Looking Statements” appearing at the beginning of this Annual Report.
The information contained
in Item 7 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the
forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes
that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that
the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed
in this report.
We desire to take advantage
of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number
of forward-looking statements, which reflect management’s current views and expectations with respect to our business, strategies,
products, future results and events, and financial performance. All statements made in this filing other than statements of historical
fact, including statements addressing operating performance, events, or developments which management expects or anticipates will
or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products,
adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information,
are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,”
“estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking.
These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results,
performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied
by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any
future events or circumstances.
Readers should not
place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections
about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those
described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such
differences include, but are not limited to, the risks to be discussed in our Annual Report on form 10-K and in the press releases
and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks
and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
11
Water Pollution Control Permit
Through the Company’s
subsidiaries, a Water Pollution Control Permit (“WPCP”) Application will need to be filed with the Nevada Department
of Environmental Protection (“NDEP”) Bureau of Mines and Mining Reclamation (“BMMR”) for the approval of
the permits necessary for a small-scale mineral processing facility planned for the Tonopah Property. The plant will perform laboratory
testing, pilot testing, and custom processing of precious metal ores and concentrates from mining industry clients. Processing
of ore materials will employ standard mineral processing techniques including gravity concentration, froth flotation and chemical
leaching and carbon stripping.
The WPCP must be approved
prior to commencing the planned construction of our processing plant in Tonopah, Nevada.
In connection with
the WPCP application, NDEP suggested that we take the following actions: (i) retain a Nevada Certified Environmental Manager (“CEM”),
(ii) perform Meteoric Profile II water testing on ground water directly below the mill as well as surrounding wells located off
site, and (iii) determine baseline values of water using the Meteoric Profile II results. NDEP regulations require that the Company
delay any new construction planned for “metal extraction” until after the permits are in place.
Advanced Surveying
& Professional Services, a Professional Land Surveyor (“PLS”), completed surveys and testing of the Tonopah property
required for the application of our required permits. After completion of the survey, it was determined the property is 1,186 acres.
The scope of work the PLS completed includes: (i) setting a total of 19 permanent monuments at angle points along lines, (ii) setting
eight permanent monuments locating US Hwy 95, (iii) recording a professional map indicating longitude and latitude for all corners,
and (iv) providing a digital map accessible in AutoCAD software.
Site Preparation
We have completed the
initial grading of specific designated areas on the 40 undisturbed acres of land including clearing all vegetation, removing of
all scrap metal, and the excavation of the building pad for the preparation of the new 21,875 square foot processing plant and
have completed the removal of all the extra and unnecessary materials and old equipment that have accumulated on the land. We refurbished
a trailer that will act as our construction office.
Business Plan
The Company is re-examining
its next steps for developing a processing facility. In an effort to move the Company’s business plan forward, Management
may evaluate opportunities to acquire, license or joint venture with other parties, which may include related parties, involved
in toll milling, processing, or mining related activities, The Company is re-examining its next steps for developing a processing
facility. In an effort to move the Company’s business plan forward, Management may evaluate opportunities to acquire, license
or joint venture with other parties, which may include related parties, involved in toll milling, processing, or mining related
activities, which may include Granite Peak Resources, LLC and its affiliated entities including, but not limited to Sustainable
Metal Solutions, LLC, NovaMetallix. Inc., and Black Bear Natural Resources, LTD.
On March 27, 2020 the
Company engaged NovaMetallix. Inc. (“NMX”), a member of the Sustainable Metal Solutions Group, a GPR affiliate, to
conduct a study of the quantity and quality of our historic mine tailings, and the economic feasibility of processing them to reclaim
their residual content of gold, silver, and other valuable metals. NMX, a firm comprised of world class mining, geological
and metallurgical engineering professionals, is dedicated to the rapidly developing field of sustainable metal recovery. NMX has agreed to conduct the study of the Company’s tailings in exchange for GPR’s agreement to underwrite its cost
and expense, and the exclusive right to process the tailings should their economic assessment prove positive. The terms of
such processing to be mutually agreed upon in the future based on the results of the assessment.
12
Results of Operations
Comparison of the Years Ended December31, 2020 and December 31, 2019
Revenues
We had no revenues
from any operations for the years ended December 31, 2020 and 2019. Furthermore, we do not anticipate any significant future revenue
until we have sufficiently funded construction and begin operations.
General and Administrative
Expenses
General and administrative
expenses were $241,435 for the year ended December 31, 2020 as compared to $43,875 for the same period in 2019. For the year ended
December 31, 2019, general and administrative expenses and professional fees were severely cut due to lack of funding. During the
year ended December 31, 2020, the nature of expenses were relatively the same, however we were able to incur and pay normal professional
and legal fees and other necessary expenses due to greater availability of funds. We anticipate that future administration and
operating expenses will increase for fiscal 2021 as we continue to build the infrastructure to proceed with our planned custom
processing toll milling services.
Other Income and
Expenses
Each year we receive
monthly payments of $700 per month from American Tower Corporation for a cellular tower located on our Tonopah land. In addition,
during the year ended December 31, 2020, the Company recognized gains due to write off of numerous accrued claims that were no
longer enforceable or settled for less than face amount aggregating $375,270. There were no similar circumstances during the year
ended December 31, 2019.
Interest expense for
the year ended December 31, 2020 was $514,783, compared to $641,430 for the respective period in 2019. The $126,647 decrease during
2020 compared to 2019 is principally related to the Company’s revised estimate of the reasonable rate of interest that may
apply to certain delinquent accounts payable that are in dispute. The remaining interest expense relates primarily to the interest
due at rates ranging from 6% to 10% on notes payable to related parties and our convertible promissory notes outstanding during
both periods.
Liquidity and Capital Resources
Liquidity is a measure
of an entity’s ability to secure enough cash to meet its contractual and operating needs as they arise. We have funded our
operations and satisfied our capital requirements through the issuance of short-term debt, convertible debt and through equity
capital we have received via certain shareholders exercising their warrants and loans from related parties during the years ended
December 31, 2020 and 2019. We do not anticipate generating sufficient positive cash flows from our operations to fund the next
12 months. We had a working capital deficit of $10,169,955 at December 31, 2020. Cash was $1,199 at December 31, 2020, as compared
to cash of $1,945 at December 31, 2019.
Our cash reserves will
not be adequate to meet our operational needs and thus, we need to raise additional capital to pay for our operational expenses
and provide for capital expenditures. Our basic operational expenses are currently estimated at approximately $20,000 per month,
without regard to accrued interest of approximately $43,000 per month. Above our basic monthly expenses, we estimate that we need
approximately $17,500,000 to begin limited toll milling operations. If we are not able to raise additional working capital, we
may have to cease operations altogether.
Recent Financings
During the year ended
December 31, 2020, Granite Peak Resources, LLC (“GPR”), a related party, advanced $206,022 pursuant to a secured line
of credit in direct payments on the Company’s behalf to reduce certain accounts payable. The balance due GPR under this line
of credit is comprised of principal of $219,597 and accrued interest of $16,073 at December 31, 2020
13
During the year ended
December 31, 2019, Granite Peak Resources, LLC (“GPR”), a related party, advanced $205,655 in direct payments on the
Company’s behalf, to reduce certain accounts payable by $137,655 and outstanding convertible promissory notes by $68,000.
In December 2019, GPR was issued a convertible promissory note for $192,080 which it exchanged as consideration for exercising
a stock option for 4,500,000 restricted common shares at an approved reduced conversion price of $0.0426, which was the market
price on the date of exercise (based on the average of the median price and VWAP for the preceding 90 days). The remaining $13,575
of advance was subsequently included in a secured line of credit evidenced by a convertible promissory note. Accordingly, the $13,575
advance has been so classified as such at December 31, 2019.
After the foregoing
note conversions and advance received, there was $319,597 of principal and $118,732 of accrued interest outstanding on convertible
debentures at December 31, 2020. With exception of the $219,597 of principal advanced under the secured line of credit by a related
party during the year ended December 31, 2020, a pre-existing $100,000 convertible note is in default.
Going Concern
The consolidated financial
statements contained in this annual report on Form 10-K have been prepared assuming that the Company will continue as a going concern.
The Company has accumulated losses from inception through the period ended December 31, 2020 of $104,350,402, and a working capital
deficit of $10,169,955, as well as negative cash flows from operating activities. Presently, the Company does not have adequate
cash resources to meet its debt obligations in the 12 months following the date of this filing. In addition, virtually all of the
Company’s assets are encumbered or are pledged under senior secured debt that is in default. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing
alternatives to finance its capital requirements, as well as for general and administrative expenses. These alternatives include
raising funds through public or private equity markets and either through institutional or retail investors. Although there is
no assurance that the Company will be successful with its fund-raising initiatives, management believes that the Company will be
able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.
The consolidated financial
statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The
Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and
ultimately to attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership
of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the rights,
preferences and privileges of the Company’s 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 endeavours or opportunities, which could significantly and materially restrict its future plans for developing
its business and achieving commercial revenues. If the Company is unable to obtain the necessary capital, the Company may have
to cease operations.
Working Capital Deficiency
| December 31,<br> 2020 | December 31,<br> 2019 | |||||
|---|---|---|---|---|---|---|
| Current assets | $ | 36,646 | $ | 1,945 | ||
| Current liabilities | 10,206,601 | 9,905,904 | ||||
| Working capital deficiency | $ | (10,169,955 | ) | $ | (9,903,959 | ) |
Current assets remained
stable between periods. The increase in current liabilities is primarily due to an increase in accrued interest relating to the
Company’s convertible debentures and notes payable, as well as the increase of convertible debt balances as a result of increasing
advances from related party, Granite Peak Resources, LLC.
14
Cash Flows
| Years Ended<br><br><br><br> December 31, | |||||
|---|---|---|---|---|---|
| 2020 | 2019 | ||||
| Net cash provided by (used in) operating activities | $ | (12,246 | ) | $ | 944 |
| Net cash provided by investing activities | --- | --- | |||
| Net cash provided by financing activities | 11,500 | --- | |||
| Increase (decrease) in cash | $ | (746 | ) | $ | 944 |
Operating Activities
Net cash used in operating
activities was $12,246 for the year ended December 31, 2020, primarily due to the gain on derecognition of certain accounts payable
and accrued expenses of $375,270, net of expenses paid directly by related party and exercise of stock options and warrants, and
a loss of $115,722 on modification of options and warrants.
Net cash provided by
operating activities was $944 for the year ended December 31, 2019.
Investing Activities
For the year ended
December 31, 2020 and 2019 the Company conducted no investing activities.
Financing Activities
The Company’s
financing during 2020 was from advances from a related party totalling $206,022 and the proceeds from the exercise of options and
warrants of $130,505 which were paid to certain vendors on the Company’s behalf. The Company’s financing during 2019
was from advances from a related party totalling $205,655, which were paid to certain vendors on the Company’s behalf.
Off-Balance Sheet Arrangements
During the year ended
December 31, 2020, we did not engage in any off-balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation
S-K.
Effects of Inflation
We do not believe that
inflation has had a material impact on our business, revenues or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant accounting
policies are more fully described in the notes to our audited consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2020. We believe that the accounting policies below are critical for one to fully understand
and evaluate our financial condition and results of operations.
Impairment of Long-lived Assets
We are reviewing the
property and equipment, intangible assets subject to amortization and other long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Indicators of potential impairment
include: an adverse change in legal factors or in the business climate that could affect the value of the asset; an adverse change
in the extent or manner in which the asset is used or is expected to be used, or in its physical condition; and current or forecasted
operating or cash flow losses that demonstrate continuing losses associated with the use of the asset. If indicators of impairment
are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted
future cash flows expected to be derived from the asset. If the expected cash flows are less than the carrying value of the asset,
then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated
discounted cash flows. There were no impairment charges in the year ended December 31, 2020, however, we decided to combine the
carrying value of our mining and mineral assets as they are inseparable and depend upon each other in value creation.
15
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 December 31, 2020 and 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. The Company believes that this reduction in the federal corporate
rate will have a favorable effect on the consolidated financial statements of its, as well as those other similarly situated small
businesses.
Recent Accounting Standards
In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue
from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods for public business entities
beginning after December 15, 2017, including interim periods within that reporting period. The new standard permits the use of
either the retrospective or cumulative effect transition method. The Company adopted this standard on January 1, 2018, however,
as there have been no revenues to date, the Company does not expect the adoption to have a material impact.
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 adopted this standard January 1, 2019, 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 covered
by this report, 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.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA
The information called
for by Item 8 is included following the “Index to Financial Statements” on page F-1 contained in this annual report
on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls andProcedures
We maintain disclosure
controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer
as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance the objectives of the control system are met.
Under the supervision
of, and the participation of, our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted
an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and
is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure
controls and procedures were not effective as of December 31, 2019, because of the identification of the material weaknesses in
internal control over financial reporting described below. Notwithstanding the material weaknesses that existed as of December
31, 2020, our Chief Executive Officer and Chief Financial Officer have each concluded that the consolidated financial statements
included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position, results of operations
and cash flows of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States
of America (“GAAP”). We are currently taking steps to remediate such material weaknesses as described below.
Management’s Report on InternalControl over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting
is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; |
|---|---|
| ● | Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| --- | --- |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
| --- | --- |
17
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system
of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives
of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an
assessment of the effectiveness of our internal control over financial reporting based on criteria established in “Internal
Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as of
December 31, 2009.
As a result of our
continued material weaknesses described below, management has concluded that, as of December 31, 2020, our internal control over
financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.
Material Weaknesses in Internal Control
over Financial Reporting
A material weakness
is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment, management
identified the following control deficiencies, which were previously identified, that still represent material weaknesses at December
31, 2020:
| ● | The Company, at times in the past prior to the period covered by this annual statement, entered into material transactions without timely obtaining the appropriate signed agreements, stock certificates and board approval prior to releasing cash funds called for by the transaction. Management believes the approval process currently in place is sufficient to alleviate any misappropriation of funds and will change procedures if and when circumstances indicate they are needed. Although the Company has taken steps to prevent this from happening by utilizing an escrow agent, agreements entered into by prior management will continue to cause an issue until such prior agreements terminate or expire. |
|---|---|
| ● | Management did not design and maintain effective control relating to the quarter end closing and financial reporting process due to lack of evidence of review surrounding various account reconciliations and properly evidenced journal entries. Due to the Company’s limited resources, the Company has insufficient personnel resources and technical accounting and reporting expertise to properly address all of the accounting matters inherent in the Company’s financial transactions. Additionally, though the Company has recently formed a formal audit committee, the Company has not yet formalized processes and controls that would provide proper board oversight role within the financial reporting process. Management continues to search for additional board members that are independent and can add financial expertise and intends to formalize oversight processes in this area in an effort to remediate part of this material weakness. |
| --- | --- |
| ● | The Company’s change in management, board members and officer positions resulting in changes of the responsible person for certain duties has caused delays in the timely review of financial data and banking information. The Company has very limited review procedures in place. This material weakness, previously identified, continued in 2020 as a result of additional management changes. Management plans to establish a more formal review process by the board members in an effort to reduce the risk of fraud and financial misstatements. |
| --- | --- |
We are in the process
of establishing certain steps in response to the identification of these material weaknesses that should result in certain changes
in our internal control over financial reporting, but due to the Company’s limited funds and inability to add certain staff
personnel, the changes may be limited and may also not be completely effective. There were no additional material weaknesses noted
during the year ended December 31, 2020.
ITEM 9B. OTHER INFORMATION
None.
18
PARTIII
ITEM10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set
forth below are the names of all directors and executive officers of the Company, their respective ages and all positions and
offices with the Company held by each person as of December 31, 2020:
| Name | Age | Positions with the Company |
|---|---|---|
| J. Bryan Read | 58 | Chief Executive<br><br> Officer, Director, and Secretary |
| Sharon L. Ullman | 74 | Chief Financial<br><br> Officer, Chief Administrative Officer and Director |
Biographies
J.Bryan Read, Lt. Col, US Army (R) – Chief Executive Officer
Mr.
Read was appointed Chief Executive Officer on December 13, 2016 honorably served as an officer and a commander in the United States
Army. He has over twenty years professional military experience in leadership management, military logistics, training operations,
missile defense, property management, diplomacy, and supply systems. He has commanded military organizations from platoon up through
battalion level. As a military attaché assigned to the State Department and an overseas United States Embassy in the Former
Soviet Union, he regularly planned and conducted meetings with high level foreign government officials and ministries on behalf
of the United States involving important defense and commerce related matters. He has served as the Russian language Interpreter
and team leader for the U.S. Humanitarian Special Operations Mission to Semipalatinsk, Kazakhstan. Additionally, he was a professor
at the United States Military Academy at West Point.
Bryan
has served as a business development executive officer and independent business development consultant for variety of companies
and industries. He has introduced businesses to private and government sector opportunities by utilizing operations research,
analytics, and networking. The goal was to present revenue generating opportunities as well as merger and acquisition opportunities.
His duties included negotiating terms of agreement for client projects, analyzing business models, developing marketing strategies,
and reviewing P&L. His clients’ products and services have included the following industries: renewable energy, mining,
precious metals processing, B2B connectivity/management services, e-mail encryption technology software, EVM software, steel manufacturing
technology, construction, antennas, smart grid technologies, computer simulations, and sports recovery nutritional products. He
has also served as a business development liaison between Bio-Pharmaceutical companies in order to coordinate clinical research
for FDA approval. He has regularly organized and facilitated meetings for clients with fortune 500 senior management, government
agencies, and congressional staffs. His efforts have a proven track record of producing contracts, teaming arrangements, alliances,
and reseller agreements.
As
a member of the American Council of Renewable Energy (ACORE), Mr. Read has served on the Power and Infrastructure Committee and
the Defense Initiatives Energy Committee. These committee positions allowed him to regularly provide input to elected officials
on future energy policy. He regularly attends national energy conferences to connect and share ideas with public and private leaders
in the energy community. Bryan is also the President and Founder of Keystone General Contracting and Technologies LLC., a Veteran
Owned Small Business.
Mr.
Read has a master’s degree from Cornell University and is a graduate of the United States Army Command and General Staff
College. He was a Senior Fellow at the George C. Marshall European Center for Security Studies in Garmisch, Germany. He earned
his bachelor’s degree from the University of Alabama.
SharonL. Ullman – Chief Financial Officer
Sharon
L. Ullman was appointed to our board of directors on March 18, 2011, in connection with the Shea Exchange Agreement. Effective
December 16, 2011, Ms. Ullman was appointed to serve as the Company’s interim Chief Executive Officer and Executive Chairperson
of the Board. On October 9, 2012, the Board of Directors voted to remove “interim” from her title and approve her
position as Chief Executive Officer and Chairman of the Board. On February 6, 2014, the Board of Directors voted to appoint Ms.
Ullman the Company’s President and Executive Chairwoman of the Board of Directors. On August 20, 2015 Ms. Ullman stepped
down as CEO and President and took on the role of Chief Administrative Officer, she was appointed as the Interim Chief Financial
Officer on October 26, 2015. Her appointment as CFO and Chief Administrative Officer was confirmed by the Board of Directors on
April 4, 2016 and she was also appointed as the Treasurer.
19
Since
June 2010, Ms. Ullman has served as the Manager of Afignis, LLC (“Afignis”), a New York limited liability company,
which was established to identify and develop mining, natural resource and agricultural opportunities on a global basis, with
a focus on emerging markets. Afignis has made several investments, including currently holding approximately 12% of our outstanding
common stock and the acquisition of mining and agricultural interests in Sierra Leone, Africa. The Sierra Leone investment is
managed by Afignis Sierra Leone Limited, a Sierra Leone company, which is a strategic partnership between the Mende tribe and
Afignis. Ms. Ullman has been the President of Afignis Sierra Leone Limited since 2010. Afignis Sierra Leone Limited is involved
in gold and diamond mining operations and had interests in large parcels of arable land for agriculture including acres of cacao
and coffee plantations.
Ms.
Ullman is active in philanthropic and government relations through her work as the Founder, President and Chief Executive Officer
of S. L. Ullman & Associates, Inc., formed in 2007 as a private consulting firm, and has been recognized for her achievements
in these areas.
Ms.
Ullman served as the Executive Director and President of the 23rd Street Association (the “Association”). Through
her efforts, the Association was involved in the development of Project 9A, the Hudson River Waterfront and the High Line. She
was a prominent leader in the revitalization of historic Madison Square Park, helping to raise millions for its restoration and
maintenance. She successfully led the effort to establish the Flatiron/23rd Street Partnership, a Business Improvement District
in the Flatiron/23rd Street area. Her efforts as the founding member and member of the Board, helped reinforce the Flatiron/23rd
Street area’s growing stature as one of the city’s premier destination spots.
Ms.
Ullman has worked with all levels of government and government agencies and has been widely acknowledged for her contributions.
Her numerous awards include being voted a top 100 New Yorker. She was written into the congressional record with remarks in recognition
of her outstanding leadership by congresswoman Carolyn Maloney in 2004 and 2007, she received letters of recognition and outstanding
citizen citations from President Bill Clinton, Governor George Pataki, Mayors Michael Bloomberg and Rudolf Giuliani, and she received
letters of recognition from then senator Hillary Rodham Clinton and Charles E. Schumer.
Ms.
Ullman has been awarded the Outstanding Citizen Award from Speaker Christine Quinn, Council of the City of New York, and letters
of recognition from State Senators, State Assembly Members, City Council Members and Police Commissioners. She received the Tilden
Humanitarian Award and the Humanitarian of the Year Award from Concerned Citizen’s Speak. She has participated in Mayor
Bloomberg’s “Friday Morning Breakfasts” for outstanding community leaders to discuss important issues affecting
the city.
FamilyRelationships
There
are no other family relationships between or among any of our directors and executive officers and any incoming directors or executive
officers.
Codeof Ethics
We
adopted a Code of Ethics that applies to our principal executive officer, principal financial officer and persons performing similar
functions on October 5, 2012.
Compliancewith Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, officers and holders of more than 10% of our common stock
to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common
stock and other equity securities. Based solely upon our review of such filings, we are not aware of any failures by such persons
to make any such filings on a timely basis.
20
AuditCommittee, Compensation Committee and Financial Expert
The
Company does not currently utilize a formal audit committee. There were no audit committee meetings held during 2020. Financial
information relating to quarterly reports was disseminated to all board members for review. The audited financial statements for
the years ended December 31, 2019 and 2018 were provided to each member of the board in which any concerns by the members were
directed to management and the auditors. The Company does not currently utilize a compensation committee. There were no compensation
committee meetings during 2020 and no actions taken by written consent
ITEM11. EXECUTIVE COMPENSATION
GeneralPhilosophy
Our
Board of Directors is responsible for establishing and administering the Company’s executive and director compensation.
ExecutiveCompensation
The
following table summarizes the compensation of each named executive officer for the fiscal years ended December 31, 2020 and 2019
awarded to or earned by (i) each individual serving as our principal executive officer and principal financial officer of the
Company and (ii) each individual that served as an executive officer of the Company at the end of such fiscal years who received
compensation in excess of $100,000.
| Annual Compensation | Option | All Other | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Name and Principal Position | Year | Salary | Bonus | Awards^(1)^ | Compensation | () | ||
| J. Bryan Read, | 2020 | $ | — | $ | — | |||
| Chief Executive Officer | 2019 | $ | — | $ | — | |||
| Sharon L. Ullman | 2020 | $ | — | |||||
| Chief Financial Officer and Director | 2019 | $ | — | $ | — |
All values are in US Dollars.
| (1) | The<br><br>amounts shown are the aggregate grant date fair values of these awards computed in accordance with Financial Accounting Standards<br><br>Board (“FASB”) guidance now codified as Accounting Standards Codification (“ASC”) FASB ASC Topic 718,<br><br>“Stock Compensation” (formerly under FASB Statement No. 123(R)). |
|---|
EmploymentAgreements
We
have not entered into any severance or change of control provisions with any of our other executive officers.
EquityCompensation Plans
No
options were exercised by our named executive officers during the year ended December 31, 2020. In March 2019, Ms. Ullman exchanged
her option for membership interest in Granite Peak Resources, LLC. This exchange was disclosed on a Schedule 13D filed with the
Securities and Exchange Commission on March 29, 2019. At December 31, 2020 the executive officers held no options or warrants.
21
DirectorCompensation
Members
of our board who are also employees of ours receive no compensation for their services as directors. Non-employee directors are
reimbursed for all reasonable and necessary costs and expenses incurred in connection with their duties as directors. In addition,
we issue options to our directors as determined from time to time by the Board.
ITEM12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The
following information sets forth the number and percentage of shares of the Company’s common stock owned beneficially, as
of January 25, 2021, by any person, who is known to the Company to be the beneficial owner of five percent or more of the Company’s
common stock, and, in addition, by each director and each executive officer of the Company, and by all directors and executive
officers as a group.
Information
as to beneficial ownership is based upon statements furnished to the Company by such persons and the shareholder list provided
by the Company’s transfer agent, American Stock Transfer & Trust Company, LLC, as of January 25, 2021.
| Name and Address | Amount of<br> Beneficial<br> Ownership (1) | Percentage of<br> Class % | |||
|---|---|---|---|---|---|
| Sharon Ullman | 2,500,000 | 1.9 | % | ||
| 611 Walnut Street | |||||
| Gadsden, AL 35901 | |||||
| J. Bryan Read | 150,000 | * | |||
| 611 Walnut Street | |||||
| Gadsden, AL 35901 | |||||
| All directors and officers as a group (1 person) | 150,000 | * | |||
| Granite Peak Resources, LLC. | 72,833,110 | 54.5 | % | ||
| 30 N Gould Street, Suite R | |||||
| Sheridan, WY 82081 | |||||
| (1) | Except<br><br>as otherwise indicated, each person possesses sole voting and investment power with respect to the shares shown as beneficially<br><br>owned. Shares are deemed owned in the same percentage as the individual’s ownership in the entity owning such shares. | ||||
| --- | --- | ||||
| (*) | Less<br><br>than 1% | ||||
| --- | --- |
22
EquityCompensation Plans
The
following table sets forth certain information regarding equity compensation plan information as of December 31, 2020:
| Plan category | Number of securities<br> to be issued upon<br> exercise of<br> outstanding <br> options (a) | Weighted-average<br> exercise price of<br> outstanding<br> options | Number<br><br> of securities<br> remaining available for<br> future issuance under<br> equity compensation<br> plans (excluding<br><br><br> securities reflected in<br> column (a) (b) | ||||
|---|---|---|---|---|---|---|---|
| Equity compensation plans approved by security holders | 3,250,000 | ^(1)^ | $ | 1.25 | 73,000,000 | ||
| Equity compensation plans not approved by security holders | --- | $ | --- | --- | |||
| Total | 3,250,000 | $ | 1.72 | --- | |||
| (1) | granted<br><br>pursuant to the 2014 Option Plan, for individual grants. See the notes to the financial statements | ||||||
| --- | --- |
ITEM13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
following describes certain relationships and related transactions that we have with persons deemed to be affiliates of ours.
We believe that each of the transactions described below were on terms at least as favorable to our Company as we would have expected
to negotiate with unaffiliated third parties.
GranitePeak Resources, LLC
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
options 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 $1,329,303 as of December 31, 2020, which is in default. 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. During January and September 2020,
GPR purchased another 648,648 and 375,070 shares, respectively, in private transactions. As of the date of this filing, GPR is
the beneficial owner of 56.9% of the Company’s common stock and is the Company’s largest secured creditor.
23
On
March 16, 2020 the Company executed a Line of Credit (“LOC”) with GPR evidenced by a 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 $0.04 based on the last closing sale price
and is secured by the real and personal property GPR already has under lien and in pledge. During the year ended December 31,
2020 GPR, a related party, advanced $206,022 pursuant to the LOC in direct payments on the Company’s behalf to reduce certain
accounts payable. The balance due GPR under this LOC is comprised of principal of $219,597 and accrued interest of $16,073 at
December 31, 2020
During
the year ended December 31, 2019, GPR advanced $205,655 in direct payments on the Company’s behalf, to reduce certain accounts
payable by $137,655 and outstanding convertible promissory notes by $68,000. In December 2019, GPR was issued a convertible
promissory note for $192,080 which it exchanged as consideration for exercising a stock option for 4,500,000 restricted common
shares at an approved reduced conversion price of $0.0426, which was the market price on exercise. The remaining $13,575 of advance
was subsequently included in the LOC evidenced by a new convertible promissory note. Accordingly, the $13,575 advance has been
so classified as such at December 31, 2019.
The
Company entered into a Forbearance Agreement with GPR effective December 20, 2019. GPR has agreed to forbear any foreclosure proceedings
for six months in exchange for the Company pledging the stock of its subsidiary and its subsidiaries as additional collateral
under its outstanding obligations.
TinaGregerson/Tina Gregerson Family Properties, LLC
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 officer and 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 will accrue at 8% per annum on each tranche upon default
the interest rate increased to 12% per annum. As consideration, the Company agreed to issue common stock purchase warrants for
the purchase of up to 250,000 shares of common stock exercisable for seven years at $1.23 per share. The Note is in default.
DirectorIndependence
Our
securities are quoted on the OTC Market, which does not have any director independence requirements. We evaluate independence
by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation,
the standards for independent directors established by The New York Stock Exchange, Inc., the NASDAQ National Market, and the
Securities and Exchange Commission. Subject to some exceptions, these standards generally provide that a director will not be
independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s
immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s
immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director
(or for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is,
or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked
for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or in the
past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation
committee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that
makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds
the greater of $1,000,000 or two percent of that other company’s consolidated gross revenues. Based on these standards,
we have determined that our directors are not independent directors.
24
ITEM14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our Board of Directors appointed Turner, Stone & Company, L.L.P. (“Turner”) to audit our financial statements for the years ended December 31, 2020 and 2019. The following tables set forth the fees billed to the Company for professional services rendered by Turner for the years ended December 31, 2020 and 2019:
| Services | 2020 | 2019 | ||
|---|---|---|---|---|
| Audit fees | $ | 55,145 | $ | 40,000 |
| Audit related fees | — | — | ||
| Tax fees | 14,075 | — | ||
| All other fees | — | — | ||
| Total fees | $ | 69,220 | $ | 40,000 |
AuditFees
The
aggregate fees billed are for professional services rendered by Turner for the audit of the Company’s annual consolidated
financial statements and review of consolidated financial statements included in the Company’s Form 10-K and 10-Qs for 2020,
and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for
the year ended December 31, 2020.
Audit-Related
Fees
There
were no fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit or review of the Company’s financial statements.
TaxFees
There
were no fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning other than as presented in the table above.
AllOther Fees
There
were no other fees billed in each of the last two fiscal years for products and services provided by the principal accountant,
other than the services reported above.
Pre-ApprovalPolicies and Procedures
The
Company has an audit committee but has yet to formalize processes and controls that would provide proper Board oversight. Our
Board approves each engagement for audit or non-audit services before we engage our independent auditor to provide those services.
The Board has not established any pre-approval policies or procedures that would allow our management to engage our independent
auditor to provide any specified services with only an obligation to notify the audit committee of the engagement for those services.
None of the services provided by our independent auditors for fiscal year 2020 was obtained in reliance on the waiver of the pre-approval
requirement afforded in SEC regulations.
25
PARTIV
ITEM15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The
following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference.
26
27
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
| STANDARD METALS PROCESSING, INC. | ||
|---|---|---|
| Dated:<br><br> January 26, 2021 | By: | /s/<br><br> J. Bryan Read |
| J. Bryan Read | ||
| Chief Executive Officer |
Each
person whose signature to this Annual Report appears below hereby constitutes and appoints J. Bryan Read and Sharon L. Ullman
as their true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf individually and in
the capacity stated below and to perform any acts necessary to be done in order to file all amendments to this Annual Report and
any and all instruments or documents filed as part of or in connection with this Annual Report or the amendments thereto and each
of the undersigned does hereby ratify and confirm all that said attorney-in-fact and agent, or his substitutes, shall do or cause
to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of
the Company, in the capacities and dates indicated.
| Name | Title | Date |
|---|---|---|
| /s/<br><br> J. Bryan Read | Chief Executive Officer, Secretary and Director | January 26, 2021 |
| J. Bryan Read | ||
| /s/<br><br> Sharon Ullman | Chief Financial<br><br> Officer and Director | January 26, 2021 |
| Sharon Ullman |
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA
STANDARD METALSPROCESSING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS ASOF DECEMBER 31, 2020 AND 2019
TABLE OF CONTENTS
| Page | |
|---|---|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-2 |
| CONSOLIDATED FINANCIAL STATEMENTS: | |
| Consolidated Balance Sheets | F-4 |
| Consolidated Statements of Operations | F-5 |
| Consolidated Statements of Shareholders’ Deficit | F-6 |
| Consolidated Statements of Cash Flows | F-7 |
| Notes to Consolidated Financial Statements | F-8 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM
To the Board of Directors and Stockholders of Standard Metals Processing, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Standard Metals Processing, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019 and the related consolidated statements of operations, shareholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the results of its consolidated operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations since inception and has a working capital deficiency both of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the board of directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Long-lived asset impairment consideration
At December 31, 2020, the Company’s mining and mineral rights balance totaled $3.9 million. As more fully described in Note 2 to the consolidated financial statements, the Company evaluates its mining and mineral rights for impairment whenever events or changes in circumstances indicate that the carrying amounts of the asset or group of assets may not be recoverable (“triggering events”). Management evaluates various qualitative factors in determining whether or not events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable.
Auditing the Company’s impairment assessment involved our subjective judgment because, in determining whether a triggering event occurred, management uses estimates that include, among others, assumptions about forecasted gold, silver, copper and other metal prices and total future production using reserve or other relevant information reported by the operators. Significant uncertainty exists with these assumptions. Further, management’s evaluation of any new information indicating that production will not likely occur or may be significantly reduced in the future requires significant judgment.
To test the Company’s impairment assessment, our audit procedures included, among others, evaluating the significant assumptions, judgments and operating data used in the Company’s analysis to available market information. Furthermore, we considered the professional qualifications and objectivity of management’s specialists and the reputation of the third-party valuation firm.
/s/ Turner, Stone & Company L.L.P.
Dallas, Texas
January 26, 2021
We have served as the Company’s auditor since 2013.
F-3
STANDARD METALS PROCESSING, INC. ANDSUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| **** | December 31, 2019 | **** | |||
|---|---|---|---|---|---|
| Assets | |||||
| Current assets: | |||||
| Cash | 1,199 | $ | 1,945 | ||
| Prepaid expenses | 35,447 | -- | |||
| Total current assets | 36,646 | 1,945 | |||
| Mining and Mineral Rights | 3,883,524 | 3,883,524 | |||
| Total Assets | 3,920,170 | $ | 3,885,469 | ||
| Liabilities and Shareholders’ Deficit | |||||
| Current liabilities: | |||||
| Senior secured convertible promissory note payable, related party | 2,229,187 | $ | 2,229,187 | ||
| Promissory notes payable - related party | 477,500 | 477,500 | |||
| Convertible promissory notes, including 219,597 from related party | 319,597 | 113,575 | |||
| Accrual for settlement of lawsuits | 3,357,622 | 3,164,309 | |||
| Accounts payable | 1,400,632 | 1,820,741 | |||
| Accrued interest - Related party 1,565,405 and 1,325,558 at December 31, 2020 and December 31, 2019, respectively | 2,422,063 | 2,100,592 | |||
| Total current liabilities | 10,206,601 | 9,905,904 | |||
| Commitments and Contingencies (Note 9) | |||||
| Preferred stock, 50,000,000 shares authorized: | |||||
| Series A, .001 par value, 10,000,000 shares issued and outstanding at December 31, 2020 and December 31, 2019 | 10,000,000 | 10,000,000 | |||
| Shareholders’ deficit: | |||||
| Common stock, 0.001 par value, 500,000,000 shares authorized: 133,630,343 issued and outstanding at December 31, 2020 and 128,997,423 issued and outstanding at December 31, 2019, respectively | 133,630 | 128,997 | |||
| Additional paid-in capital | 87,930,341 | 87,712,695 | |||
| Accumulated deficit | (104,350,402 | ) | (103,862,127 | ) | |
| Total shareholders’ deficit | (16,286,431 | ) | (16,020,435 | ) | |
| Total Liabilities and Shareholders’ deficit | 3,920,170 | $ | 3,885,469 |
All values are in US Dollars.
The accompanying footnotes are an integral
part of these consolidated financial statements.
F-4
STANDARD METALS PROCESSING, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| **** | Years ended | **** | |||
|---|---|---|---|---|---|
| **** | December 31,<br><br>2020 | **** | December 31,2019 | **** | |
| Revenues | $ | — | |||
| Operating expenses: | |||||
| General and administrative | 43,875 | ||||
| Total operating expenses | 43,875 | ||||
| Loss from operations | ) | (43,875 | ) | ||
| Other income (expense): | |||||
| Other income | 8,140 | ||||
| Derecognition of debt | --- | ||||
| Loss on modification of options and warrants | ) | --- | |||
| Interest expense | ) | (641,430 | ) | ||
| Total other income (expense) | ) | (633,290 | ) | ||
| Loss before income tax provision | ) | (677,165 | ) | ||
| Income tax provision | — | ||||
| Net loss | ) | $ | (677,165 | ) | |
| Basic net loss per common share | ) | $ | (0.00 | ) | |
| Basic weighted average common shares outstanding | 124,633,039 |
All values are in US Dollars.
The accompanying footnotes are an integral
part of these consolidated financial statements.
F-5
STANDARD METALS PROCESSING, INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2020AND 2019
| **** | Common stock outstanding | Additional paid-in | Accumulated | **** | **** | **** | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | Shares | Amount | capital | deficit | **** | Total | **** | |||||
| Balance at December 31, 2018 | 124,497,423 | $ | 124,497 | $ | 87,525,115 | $ | (103,184,962 | ) | $ | (15,535,350 | ) | |
| Shares issued upon exercise of option | 4,500,000 | 4,500 | 187,580 | -- | 192,080 | |||||||
| Net loss for the year ended December 31, 2019 | -- | -- | -- | (677,165 | ) | (677,165 | ) | |||||
| Balance at December 31, 2019 | 128,997,423 | $ | 128,997 | $ | 87,712,695 | $ | (103,862,127 | ) | $ | (16,020,435 | ) | |
| Shares issued upon exercise of options | 2,750,000 | 2,750 | 60,500 | --- | 63,250 | |||||||
| Shares issued upon exercise of warrants | 1,882,920 | 1,883 | 41,425 | --- | 43,308 | |||||||
| Loss on modification of options and warrants | --- | --- | 115,722 | --- | 115,722 | |||||||
| Net loss for the year ended December 31, 2020 | --- | --- | --- | (488,275 | ) | (488,275 | ) | |||||
| Balance at December 31, 2020 | 133,630,343 | $ | 133,630 | $ | 87,930,342 | $ | (104,350,402 | ) | $ | (16,286,430 | ) |
The accompanying footnotes are an integral
part of these consolidated financial statements.
F-6
STANDARD METALS PROCESSING, INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| **** | For the year ended | **** | ||||
|---|---|---|---|---|---|---|
| **** | December 31, 2020 | **** | December 31, 2019 | **** | ||
| OPERATING ACTIVITIES: | ||||||
| Net loss | $ | (488,275 | ) | $ | (677,165 | ) |
| Adjustments to reconcile net loss to cash flows provided by (used in) operating activities: | ||||||
| Gain on derecognition of certain accounts payable and accrued expenses | (375,271 | ) | --- | |||
| Expenses paid directly by related party | 206,022 | --- | ||||
| Expenses paid directly by exercise of stock options and warrants | 59,611 | --- | ||||
| Loss on modification of stock options and warrants | 115,722 | --- | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts payable | (44,839 | ) | 36,678 | |||
| Accrual for settlement of lawsuits | 193,313 | 187,686 | ||||
| Accrued interest – related parties | 321,471 | 453,745 | ||||
| Net cash provided by (used in) operating activities | (12,246 | ) | 944 | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: | --- | --- | ||||
| Cash flows from investing activities | --- | --- | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
| Proceeds from exercise of common stock options and warrants | 11,500 | --- | ||||
| Cash flows from financing activities | 11,500 | ---- | ||||
| INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | (746 | ) | 944 | |||
| CASH AND CASH EQUIVALENTS, beginning of period | 1,945 | 1,001 | ||||
| CASH AND CASH EQUIVALENTS, end of period | $ | 1,199 | $ | 1,945 | ||
| Non-Cash Investing and Financing: | ||||||
| Advances from related party used for settlement of liabilities | $ | 206,022 | $ | 205,655 | ||
| Expenses paid by exercise of common stock options and warrants | $ | 95,058 | $ | — | ||
| Expenses prepaid by exercise of common stock options and warrants | $ | 35,447 | $ | --- | ||
| Related party promissory note settled by exercise of options | $ | --- | $ | 192,080 |
The accompanying footnotes are an integral
part of these consolidated financial statements.
F-7
STANDARD METALS PROCESSING, INC. ANDSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
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. Their business
plan is to purchase equipment and build 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 distil, 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 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 year ended December 31, 2020, the Company incurred losses from operations of $488,275. At December 31, 2020, the Company had an accumulated deficit of $104,350,402 and a working capital deficit of $10,169,955. In addition, virtually all of the Company’s assets are encumbered or pledged under a senior secured debt that is in default. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise the required additional capital or debt financing to meet short and long-term operating requirements. During the year ended December 31, 2020, the Company received net cash proceeds of $206,022 from the convertible note line of credit Granite Peak Resources, LLC established for the Company in 2019 (See Note 7). 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 endeavours 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 endeavours 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 subsidiaries Aurielle Enterprises, Inc., (f/k/a Tonopah
Milling and Metals Group, Inc.) and its wholly owned subsidiaries Tonopah Custom Processing, Inc., and Tonopah Resources, Inc.
All significant intercompany transactions, accounts and balances have been eliminated in consolidation.
F-8
Cash and Cash Equivalents
We maintain our cash in high-quality financial
institutions. The balances, at times, may exceed federally insured limits.
Property, Plant and Equipment
Property and equipment are recorded at
cost and depreciated, once placed in service, using the straight-line method over estimated useful lives as follows:
| Years | ||
|---|---|---|
| Machinery and equipment | 2-7 | |
| Vehicle | 2 |
Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized. As items of property or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.
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. There were no impairment charges during the years ended December 31, 2020 and
December 31, 2019.
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 December 31, 2020, we have recorded
no revenues from custom permitted processing toll milling. If we achieve revenue generation, the Company plans to report such revenues
consistent with ASC Topic 606.
Financial Instruments
The carrying amounts for all financial
instruments approximates fair value. The carrying amounts for cash, accounts payable and accrued liabilities approximated fair
value because of the short maturity of these instruments. The fair value of short-term debt approximated the carrying amounts based
upon the expected borrowing rate for debt with similar remaining maturities and comparable risk.
Loss per Common Share
Basic earnings (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 earnings 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.
F-9
At December 31, 2020 and 2019, the weighted
average shares from stock options of 3,250,000 and 28,076,223, respectively and warrants of 250,000 and 4,865,640, and number of
equivalent shares of convertible notes payable of 6,239,516 and 688,525, respectively, 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.
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 December 31, 2020 and 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. The Company believes the corporate tax rate reduction will have a favorable
effect on its consolidated audited financial statements should it attain profitable operations.
Recent Accounting Standards
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from
Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods for public business entities
beginning after December 15, 2017, including interim periods within that reporting period. The new standard permits the use
of either the retrospective or cumulative effect transition method. The Company adopted this standard on January 1, 2018, but as
there have been no revenues to date, the Company does not expect the adoption to have a material impact and no transition method
will be necessary upon adoption.
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 adopted this standard January 1, 2019, 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.
F-10
During the year ended December 31, 2020
and through January 25, 2020, 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.
Management’s Evaluation of SubsequentEvents
The Company evaluates events that have
occurred after the balance sheet date of December 31, 2020, through the date which the consolidated financial statements were issued.
Based upon the review, other than described in Note 11 – Subsequent Events, the Company did not identify any recognized or
non-recognized subsequent events that would have required adjustment or disclosure in the 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 November 2019, the Company decided
its land, mineral rights and water rights are inseparable and depend on each other in value creation, during the year ended December
31, 2018, the Company combined the carrying value the assets to present them more clearly to their interdependent use:
| FORMERLY - | |
|---|---|
| Property, Plant and Equipment: | |
| Shea Mining & Milling asset purchase | 2,108,300 |
| Equipment, net of 21,000 accumulated depreciation. | 0 |
| Construction in progress | 1,775,224 |
| 3,883,524 | |
| NOW | |
| Mining Assets and Mineral Rights | 3,883,524 |
All values are in US Dollars.
NOTE 5 – SeniorSecured Promissory Note, related party
On October 10, 2013, a Senior Secured Convertible
Promissory Note (the “Secured Note”) for up to $2,500,000 was issued to Pure Path Capital Management Company, LLC (“Pure
Path”) pursuant to a Settlement and Release Agreement. The note had an original principal balance of $1,933,345, with a maturity
date of April 10, 2015, and bears interest at 8% per annum. The settlement agreement included the issuance to Pure Path of 27,000,000
of the Company’s common shares, resulting in Pure Path becoming a related party. Upon an event of default additional interest
will accrue at the rate equal to the lesser of (i) 15% per annum in addition to the Interest Rate or (ii) the highest rate permitted
by applicable law, per annum (the “Default Rate”). The Company has obtained a waiver on the default rate interest,
allowing the 8% interest rate to remain in effect during the default on the Secured Note. The Secured Note is securitized by any
and all of Borrower’s tangible or intangible assets, already acquired or hereinafter acquired, including but not limited
to: machinery, inventory, accounts receivable, cash, computers, hardware, land and mineral rights, etc.
The outstanding principal balance on the
Secured Note was $2,229,187 as of both December 31, 2020 and 2019, with related accrued interest of $1,329,303 and $1,143,473,
respectively. In March 2019, Pure Path’s interest was acquired by Granite Peak Resources, LLC. The Secured Note is in default.
F-11
NOTE 6 – PROMISSORY NOTES PAYABLE - RELATED PARTY
On February 11, 2015, the Company issued
an unsecured promissory note (the “TG Note”) to Tina Gregerson Family Properties, LLC, an entity controlled by a former
director of the Company. The TG Note for up to $750,000, was provided in tranches. Maturity of each tranche is one year from the
date of receipt. Under the terms of the TG Note, the Company received $200,000 on February 11, 2015, $48,000 on February 13, 2015,
$50,000 on April 13, 2015, $150,000 on July 31, 2015, $2,500 on October 20, 2015, $12,000 on October 29, 2015 and $15,000 on November
4, 2015. Interest accrues at 8% per annum on each tranche. Accrued interest was $220,029 and $182,084 as of December 31, 2020 and
2019, respectively. The TG Note is in default.
NOTE 7 – CONVERTIBLE NOTES PAYABLE
On March 16, 2020 the Company executed a Line of Credit (“LOC”) with GPR, related party, evidenced by a 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 $0.04 based on the last closing sale price on the date of execution and will be secured by the real and personal property GPR already has under lien. During the year ended December 31, 2020 GPR, advanced $206,022 pursuant to the LOC in direct payments on the Company’s behalf, to reduce certain accounts payable. At December 31, 2020, the balance due GPR under the LOC is $219,597 principal and $16,073 accrued interest.
During the year ended December 31, 2019,
GPR advanced $205,655 in direct payments on the Company’s behalf, to reduce certain accounts payable by $137,655 and
outstanding convertible promissory notes by $68,000. In December 2019, GPR was issued a convertible promissory note for $192,080
which it exchanged as consideration for exercising a stock option for 4,500,000 restricted common shares at an approved reduced
conversion price of $0.0426, which was the market price on exercise. The remaining $13,575 of advance was subsequently included
in the LOC evidenced by a new convertible promissory note. Accordingly, the $13,575 advance has been so classified as such at December
31, 2019.
After the foregoing advances received and
note conversion, there was $319,597 of principal and $118,732 of accrued interest outstanding on convertible debentures at
December 31, 2020. With exception of the $219,597 of principal advanced by a related party during the year ended December 31, 2020,
a pre-existing $100,000 convertible note is in default.
NOTE 8 – SHAREHOLDERS’ DEFICIT
Preferred Stock
Series A Preferred Stock
Attributes of Series A Preferred Stock
include but are not limited to the following:
Distribution in
Liquidation
The Series A Preferred Stock has a liquidation
preference of $10,000,000, payable only upon certain liquidity events or upon achievement of a market value of our equity equalling
$200,000,000 or more. Upon any liquidation, dissolution or winding up of the Company, and after paying or adequately providing
for the payment of all its obligations, the remainder of the assets of the Company shall be distributed, either in cash or in kind,
first pro rata to the holders of the Series A Preferred Stock in an amount equal to the Liquidation Value (as described below);
then, to any other series of Preferred Stock, until an amount to be determined by a resolution of the Board of Directors prior
to issuances of such Preferred Stock, has been distributed per share, and, then, the remainder pro rata to the holders of the Common
Stock. Upon the occurrence of any Liquidation Event (as defined below), each holder of Series A Preferred Stock will receive a
payment equal to the Original Issue Price for each share of Series A Preferred Stock held by such holder (the “Liquidation
Value”). A “Liquidation Event” will have occurred when:
| ● | The Company has an average market capitalization (calculated by adding the value of all outstanding shares of Common Stock valued at the Company’s closing sale price on the OTC Market or other applicable bulletin board or exchange, plus the value of the outstanding Series A Preferred Stock at the Original Issues Price per share) of $200,000,000 or more over any 90 day period. The holders of the Series A Preferred Stock would have the right, for 30 days after the end of such qualifying 90 day measurement period, to require the Company to purchase the Series A Preferred Stock for an amount equal to the Liquidation Value. |
|---|
F-12
| ● | Any Liquidity Event in which the Company receives proceeds of $50,000,000 or more. For purposes hereof, a “Liquidity Event” means any (a) liquidation, dissolution or winding up of the Company; (b) acquisition of the Company by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger, share exchange, share purchase or consolidation) provided that the applicable transaction shall not be deemed a liquidation unless the Company’s stockholders constituted immediately prior to such transaction hold less than 50% of the voting power of the surviving or acquiring entity; or (c) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries. |
|---|
Written notice of any Liquidation Event
(the “Liquidation Notice”) shall be given by mail, postage prepaid, or by facsimile to non-U.S. residents, not less
than five days prior to the anticipated payment date state therein, to the holders of record of Series A Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the records of the Company. The Liquidation Notice shall
state (i) the anticipated payment date, and (ii) the total Liquidation Value available for distribution to Series A Preferred Stock
shareholders upon the occurrence of the Liquidation Event.
Redemption
The Series A Preferred Stock may be redeemed
in whole or in part as determined by a resolution of the Board of Directors at any time, at a price equal to the Liquidation Value.
Voting Rights
Shares of Series A Preferred Stock shall
have no rights to vote on any matter submitted to a vote of shareholders, except as required by law, in which case each share of
Series A Preferred Stock shall be entitled to one vote.
Conversion Rights
Holders of Series A Preferred Stock will
have no right to convert such shares into any other equity securities of the Company.
Common Stock
Common Stock issued on exercise of stockoption
During the year ending December 31, 2020, options on 2,750,000 and warrants on 1,882,920 restricted common shares were exercised at an approved reduced conversion price of $0.023, based upon market conditions. Of the options and warrants exercised 2,750,000 options and 1,882,920 warrants were modified as to exercise date resulting in a loss on modification of $115,722.
On December 21, 2019, a convertible promissory
note payable totalling $192,080 was exchanged as consideration for exercising a stock option for 4,500,000 restricted common shares
at an approved reduced conversion price of $0.0426, which was the market price on exercise.
Sale of Common Stock
None.
F-13
Option Grants
The following tables summarize information
about the Company’s stock options:
| **** | Number of Options | Weighted Average Exercise Price | ||
|---|---|---|---|---|
| Options outstanding - December 31, 2018 | 32,576,223 | $ | 0.98 | |
| Granted | — | — | ||
| Cancelled or expired | --- | --- | ||
| Exercised | 4,500,000 | 1.07 | ||
| Options outstanding - December 31, 2019 | 28,076,223 | $ | 1.07 | |
| Granted | — | — | ||
| Cancelled or expired | 22,076,223 | 0.95 | ||
| Exercised | 2,750,000 | 0.92 | ||
| Options outstanding -<br> December 31, 2020 | 3,250,000 | $ | 1.07 |
There are no unvested options as of December 31, 2020.
The following tables summarize information
about stock options outstanding and exercisable:
| Range of Exercise Prices | Weighted Remaining Contractual Life | Weighted Average Exercise Price | Aggregate IntrinsicValue (1) | ||||
| 0.40 to 0.60 | --- | $ | --- | $ | — | ||
| 0.61 to 1.00 | --- | --- | $ | --- | $ | — | |
| 1.01 to 1.50 | 1,000,000 | .0 years | $ | 1.25 | $ | — | |
| 1.51 to 2.25 | 2,250,000 | .25 years | $ | 1.93 | $ | — | |
| 0.40 to 2.25 | 3,250,000 | .2 years | $ | 1.07 | $ | — |
All values are in US Dollars.
| Range of Exercise Prices | Weighted Remaining Contractual Life | Weighted Average Exercise Price | Aggregate IntrinsicValue (1) | ||||
| 0.40 to 0.60 | 776,223 | .8 years | $ | 0.60 | $ | — | |
| 0.61 to 1.00 | 9,800,000 | .7 years | $ | 0.67 | $ | — | |
| 1.01 to 1.50 | 14,500,000 | .8 years | $ | 1.25 | $ | — | |
| 1.51 to 2.25 | 3,000,000 | 1.3 years | $ | 1.63 | $ | — | |
| 0.40 to 2.25 | 28,076,223 | .9 years | $ | 1.07 | $ | — |
All values are in US Dollars.
| (1) | The aggregate intrinsic value in the table represents the difference between the closing stock price on December 31, 2020 and 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 December 31, 2020 and 2019. |
|---|
F-14
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 following table summarizes information
about the Company’s stock purchase warrants outstanding and exercisable at December 31, 2020 and December 31, 2019:
| **** | Number | Weighted Average Exercise Price | Range of Exercise Price | Weighted Remaining Contractual Life | ||||
|---|---|---|---|---|---|---|---|---|
| Outstanding at December 31, 2018 | 4,865,640 | $ | 0.84 | $ | 0.20 – 1.23 | 1.5 years | ||
| Granted | — | |||||||
| Cancelled or expired | --- | |||||||
| Exercised | --- | |||||||
| Outstanding at December 31, 2019 | 4,865,640 | $ | 0.84 | $ | 0.20 – 1.23 | .5 years | ||
| Granted | --- | |||||||
| Cancelled or expired | 2,732,720 | 0.76 | $ | 0.20 – 0.89 | --- | |||
| Exercised | 1,882,920 | 0.89 | 0.89 | --- | ||||
| Warrants exercisable at December 31, 2020 | 250,000 | $ | 1.23 | $ | 1.23 | 1.2 years |
The aggregate intrinsic value of the 250,000
and 4,865,640 outstanding and exercisable warrants at December 31, 2020 and 2019, respectively, was $0. The intrinsic value is
the difference between the closing stock price on December 31, 2020 and 2019 and the exercise price, multiplied by the number of
in-the-money warrants had all warrant holders exercised their warrants on December 31, 2020 and 2019.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal Matters
Stephen E. Flechner v. Standard MetalsProcessing, 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
December 31, 2020, totalling $965,376, resulting in a total amount of $3,357,622 being included in the Accrual for settlement
of lawsuits relating to this matter in the accompanying December 31, 2020 consolidated balance sheet.
F-15
NOTE 10 – INCOME TAXES
The components of income tax expense for
the years ended December 31, 2020 and 2019 consist of the following:
| **** | 2020 | **** | 2019 | **** | ||
|---|---|---|---|---|---|---|
| Current tax provision | $ | — | $ | — | ||
| Deferred tax benefit | (103,000 | ) | (142,000 | ) | ||
| Valuation allowance | 103,000 | 142,000 | ||||
| Total income tax provision | $ | — | $ | — |
Reconciliations between the statutory rate
and the effective tax rate for the years ended December 31, 2020 and 2019 consist as follows:
| **** | 2020 | **** | 2019 | **** | ||
|---|---|---|---|---|---|---|
| Federal statutory tax rate | (21.0 | )% | (21.0 | )% | ||
| State taxes, net of federal benefit | 0 | % | 0 | % | ||
| Permanent differences | — | — | % | |||
| Valuation allowance | 21.0 | % | 21.0 | % | ||
| Effective tax rate | — | — |
Significant components of the Company’s
deferred tax assets as of December 31, 2020 and 2019 are summarized below. The calculations presented below at December 31, 2020
reflect the new U.S. federal statutory corporate tax rate of 21% effective January 1, 2018 (see Note 2).
| **** | 2020 | **** | 2019 | **** | ||
|---|---|---|---|---|---|---|
| Deferred tax assets: | ||||||
| Net operating loss carry forwards | $ | 7,351,000 | $ | 7,248,000 | ||
| Impairment of assets | 6,941,000 | 6,941,000 | ||||
| Stock based compensation | 2,228,000 | 2,228,000 | ||||
| Loss on settlement of debt | 32,000 | 32,000 | ||||
| Total deferred tax asset | 16,552,000 | 16,449,000 | ||||
| Valuation allowance | (16,552,000 | ) | (16,449,000 | ) | ||
| $ | — | $ | — |
As of December 31, 2020, the Company had
approximately $104,000,000 of federal net operating loss carry forwards. These carry forwards, if not used, will begin to expire
in 2028. Future utilization of their net operating loss carry forwards is subject to certain limitations under Section 382 of the
Internal Revenue Code. The Company believes that the issuance of their common stock in exchange for the Shea Mining and Milling
properties in March of 2011 resulted in an “ownership change” under the rules and regulations of Section 382. Accordingly,
the Company’s ability to utilize their net operating losses of $69,000,000 generated prior to this date is limited to approximately
$1,000,000 annually.
As of December 31, 2020, we do not believe
any of our net operating loss carry forward consists of deductions generated by the exercise of warrants or options to purchase
our stock. In the future, the stock options referenced in the above table of deferred tax items may be exercised and we may receive
a tax deduction. To the extent that the tax deduction is included in a net operating loss carry forward and is in excess of amounts
recognized for book purposes, no benefit will be recognized until the loss carry forward is recognized. Upon utilization and realization
of the carry forward, the corresponding change in the deferred asset and valuation allowance will be recorded as additional paid-in
capital.
We provide for a valuation allowance when
it is more likely than not that we will not realize a portion of the deferred tax assets. We have established a valuation allowance
against our net deferred tax asset due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions
to utilize the assets. Therefore, we have not reflected any benefit of such deferred tax assets in the accompanying financial statements.
F-16
We reviewed all income tax positions taken
or that we expect to be taken for all open years and determined that our income tax positions are appropriately stated and supported
for all open years. The Company is subject to U.S. federal income tax examinations by tax authorities for years after 2011 due
to unexpired net operating loss carryforwards originating in and subsequent to that year. The Company may be subject to income
tax examinations for the various taxing authorities which vary by jurisdiction.
NOTE 11 – SUBSEQUENT EVENTS
On January 22, 2021, GPR, the Company’s senior secured creditor and controlling shareholder, urged our Board of Directors to call an Annual Meeting for the purposes of seeking shareholder approval of an amendment to the Company’s Articles of Incorporation to: either (a) reverse split the Company’s existing Common Stock outstanding without reducing the number of shares authorized or (b) increase the number of Common Stock authorized, and (c) to designate a new class of Preferred Stock. The purpose of seeking approval of such amendment is to provide a sufficient amount of unissued Common Stock and Preferred Stock to accommodate: (i) resolution(s) with its creditors, (ii) issuance for investments received and/or (iii) acquisition of assets in furtherance of its business plan.
F-17
Exhibit 23.1
Consent of Independent Registered PublicAccounting Firm
We have issued our report dated January 26, 2021, with respect to the consolidated financial statements included in the Annual Report of Standard Metals Processing, Inc. on Form 10-K for the year ended December 31, 2019.
/s/ Turner, Stone & Company L.L.P.
Dallas, Texas
January 26, 2021
Exhibit 31.1
STANDARD METALS PROCESSING, INC.
CERTIFICATION PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002
I, J. Bryan Read, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Standard Metals Processing, Inc.; | |
|---|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| By: | /s/ J. Bryan Read | |
| --- | --- | |
| J. Bryan Read | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: January 26, 2021 |
Exhibit 31.2
STANDARD METALS PROCESSING, INC.
CERTIFICATION PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002
I, Sharon Ullman, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Standard Metals Processing, Inc.; | |
|---|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| By: | /s/ Sharon Ullman | |
| --- | --- | |
| Sharon Ullman | ||
| Chief Financial Officer | ||
| (Principal Accounting Officer) | ||
| Date: January 26, 2021 |
Exhibit 32.1
STANDARD METALS PROCESSING, INC.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF2002
In connection with this Annual Report on Form 10-K of Standard Metals Processing, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| By: | /s/ J. Bryan Read |
|---|---|
| J. Bryan Read | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: January 26, 2021 |
Exhibit 32.2
STANDARD METALS PROCESSING, INC.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF2002
In connection with this Annual Report on Form 10-K of Standard Metals Processing, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| By: | /s/ Sharon Ullman |
|---|---|
| Sharon Ullman | |
| Principal Accounting Officer | |
| Date: January 26, 2021 |