Attached files

file filename
EX-32.2 - SECTION 906 CERTIFICATION UNDER THE SARBANES-OXLEY ACT OF 2002 OF THE PRINCIPAL - Standard Metals Processing, Inc.f10q0919ex32-2_standard.htm
EX-32.1 - SECTION 906 CERTIFICATION UNDER THE SARBANES-OXLEY ACT OF 2002 OF THE CHIEF EXEC - Standard Metals Processing, Inc.f10q0919ex32-1_standard.htm
EX-31.2 - SECTION 302 CERTIFICATION UNDER THE SARBANES-OXLEY ACT OF 2002 OF THE PRINCIPAL - Standard Metals Processing, Inc.f10q0919ex31-2_standard.htm
EX-31.1 - SECTION 302 CERTIFICATION UNDER THE SARBANES-OXLEY ACT OF 2002 OF THE PRINCIPAL - Standard Metals Processing, Inc.f10q0919ex31-1_standard.htm

 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

Commission file number 000-14319

 

STANDARD METALS PROCESSING, INC.

(Exact Name of Small Business Issuer as Specified in its Charter)

 

Nevada   84-0991764
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)    Identification Number)

 

611 Walnut Street, Gadsden, Alabama 35901 

(Address of Principal Executive Offices)

 

(888) 960-7347

(Issuer’s Telephone Number, Including Area Code)

 

N/A 

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which
registered
Common Stock $0.001 par value   SMPR   OTC

 

Indicate by check mark whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☐  No þ

 

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 fi les).). Yes ☐  No þ

 

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 þ
  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 7(a)(2)(B) of the Securities Act: ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No þ

 

As of March 18, 2020, there were 133,997,423 shares of Registrant’s common stock, par value $.001 issued, and 128,997,423 outstanding. 

  

 

 

 

 

  

STANDARD METALS PROCESSING, INC. 

FORM 10-Q

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

 

TABLE OF CONTENTS

 

  Page
   
PART I - FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements (unaudited) 1
     
  Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 1
     
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018   2
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 3
     
  Condensed Statement of Changes in Shareholders’ Deficit for the Nine Months Ended September 30, 2019 and the Year Ended December 31, 2018 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18
     
ITEM 4. Controls and Procedures 18
     
PART II - OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 20
     
ITEM 1A. Risk Factors 20
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
     
ITEM 3. Defaults Upon Senior Securities 20
     
ITEM 4. Mine Safety Disclosures 20
     
ITEM 5. Other Information 20
     
ITEM 6. Exhibits 21
     
SIGNATURES 22

  

i

 

  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Form 10-Q contains certain statements which are forward-looking in nature and are based on the current beliefs of our management as well as assumptions made by and information currently available to management, general trends in our operations or financial results, plans, expectations, estimates and beliefs. In addition, when used in this Form 10-Q, the words “may,” “could,” “should,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict” and similar expressions and their variants, as they relate to us or our management, may identify forward-looking statements. These statements reflect our judgment as of the date of this Form 10-Q with respect to future events, the outcome of which is subject to risks. We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectations, which may have a significant impact on our business, operating results, financial condition or your investment in our common stock, as described in Part II, Item 1A entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (“SEC”) on March 5, 2020.

 

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 publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports filed with the SEC on Forms 10-K, 10-Q and 8-K.

  

ii

 

  

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

STANDARD METALS PROCESSING, INC. 

CONDENSED Consolidated Balance Sheets

  

   September 30,
2019
  

December 31,
2018

 
   (unaudited)     
Assets        
Current assets:        
Cash  $2,645   $1,001 
           
Total current assets   2,645    1,001 
           
Mining and mineral rights   3,883,524    3,883,524 
           
Total Assets  $3,886,169   $3,884,525 
           
Liabilities and Shareholders’ Deficit          
Current liabilities:          
Senior secured promissory note payable, related party  $2,229,187   $2,229,187 
Promissory notes payable - related party   477,500    477,500 
Convertible notes payable, including $109,055 from related party   219,055    168,000 
Accrual for settlement of lawsuits   3,120,815    2,976,623 
Accounts payable   2,187,982    2,230,314 
Accrued interest - related party $1,268,854 and $1,096,235 at September 30, 2019 and December 31, 2018   1,669,885    1,338,251 
           
Total current liabilities   9,904,424    9,419,875 
           
Preferred stock, 50,000,000 shares authorized:          
Series A, $.001 par value, 10,000,000 and 10,000,000 shares issued and outstanding at September 30, 2019 and December 31, 2018   10,000,000    10,000,000 
Commitments and Contingencies (Note 6)          
Shareholders’ deficit:          
Common stock, $0.001 par value, 500,000,000 shares authorized: 129,497,423 issued and 124,497,423 outstanding at September 30, 2019 and December 31, 2018   124,497    124,497 
Additional paid-in capital   87,525,115    87,525,115 
Accumulated deficit   (103,667,867)   (103,184,962)
Total shareholders’ deficit   (16,018,255)   (15,535,350)
Total Liabilities and Shareholders’ deficit  $3,886,169   $3,884,525 

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

  

1

 

 

STANDARD METALS PROCESSING, INC.

CONDENSED Consolidated STATEMENTS OF OPERATIONS 

(Unaudited)

  

   Three months ended   Nine months ended 
  

September 30,
2019
  

   September 30,
2018
  

September 30,
2019

  

September 30,
2018

 
                 
Revenues  $--   $--   $   $ 
                     
Operating expenses:                    
General and administrative   826    7,780    13,163    120,081 
                     
Total operating expenses   826    7,780    13,163    120,081 
Loss from operations   (826)   (7,780)   (13,163)   (120,081)
                     
Other income (expense):                    
Other income   1,825    1,825    6,083    86,938 
Interest expense, including related party of $172,619   (153,340)   (102,614)   (475,825)   (694,967)
Amortization of debt discount   ---    --    ---    (71,860)
                     
Total other income (expense)   (151,515)   (100,789)   (469,742)   (679,889)
Loss before income tax provision   (152,341)   (108,569)   (482,905)   (799,970)
                     
Income tax provision   ---    --         
Net loss  $(152,341)  $(108,569)  $(482,905)  $(799,970)
                     
Basic net loss per common share  $(0.00)  $(0.00)  $(0.00)  $(0.01)
                     
Basic weighted average common shares outstanding   124,497,423    124,497,423    124,497,423    122,874,554 

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

  

2

 

  

STANDARD METALS PROCESSING, INC.

CONDENSED Consolidated STATEMENTS OF CASH FLOWS 

(Unaudited)

 

   For the Nine months ended 
  

September 30,
2019

   September 30,
2018
 
Cash flows from operating activities:        
Net loss  $(482,905)  $(799,970)
Adjustments to reconcile net loss to cash flows used in operating activities:          
Amortization of debt issuance costs   --    71,860 
Gain on settlement of convertible note payable   --    2,662 
Changes in operating assets and liabilities          
Prepaid expenses   ---    3,039 
Accounts payable   ---    33,876 
Accrued interest   340,357    178,958 
Accrual for settlement of lawsuits   144,192    389,623 
Net cash provided by (used in) operating activities   1,644    (119,952)
Cash flows from investing activities:        
Cash flows from financing activities:          
Proceeds from convertible debentures   ---    94,000 
Proceeds from exercise of stock options   ---    25,000 
Net cash provided by financing activities   ---    119,000 
           
(Decrease) Increase in cash   1,644    (952)
Cash, beginning of period   1,001    2,185 
Cash, end of period  $2,645   $1,233 
           
Supplemental cash flow disclosures          
Cash paid for interest cost  $---   $14,101 
Income taxes paid  $   $ 
           
Supplemental Disclosure of Non-Cash Investing and Financing Activities:          
Settlement of liabilities through direct payment by related party  $109,055   $-- 
Debt discount on convertible notes payable  $---   $38,000 
Conversions of convertible debt and accrued interest into common stock  $---   $265,843 

  

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

  

3

 

 

STANDARD METALS PROCESSING, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER  30, 2019 AND

THE YEAR ENDED DECEMBER 31, 2018 

 

   Common Stock       Accumulated     
   Shares   Amount   APIC   Deficit   Total 
Balance at December 31, 2017   119,501,581    119,502    87,201,267    (103,174,808)   (15,854,039)
                          
Shares issued in connection with notes payable conversion   4,745,842    4,745    261,098    -    265,843 
Shares issued upon exercise of warrants   250,000    250    24,750    -    25,000 
Beneficial conversion feature of convertible debt   -    -    38,000    -    38,000)
Net loss   -    -    -    (10,154)   (10,154 
Balance at December 31, 2018   124,497,423   $124,497   $87,525,115   $(103,184,962)  $(15,535,350)
                          
Net loss   ---    ---    ---    (482,905)   (482,905)
Balance at September 30, 2019   124,497,423   $124,497   $87,525,115   $(103,667,867)  $(16,018,255)

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

  

4

 

 

STANDARD METALS PROCESSING, INC.

Notes to Condensed ConsolidatED Financial Statements 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

 

NOTE 1 – NATURE OF BUSINESS

 

Standard Metals Processing, Inc. (“we,” “us,” “our,” “Standard Metals” or the “Company”) is an exploration stage company, incorporated in Nevada having offices in Gadsden, Alabama and through its subsidiary, a property in Tonopah, Nevada. The business plan is to purchase and install the equipment necessary to complete a facility on the Tonopah property to serve as a permitted custom processing toll milling facility (which includes an analytical lab, pyrometallurgical plant, and hydrometallurgical recovery plant).

 

The Company plans to perform permitted custom processing toll milling which is a process whereby mined material is crushed and ground into fine particles to ease the extraction of any precious minerals contained therein, such as minerals in the gold, silver and platinum metal groups. Custom milling and refining can include many different processes that are designed specifically for each ore load and to maximize the extraction of precious metals from carbon or concentrates. These toll-processing services also distill, dry, mix, or mill chemicals and bulk materials on a contractual basis and provide a chemical production outsourcing option for industrial companies, which lack the expertise, capacity, or regulatory permits for in-house production.

 

We are required to obtain several permits before we can begin construction of a small-scale mineral processing facility to conduct permitted processing toll milling activities and construction of the required additional buildings and well relocation necessary for us to commence operations.

 

Going Concern 

 

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2019, the Company had a net loss of $482,905. At September 30, 2019, the Company had an accumulated deficit of $103,667,867 and a working capital deficit of $9,901,779. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on their ability to raise the required additional capital or debt financing to meet short and long-term operating requirements. During the nine months ended September 30, 2019, a related party advanced $109,055 in direct payments on the Company’s behalf to reduce certain accounts payable by $51,055, and convertible promissory notes payable by $58,000. As the related party has indicated it wishes to apply its advance to convertible notes, it was classified as such at September 30, 2019.

 

Management believes that private placements of equity capital and/or additional debt financing will be needed to fund our long-term operating requirements. The Company may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash. If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. We are continuing to pursue external financing alternatives to improve our working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

  

5

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Standard Metals Processing, Inc., and its wholly owned subsidiary Tonopah Milling and Metals Group, Inc. and its wholly owned subsidiaries Tonopah Custom Processing, Inc., (“TCP”) and Tonopah Resources, Inc. (“TR”). All significant intercompany transactions, accounts and balances have been eliminated in consolidation.  

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2018 filed March 5, 2020. In the opinion of management, all adjustments (consisting of normal recurring adjustments unless otherwise indicated) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year as a whole.

  

Mineral Properties

 

Mineral property acquisition costs are recorded at cost and are deferred until the viability of the property is determined. No properties have produced operating revenues at this time. Exploration, mineral property evaluation, option payments, related acquisition costs for mineral properties acquired under an option agreement, general overhead, administrative and holding costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. When reserves are determined for a property and a bankable feasibility study is completed, subsequent exploration and development costs on the property would be capitalized. If a project were to be put into production, capitalized costs would be depleted on the unit of production basis.

 

Management reviews the net carrying value of each mineral property as changes may materialize with a property or at a minimum, on an annual basis. Where information and conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated future prices, proven and probable reserves and value beyond proven and probable reserves, and operating, capital and reclamation costs on an undiscounted basis. If it is determined that the future cash flows are less than the carrying value, a write-down to the estimated fair value is made with a charge to loss for the period. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if the carrying value can be recovered.

 

Management’s estimates of gold prices, recoverable reserves, probable outcomes, operating capital and reclamation costs are subject to risks and uncertainties that may affect the recoverability of mineral property costs. The Company does not own any mining claims. It owns tailings located on the Tonopah property and some tailings located in Manhattan, Nevada. The Company has not disturbed or processed any of this material and does not intend to do so in the foreseeable future.

 

Impairment of Long-Lived Assets and Long-Lived Assets

 

The Company will periodically evaluate the carrying value of long-lived assets to be held and used, including but not limited to, mineral properties, mine tailings, mine dumps, capital assets and intangible assets, when events and circumstances warrant such a review and at least annually. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.

  

6

 

 

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 September 30, 2019, the   Company has not recognized any revenues from custom permitted processing toll milling.

 

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 September 30, 2019 and December 31, 2018. The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense.

 

On December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduces the federal corporate tax rate from 34% to 21% effective January 1, 2018. Management believes the provisions of the Tax Reform Law will have a favorable impact on the Company’s consolidated financial statements should it attain a level of profitable operations.

 

Recent Accounting Standards

 

In 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 ASU 2014-09 on January 1, 2018, and as there have been no revenues to date, the adoption did not have a material impact on the Company’s financial position or results of operations, and no transition method was necessary upon adoption.

 

7

 

 

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 the standard during 2018, but as the Company does not have any significant leases, it does not expect it to have a material impact on its financial position or results of operations.

 

During the nine months ended September 30, 2019 and through the date of this filing, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

 

NOTE 3 – MINING AND MINERAL RIGHTS

 

The Company is preparing the Tonopah property site for the construction of a permitted custom processing toll milling facility including grading the land, installing fencing and working with contractors for our planned 21,875 square foot building and servicing and drilling various wells for our future operations.

 

The Company has continued to assess the realizability of its mining and mineral rights. Based on an assessment the Company conducted in January 2020. The Company decided its land, mineral rights and water rights are inseparable and depend on each other in value creation. Accordingly, during the nine   months ended September 30, 2019, the Company combined the carrying value of the assets to present them more clearly as to their intended use together:

 

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 

 

NOTE 4 – CONVERTIBLE NOTES PAYABLE

 

In January 2018, the Company issued three convertible promissory notes in the principal amounts of $8,000, $40,000 and $15,000. The notes are due one year from date of issuance and accrue interest at 6%. The notes are convertible into common shares of the Company at a conversion price of $0.05, with no adjustments to the conversion price. The conversion feature meets the definition of conventional convertible debt and therefore qualifies for the scope exception in Accounting Standards Codification (“ASC”) 815-10-15-74(a) and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock of the Company on the date of funding as compared to the conversion price, determined there was a $38,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. Amortization expense of $38,000 was recognized related to these discounts in the nine months ended September 30, 2018, including the accelerated amortization upon conversion of two of these notes, as discussed below.

  

8

 

 

On January 29, 2018, five of the outstanding convertible promissory notes payable issued in the year ending December 31, 2017 and two of the January 2018 convertible promissory notes payable, totaling principal of $144,796 and accrued interest of $3,385, were converted into 2,693,978 shares of restricted common stock, at conversion prices ranging from $0.025 to $0.075. Upon conversion the related unamortized debt discount of $46,250 (including the $38,000 mentioned previously) was immediately expensed.

 

During May 2018 and June 2018, two of the convertible promissory notes outstanding as of the year ending December 31, 2017, and two notes that were issued in May 2018 totaling principal of $105,000 together with accrued interest of $2,387, were converted into an aggregate of 2,051,864 shares of restricted common stock, at conversion prices ranging from $0.05 to $0.09. Upon conversion the related unamortized debt discount of $16,277 was expensed and is included in the $71,860 amortization expense for the nine months ended September 30, 2018.   

 

On June 14, 2018, the Company settled an outstanding account payable through the issuance and subsequent conversion of a convertible promissory note in the principal amount of $10,000. The note, which was issued December 29, 2017, was due December 29, 2018 and accrued interest at 6%. The note was convertible into common shares of the Company at a conversion price of $0.025. The note was issued as a settlement in exchange for a $91,463 account payable, that the noteholder purchased from a vendor on December 29, 2017. Upon conversion of the note into 411,046 shares of restricted common stock of the Company, the noteholder signed a debt settlement and release agreement for the outstanding account payable, resulting in a gain on settlement to be recognized in the nine months ending September 30, 2018, of $81,463.

 

During the nine months ended September 30, 2019 a related party advanced $109,055 in direct payments on the Company’s behalf, to reduce certain accounts payable by $51,055 and outstanding convertible promissory notes by $58,000. The advance was made by Granite Peak Resources, LLC, a related party, and was subsequently included in a line of credit evidenced by a convertible promissory note. See Note 9. Accordingly, the $109,055 advance has been classified as such at September 30, 2019.

 

After the foregoing note conversions and advance received, there was $219,055 of principal and $81,251   of accrued interest outstanding on convertible debentures, and a related unamortized discount of $0 at September 30, 2019. With exception of the $109,055 of principal advanced by a related party during the nine months ended September 30, 2019, the pre-existing convertible notes are in default.

   

NOTE 5 – SHAREHOLDERS’ DEFICIT

 

Option Grants

 

The Company uses the Black-Scholes pricing model as a method for determining the estimated fair value for stock awards. Compensation expense for stock awards is recognized on a straight-line basis over the vesting period of service awards and for performance-based awards, the Company recognizes the expense when the performance condition is probable of being met.

 

The Company reviews its current assumptions on a periodic basis and adjusts them as necessary to ensure an accurate valuation. The risk-free interest rate is based on the Federal Reserve Board’s constant maturities of the U.S. Treasury bond obligations with terms comparable to the expected life of the options at their issuance date. The Company uses historical data to estimate expected forfeitures, expected dividend yield, expected volatility of the Company’s stock and the expected life of the options. In June 2018, 250,000 options granted in 2015 and originally exercisable at $0.75 per share were exercised at a price of $0.10 per share in exchange for $25,000 in cash.

 

The Company recorded no compensation expense for the nine months ended September 30, 2019 and the year ended December 31, 2018. As of June 30, 2019, there was $0 in unrecognized compensation expense.

 

The Company did not grant any options during the nine months ended September 30, 2019, no options were exercised, and no options expired, or were cancelled. There are no unvested options as of September 30, 2019.  

  

9

 

 

The following tables summarize information about stock options outstanding and exercisable:

 

   Options Outstanding and Exercisable at
September 30, 2019
 
Range of Exercise Prices  Number
Outstanding
   Weighted
Remaining
Contractual
Life
   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value(1)
 
$0.40 to $0.60   5,276,223    1.0 years   $0.46   $ 
$0.61 to $1.00   9,550,000    0.8 years   $0.67   $ 
$1.01 to $1.50   14,500,000    0.9 years   $1.25   $ 
$1.51 to $2.25   3,000,000    1.4 years   $1.63   $ 
$0.40 to $2.25   32,576,223    1.0 years   $0.98   $ 

 

(1)The aggregate intrinsic value in the table represents the difference between the closing stock price on September 30, 2019 and December 31, 2018, 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 September 30, 2019 and December 31, 2018.

 

Common Stock Purchase Warrants

 

For warrants granted to non-employees in exchange for services, the Company recorded the fair value of the equity instrument using the Black-Scholes pricing model unless the value of the services is more reliably measurable.

 

The Company did not grant any warrants during the nine months ended September 30, 2019, and no warrants were exercised, expired, or were cancelled. At September     30, 2019 there were 4,865,640 warrants outstanding, with exercise prices ranging from $0.20 to $1.23, a weighted exercise price of $0.84 and a weighted remaining contractual life of one year.

 

The aggregate intrinsic value of the 4,865,640 outstanding and exercisable warrants at September 30, 2019 and December 31, 2018 was $0. The intrinsic value is the difference between the closing stock price on September 30, 2019 and December 31, 2018 and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised their warrants on September 30, 2019 or December 31, 2018.

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

Stephen E. Flechner v. Standard Metals Processing, Inc.

 

On April 29, 2014, Stephen E. Flechner filed suit in the United States District Court for the District of Colorado against Standard Metals Processing, Inc. alleging that Standard Metals had refused to allow him to exercise stock options granted to him pursuant to a Stock Option Agreement, dated April 1, 2010, and a second Stock Option Agreement, dated January 21, 2011. On June 12, 2014, Standard Metals filed an Answer and a Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United States District Court for the Northern District of Alabama, Middle Division. On January 16, 2015, Standard Metals filed a Motion for Summary Judgment. On January 23, 2015, the Court issued an Order granting in part and denying in part Standard Metals’ Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United States District Court for the Northern District of Alabama, Middle Division. The Court in its Order stayed further proceedings in Colorado pending the issuance of orders by the Alabama court. Thereafter, on January 26, 2015, the Court issued an Order vacating the February 20, 2015 Trial Preparation Conference and the March 9, 2015 Bench Trial. On March 23, 2015, the Court issued an Order denying Standard Metals’ Motion for Summary Judgment. On March 30, 2015, Flechner filed a Motion to Lift the Stay. On March 31, 2015, the Court issued an Order granting Flechner’s Motion to Lift the Stay. On April 6, 2015, the Court issued an Order scheduling a Bench Trial for July 29, 2015. On April 9, 2015, Flechner filed a Motion for Reconsideration of the Court’s March 23, 2015 Order Denying Flechner’s Motion to Enforce the Confidential Settlement Agreement to Settle Certain Issues. On May 1, 2015, the Court issued an Order Granting Flechner’s Motion to Enforce the Confidential Settlement Agreement to Settle Certain Issues. On August 12, 2015 the United Stated District Court for the District of Colorado issued a judgment in favor of Stephen E. Flechner for $2,157,000.

 

10

 

 

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 September   30, 2019, totalling $728,569, resulting in a total amount of $3,120,815 being included in the Accrual for settlement of lawsuits relating to this matter in the accompanying September 30, 2019 condensed consolidated balance sheet.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

During March 2019, the Company was informed that a change of control of the Company had occurred. Granite Peak Resources, LLC (“GPR”) through its members (including Pure Path Capital Management LLC) acquired 69,464,434 shares of common stock (including 4,500,000 warrants to purchase common stock). The members transferred their shares of common stock of the Company in exchange for a pro-rata ownership interest in GPR. GPR also acquired the senior secured creditor position previously held by Pure Path Capital Group LLC, which includes a $2,500,000 first deed of trust on the Tonopah property and an outstanding promissory note with a principal balance of $2,229,187 and accrued interest of $1,096,235 as of March 31, 2019. The members of Granite Peak Resources LLC are listed in the Schedule 13D filed by GPR on March 29, 2019. GPR has not communicated to the Company any plans to change any of the current officers or directors or governing documents and has expressed the purpose of its acquisition is to assist the Company execute on its business plan and resolve its current obligations and other claims. As of the date of this filing, GPR is the beneficial owner of 52.3% of the Company’s common stock and the Company’s largest secured creditor. The background regarding Pure Path’s Senior Secured Note is described below.

 

During the Company’s acquisition of the Shea assets in 2011, Pure Path purchased the Loan Modification Agreement and the NJB Forbearance Agreement directly from NJB Mining, Inc. In connection with the assignment of a forbearance agreement the Company and Pure Path executed an Agreement in Principle setting forth terms of the forbearance agreement (collectively the “Pure Path Agreements”). Pursuant to the Pure Path Agreements, Pure Path was to receive participation payments to be received on a quarterly basis for seven years after the final closing at a rate of 5% of adjusted gross revenue as such terms are defined in the Pure Path Agreements, past and future consulting fees for approximately $1,150,000, collection remedies and legal proceedings against the Company including foreclosure on the Deed of Trust, registration rights, rights of first refusal, tag along rights, preemptive rights, exclusive worldwide rights pertaining to financing and joint ventures, and other negative covenants regarding approval of corporate actions.

 

Pursuant to the Settlement and Release Agreement executed October 10, 2013 with the Company, Pure Path relinquished the foregoing rights and obligations owed to it and agreed to forbear collection remedies and legal proceedings against the Company including foreclosure on the Deed of Trust, and, in connection with the settlement and release of various debts of approximately $1,500,000 and the consulting fees owed by the Company, the Company issued 27,000,000 restricted shares and a Promissory Note (the “Pure Path Note”) for an amount of up to $2,500,000 with a beginning principal balance of $1,933,345 bearing interest of 8% per year for the current balance of the amounts owed under the Pure Path Agreements. The outstanding principal balance on the Pure Path Note was $2,229,187 as of both September 30, 2019 and December 31, 2018, with related accrued interest of $1,096,399 and $955,701, respectively. The Note is in default.

 

On February 11, 2015, the Company issued an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties, LLC, an entity controlled by a former director of the Company. The Note for up to $750,000 was provided in tranches. Maturity of each tranche is one year from the date of receipt. Interest accrues at 8% per annum on each tranche. Under the terms of the Note, the Company received $477,500. At September 30, 2019 and December 31, 2018, there is $172,454 and $140,535 interest accrued. The Note is in default.

 

11

 

 

NOTE 8 – EARNINGS (LOSS) PER SHARE

 

Basic net loss per common share is computed by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the periods presented. Diluted net loss per common share is determined using the weighted average number of common shares outstanding during the periods

presented, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of options, warrants and conversion of convertible debt. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

  

At September 30, 2019 and December 31, 2018, the weighted average shares from stock options of 32,576,223, warrants of 4,865,640 and Convertible Promissory note shares of 2,005,850     were excluded from the diluted weighted average common share calculation due to the antidilutive effect such shares would have on net loss per common share.

  

NOTE 9 - SUBSEQUENT EVENTS

 

On December 17, 2019 the Company issued a promissory note to Granite Peak Resources (“GPR”) for $192,080   representing the disbursements made on the Company’s behalf during 2019. The note is payable one year from its issuance and accrues interest at 6% per annum.

 

In December 2019, 4,500,000 options granted in 2013 and originally exercisable at $0.44 per share were exercised by GPR at a price of $0.0426 per share (the current fair market value per share based on the average of the median price and VWAP for the preceding 90 days) in exchange for the $192,080 note.

 

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 the its subsidiaries as additional collateral under its outstanding obligations. During the nine months ended September 30, 2019, GPR advanced $109,055 in direct payments on the Company’s behalf to reduce certain accounts payable by $51,055, and outstanding convertible promissory notes by $58,000.

 

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 will be secured by the real and personal property GPR already has under lien. The $109,055 advanced by GPR during the nine months ended September 30, 2019 will be incorporated into this LOC.

    

12

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following management discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed financial statements and related notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on March 5, 2020.

 

Cautionary Notice Regarding Forward Looking 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 Quarterly Report.

 

The information contained in this Item 2 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.

 

As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to Standard Metals Processing, Inc. and our wholly-owned subsidiary, Tonopah Milling and Metals Group, Inc. (“TMMG”), and TMMG’s wholly-owned subsidiaries Tonopah Custom Processing, Inc. (“TCP”) and Tonopah Resources, Inc. (“TR”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.  

   

Corporate History

 

We were incorporated in the State of Colorado on July 10, 1985 and re-domiciled in Nevada in March 2013. In 2011, we closed a series of transactions, whereby we acquired certain assets of Shea Mining & Milling, LLC, 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 in order to offer toll milling services of precious minerals. 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 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.

  

Overview of the Company

 

We have an office in Gadsden, Alabama and, through our subsidiaries, a property in Tonopah, Nevada. Our 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. We are required to obtain several permits before we can begin construction of a small-scale mineral processing facility and the required additional buildings to conduct permitted processing toll milling activities and commence operations.

   

Water Pollution Control Permit with Nevada Department of Environmental Protection

 

Through the Company’s wholly owned subsidiaries, 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.  

 

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.

 

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 Auto Cad software.

 

13

 

 

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 preparation of the our planned 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. We have also 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, the Company 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 (f/k/a Nederland Mining Group, LLC), NovaMetallix, Inc, and Black Bear Natural Resources, LTD (f/k/a Calais Resources, Inc.).  

 

Products and Services

 

We plan 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 is in the process of obtaining the permits needed for 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 with badly needed 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.

 

Results of Operation

 

Comparison of the Three and Nine Months Ended September 30, 2019 to Three and Nine Months Ended September 30, 2018

 

Revenues

 

We had no revenues from any operations for the three and nine months ended September 30, 2019 and 2018. Furthermore, we do not anticipate any significant future revenue until we have sufficiently funded construction and begin operations.

 

14

 

 

General and Administrative Expenses

 

General and administrative expenses were $826 and $13,163 for the three and nine months ended September 30, 2019, respectively, as compared to $7,780 and $120,081 for the same periods in 2018. For the three and nine months ended September 30, 2019, general and administrative expenses declined to minimal office costs due to lack of funding. In the three and nine months ended September 30, 2018, these expenses were related principally to normal accounting and legal costs in addition to office support services. We anticipate that that operating expenses will increase for fiscal 2020 as we continue to access more funding. 

 

Other Income and Expenses

 

We receive monthly payments of from $608 per month from American Tower Corporation for a cellular tower located on our Tonopah land. As such Other Income for the three and nine months ended September 30, 2019 was $1,825 and $6,083, compared to $1,825 and $86,938 for the respective periods in 2018. The 2018 figures relate principally to a gain during the first quarter 2018 resulting from the settlement of an account payable substantially below face value.

 

Interest expense for the three and nine months ended September 30, 2019 was $153,340 and $475,825, compared to $102,614 and $694,967 for the same period in 2018. $395,000 of the interest expense in 2018 related to interest accrued in connection with the Flechner judgment. The Company recognized the daily interest due from the date of the August 28, 2015 judgment, through September 30, 2019. The remaining interest expense in 2019 and the 2018 amounts relate primarily to the interest due at rates ranging from 6% to 8% on our notes payable due related parties. Amortization of debt discount was $0 in the three and nine months ended September 30, 2019, compared to $0 and $71,860 for the same periods in 2018.

 

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 convertible debt during the three and nine months ended September 30, 2019 and 2018. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve months. We had a working capital deficit of approximately $9,901,779 at September 30, 2019. Cash was $2,645 at September 30, 2019, as compared to cash of $1,001 at December 31, 2018.

 

Our cash reserves will not be sufficient 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. Above the basic operational expenses, we estimate that we need approximately $10,000,000 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

 

In January 2018 the Company issued three convertible promissory notes in the principal amounts of $8,000, $40,000 and $15,000. In May and June 2018, the Company issued three convertible promissory notes in the principal amounts of $32,500, 12,500 and $10,000. The notes are due one year from date of issuance and accrue interest at 6%. At September 30, 2018 five of the notes were converted into common shares at conversion price of $0.25 to$ 0.09, with no adjustments to the conversion price, leaving an aggregate remaining balance for all outstanding convertible promissory notes of $168,000.  

 

During the nine months ended September 30, 2019, Granite Peak Resources, LLC (“GPR”), a related party advanced $109,055 which it paid directly to reduce certain accounts payable by $51,055, and outstanding convertible promissory notes by $58,000. The advance was included in a subsequently executed line of credit evidenced by a convertible promissory note. Accordingly, the $109,055 advance has been classified as such at September 30, 2019.

 

15

 

 

Going Concern

 

The condensed consolidated financial statements contained in this quarterly report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. The Company has accumulated losses from inception through the period ended September 30, 2019 of $103,667,867, and a working capital deficit of $9,901,779, as well as negative cash flows from operating activities. Presently, the Company does not have sufficient cash resources to meet its debt obligations in the twelve months following the date of this filing. 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 in order 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 endeavors 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

 

   September 30,
2019
   December 31,
2018
 
Current assets  $2,645   $1,001 
Current liabilities   9,904,424    9,419,875 
Working capital deficiency  $(9,901,779)  $(9,418,874)

 

The balance and components of current assets are fairly consistent between periods. The increase in current liabilities is primarily due to accrued interest on settlement of lawsuits, and notes payable to related parties.

 

Cash Flows

 

   Nine Months Ended
September 30,
 
   2019   2018 
Net cash (used) provided by operating activities  $

1,644

   $(119,952)
Net cash provided by financing activities   ---    119,000 
Increase (Decrease) in cash  $

1,644

   $(952)

 

Operating Activities

 

Net cash provided by operating activities was $1,644 for the nine months ended September 30, 2019. Cash used in operating activities during the nine months ended September 30, 2018 of $119,952 was primarily due to payments for legal and accounting services and normal office expenses. Additionally, the net loss of $799,970 offset by amortization of $71,860 of debt discounts, the resumption of accrued interest amounting to $389,623 on settlement of lawsuits, and the accrual of $178,958 of interest due principally to related parties.

 

16

 

 

Financing Activities

 

For the nine months ended September 30, 2019, there were no financing activities

 

For the nine months ended September 30, 2018, net cash provided by financing activities was $119,000 from the issuance of convertible promissory notes and exercise of stock options.

 

 Off-Balance Sheet Arrangements

 

During the nine months ended September 30, 2019, 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 financial statements included herein for the nine months ended September 30, 2019 and in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. 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 review our property and mining and mineral rights 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. During the three months ended September 30, 2018, 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. See Note 3. There were no impairment charges in the nine months ended September 30, 2019,

 

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 ASU 2014-09 on January 1, 2018, and as there have been no revenues to date, the adoption did not have a material impact on the Company’s financial position or results of operations, and no transition method was necessary upon adoption.

 

17

 

 

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 during 2018, but as the Company does not have any significant leases, it does not expect it to have a material impact on its financial position or results of operations.

 

During the nine months ended September 30, 2019 and through the date of this filing, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not Applicable. 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer and Treasurer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of September 30, 2019   pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2019   in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.

 

In performing the above-referenced assessment, management identified the following deficiencies in the design or operation of our internal controls and procedures, which management considers to be material weaknesses:

 

(i) Lack of Formal Policies and Procedures. We utilize a third party independent contractor for the preparation of our financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.

 

(ii) Audit Committee and Financial Expert. We do not have a formal audit committee with a financial expert, and thus we lack the board oversight role within the financial reporting process.

 

(iii) Insufficient Resources. We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

 

18

 

 

(iv) Entity Level Risk Assessment. We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non-routine transactions, if any, on internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected and constituted a material weakness.

 

Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses, and expect to implement changes in the near term, as resources permit, in order to address these material weaknesses. Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds permit.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the nine months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

    

19

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Stephen E. Flechner v. Standard Metals Processing, Inc. 

 

On April 29, 2014, Stephen E. Flechner filed suit in the United States District Court for the District of Colorado against Standard Metals Processing, Inc. alleging that Standard Metals had refused to allow him to exercise stock options granted to him pursuant to a Stock Option Agreement, dated April 1, 2010, and a second Stock Option Agreement, dated January 21, 2011. On June 12, 2014, Standard Metals filed an Answer and a Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United States District Court for the Northern District of Alabama, Middle Division. On January 16, 2015, Standard Metals filed a Motion for Summary Judgment. On January 23, 2015, the Court issued an Order granting in part and denying in part Standard Metals’ Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United States District Court for the Northern District of Alabama, Middle Division. The Court in its Order stayed further proceedings in Colorado pending the issuance of orders by the Alabama court. Thereafter, on January 26, 2015, the Court issued an Order vacating the February 20, 2015 Trial Preparation Conference and the March 9, 2015 Bench Trial. On March 23, 2015, the Court issued an Order denying Standard Metals’ Motion for Summary Judgment. On March 30, 2015, Flechner filed a Motion to Lift the Stay. On March 31, 2015, the Court issued an Order granting Flechner’s Motion to Lift the Stay. On April 6, 2015, the Court issued an Order scheduling a Bench Trial for July 29, 2015. On April 9, 2015, Flechner filed a Motion for Reconsideration of the Court’s March 23, 2015 Order Denying Flechner’s Motion to Enforce the Confidential Settlement Agreement to Settle Certain Issues. On May 1, 2015, the Court issued an Order Granting Flechner’s Motion to Enforce the Confidential Settlement Agreement to Settle Certain Issues. Standard Metals Processing, Inc. intends to continue to vigorously defend against claims by Steven E. Flechner. 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 judgement through September 30, 2019, totalling $728,569, resulting in a total amount of $3,120,815 being included in the Accrual for settlement of lawsuits relating to this matter in the accompanying September 30, 2019 condensed consolidated balance sheet.   

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide the information required by this Item. We note, however, that an investment in our common stock involves a number of very significant risks. Investors should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended December 31, 2018, as filed with SEC on March 5, 2020, in addition to other information contained in such Annual Report and in this Quarterly Report on Form 10-Q, in evaluating the Company and our business before purchasing shares of our common stock. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks. 

 

Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds

 

None. 

 

Item 3. Defaults upon Senior Securities 

 

None. 

 

Item 4. Mine Safety Disclosures 

 

Not Applicable. 

 

Item 5. Other Information 

 

None. 

 

20

 

 

Item 6. Exhibits

 

Exhibit
Number
  Description
(31)   Rule 13a-14(a)/15d-14(a) Certifications
31.1*   Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
31.2*   Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer
(32)   Section 1350 Certifications
32.1*   Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer
32.2*   Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Accounting Officer
(101)*   Interactive Data Files
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

  * Filed herewith.

 

21

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  STANDARD METALS PROCESSING, INC.
     
  By: /s/ J. Bryan Read
    J. Bryan Read
    Chief Executive Officer
    (Principal Executive Officer)
     
    Date: March 24, 2020
     
  By: /s/ Sharon Ullman
    Sharon Ullman
    Chief Financial Officer
    (Principal Financial Officer and
Principal Accounting Officer)
   
    Date: March 24, 2020

 

22