10-K 1 s110677_10k.htm 10-K

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, 2017

 

Commission File Number: 000-14319

 

STANDARD METALS 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 (I.R.S. Employer Identification Number)
Incorporation or Organization)  

 

611 Walnut Street, Gadsden, Alabama 35901

 (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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ☒.

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
      Emerging growth company

 

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

 

The Registrant’s revenues for its most recent fiscal year: None.

 

As of June 6, 2018, the Registrant’s non-affiliates owned shares of its common stock having an aggregate market value of approximately $12,127,591 (based upon the closing sales price of the Registrant’s common stock on that date).

 

On June 6, 2018, there were 128,334,299 shares of common stock issued and outstanding, which is the Registrant’s only class of voting stock.

 

Documents Incorporated by Reference: None.

 

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STANDARD METALS PROCESSING, INC.

 Annual Report on Form 10-K

 For the Year Ended December 31, 2017

Table of Contents

 

  Page
PART I 3
ITEM 1. BUSINESS 3
   
ITEM 1A. RISK FACTORS 7
   
ITEM 2. PROPERTIES 11
   
ITEM 3. LEGAL PROCEEDINGS 11
   
ITEM 4. MINE SAFETY DISCLOSURES 12
   
PART II  
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 12
   
ITEM 6. SELECTED FINANCIAL DATA 14
   
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
   
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  
   
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
   
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 20
   
ITEM 9A. CONTROLS AND PROCEDURES 21
   
ITEM 9B. OTHER INFORMATION 22
   
PART III 23
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 23
   
ITEM 11. EXECUTIVE COMPENSATION 25
   
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 26
   
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 27
   
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 28
   
PART IV  
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 30
   
SIGNATURES 32

 

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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 subsidiary, 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, pyrometallugircal 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.

 

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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 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. 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.

 

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.

 

Subsidiaries

 

The Company has one wholly-owned subsidiary, Tonopah Milling and Metals Group, Inc. (“TMMG”), a Nevada corporation. TMMG 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 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.

 

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Water Pollution Control Permit with Nevada 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 new 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 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 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.

 

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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.

 

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 sulphide 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 coarser 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, which may include related parties, involved in toll milling, processing, or mining related activities.

 

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Employees

 

As of December 31, 2017, 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:

 

Standard Metals Processing, Inc.

611 Walnut Street

Gadsden, Alabama 35901

(888) 960-7347

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock is highly speculative and involves a high degree of risk. Before making an investment decision, you should carefully consider the risks described below together with all of the other information included in this prospectus. The statements contained in or incorporated into this prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the value of 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 ACCURATELY VALUE 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 RESTRICTIONS ON 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 OTCQB 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 FOR THE 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.

 

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THE MARKET FOR OUR COMMON STOCK MAY FLUCTUATE.

 

Currently, our common stock is traded on the Over the Counter Venture Capital Market (“OTCQB”). Stock prices on the Over the Counter 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.

 

Risks Related to Our Financial Condition

 

WE CURRENTLY DO NOT HAVE ENOUGH CASH TO FUND OPERATIONS AND/OR REDUCE OUR DEBT DURING 2018.

 

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 that 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 AND WE 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 SUBSTANTIAL DOUBT 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, 2017 and 2016, and we have an accumulated a deficit as of December 31, 2017. 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.

 

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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.

 

OUR MAJOR ASSETS ARE ENCUMBERED UNDER A DEED OF TRUST.

 

The Tonopah property is subject to a $2,500,000 first deed of trust held by Pure Path.

 

OUR MANAGEMENT TEAM MAY NOT BE ABLE TO 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 DEPEND ON OUR ABILITY TO ESTABLISH AND MAINTAIN STRATEGIC ALLIANCES, AND ANY FAILURE ON OUR PART TO ESTABLISH AND MAINTAIN SUCH RELATIONSHIPS WOULD 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 FINANCING TO FUND OUR PERMITTED CUSTOM PROCESSING TOLL MILLING DEVELOPMENT AND OPERATIONS.

 

Substantial additional financing will be needed in order 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 2017”

 

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OUR PERFORMANCE MAY BE SUBJECT TO FLUCTUATIONS IN MINERAL PRICES.

 

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 TOLL MILLING OPERATIONS ARE SUBJECT TO ENVIRONMENTAL REGULATIONS AND PERMITTING, WHICH COULD RESULT IN THE INCURRENCE OF ADDITIONAL COSTS 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 startup 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 TOLL MILLING OPERATIONS WILL REQUIRE US TO DEPEND ON THIRD PARTIES AND OTHER ELEMENTS BEYOND OUR CONTROL, WHICH COULD RESULT IN HARM TO 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 HAVE IMPACTS 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.

 

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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 Tonopah Milling and Metals Group, Inc. (“TMMG”), the Company’s wholly-owned subsidiary and then transferred to Tonopah Resources, Inc., a wholly-owned subsidiary of TMMG.

 

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 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.

 

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Midwest Investment Partners, LLC v. Standard Metals Processing, Inc.

 

On March 17, 2014, Midwest Investment Partners, LLC filed suit against Standard Metals Processing, Inc. in Vanderburgh County Superior Court, Vanderburgh, Indiana, alleging that Standard Metals had wrongfully refused to remove a transfer restriction on Midwest’s shares of Standard Metals stock pursuant to Rule 144 of the Securities Act. On March 27, 2014, Standard Metals filed a Notice of Removal of a Civil Action requesting that the case proceed in the United States District Court for the Southern District of Indiana, Evansville Division as an action properly removed pursuant to 28 U.S.C. §§ 1441 (a) and (b). On April 15, 2014, Standard Metals served and filed its Answer and Affirmative Defenses to Plaintiff’s Complaint and Demand for Jury Trial. On November 26, 2014, Standard Metals filed a Motion for Summary Judgment. On February 11, 2015, the Court issued an Order granting Standard Metals’ Motion for Summary Judgment and entered a Final Judgment in favor of Standard Metals and terminating the action. During the year ended December 31, 2017 the Company paid $80,000 towards the judgment.

 

Wits Basin Precious Minerals, Inc., Lee Levine, Michael Lepore, Mark McLain, Morton Waldman, Allan Staller, Thomas McAdam, Arthur Brown, DJ Sikka, and Bryan Reichel v. Standard Metals Processing, Inc. f/k/a Standard Gold, Inc., Nevada Corporation

 

On September 10, 2014, Wits Basin Precious Minerals, Inc. filed suit against Standard Metals Processing, Inc. in the United States District Court for the District of Nevada asserting breach of contract, anticipatory breach of contract and equitable relief. On October 16, 2014, Wits Basin filed an Amended Complaint, adding new parties and alleging that Standard Metals had refused to allow it to exercise its option to purchase shares granted to it pursuant to an Exchange Agreement, dated March 15, 2011, so that Wits Basin could obtain shares to meet its requirements under private option agreements it had entered into with option holders, allowing those option holders certain rights, options and warrants to purchase stock in Standard Metals. On November 5, 2014, Standard Metals filed a Second Motion to Dismiss Wits Basin et al.’s Amended Complaint. On March 13, 2015, the Court issued an Order granting in part and denying in part Standard Metals’ Motion to Dismiss the action. The Court dismissed with prejudice Wits Basin et al.’s claims of breach of contract and anticipatory repudiation of the contract. However, the Court allowed Wits Basin et al’s claim against Standard Metals of interference with contract to go forward. The Company and Wits Basin executed a Settlement Agreement on January 22, 2016. Pursuant to the terms of the Settlement Agreement, the Company issued 630,000 warrants to purchase common stock at an exercise price of $0.70 and 630,000 warrants at an exercise price of $0.30 to investors of Wits Basin. The warrants are exercisable until December 31, 2018. The Company will also pay $14,665 in plaintiffs’ legal fees. As of the date of this filing, $8,350 of the attorneys’ fees have been paid and all warrants have been issued.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the OTCQB under the symbol “SMPR.” As of June 5, 2018, the last closing sale price of our common stock as reported by OTCQB was $0.135 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, 2017   $ 0.22     $ 0.04  
Quarter Ended June 30, 2017   $ 0.13     $ 0.06  
Quarter Ended September 30, 2017   $ 0.12     $ 0.06  
Quarter Ended December 31, 2017   $ 0.08     $ 0.02  
                 
Quarter Ended March 31, 2016   $ 0.20     $ 0.03  
Quarter Ended June 30, 2016   $ 0.21     $ 0.11  
Quarter Ended September 30, 2016   $ 0.18     $ 0.07  
Quarter Ended December 31, 2016   $ 0.10     $ 0.04  

 

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The quotations from the OTCQB 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 June June 6, 2018, there were 196 shareholders of record of our common stock. As of such date, 128,334,299 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

 

On February 15, 2017 and March 1, 2017, the Company issued convertible promissory notes in the aggregate principal amount of $60,000. The notes are due one year after issuance, accrue interest at 6% per annum and are convertible into shares of common stock at a price of $0.02 per share.

 

On March 14, 2017, the Company received cash proceeds of $60,000, and on April 18, 2017, the Company issued a convertible promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.075 per share, with no adjustments to the conversion price.

 

On June 22, 2017, the Company received cash proceeds of $10,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.065 per share, with no adjustments to the conversion price.

 

On August 22, 2017, the Company received cash proceeds of $10,000, and on February 7, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.08 per share, with no adjustments to the conversion price.

 

On October 17, 2017, the Company received cash proceeds of $10,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding, with no adjustments to the conversion price. The note is convertible into shares of common stock at $0.05 per share.

 

On December 26, 2017, the Company received cash proceeds of $5,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.025 per share, with no adjustments to the conversion price.

 

On December 29, 2017, the Company received cash proceeds of $4,796, and on January 24, 2018, the Company issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.025 per share, with no adjustments to the conversion price.

 

13 

 

 

On January 22, 2018, the Company received cash proceeds of $15,000 and issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.05 per share, with no adjustments to the conversion price.

 

On January 22, 2018, the Company received cash proceeds of $8,000 and issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.05 per share, with no adjustments to the conversion price.

 

On January 26, 2018, the Company received cash proceeds of $40,000 and issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.05 per share, with no adjustments to the conversion price.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND 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 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 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.

 

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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.

 

Water Pollution Control Permit

 

Through the Company’s wholly-owned subsidiary, 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.

 

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.

 

15 

 

 

Business Plan

 

The Company is reexamining 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.

 

Results of Operations

 

Comparison of the Years Ended December 31, 2017 and December 31, 2016

 

Revenues

 

We had no revenues from any operations for the years ended December 31, 2017 and 2016. 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 $122,615 for the year ended December 31, 2017 as compared to $333,080 for the same period in 2016. For the year ended December 31, 2017, the majority of general and administrative expense was for accrued compensation and professional fees. In the three and nine months ended September 30, 2016, the majority of expenses were relatively the same, with legal fees and insurance decreased in the current period as compared to the corresponding period in 2016. We anticipate that future compensation expenses will increase and that certain operating expenses will increase for fiscal 2018 as we continue to build the infrastructure to proceed with permitted custom processing toll milling services.

 

Other Income and Expenses

 

We receive monthly payments of $608 per month from American Tower Corporation for a cellular tower located on our Tonopah land.

 

Interest expense for the year ended December 31, 2017 was $389,260, compared to $366,085 for the respective period in 2016. The 2017 and 2016 amounts relate primarily to the interest due at rates ranging from 6% to 8% on our notes payable: (i) the $2,500,000 secured, convertible promissory note issued to an accredited investor, (ii) the convertible notes payable; and (iii) the notes with Tina Gregerson Family Properties, LLC, an entity controlled by a former director and officer of the Company. Of the convertible notes outstanding on which interest accrued during the year ended December 31, 2016, $160,000 was converted in July 2016, and $65,000 was converted in December 2016. This decrease in interest expense is offset by interest accruing on the new convertible debentures of approximately $100,000 in 2017.

 

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, 2017 and 2016. 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 $9,738,000 at December 31, 2017. Cash was $2,185 at December 31, 2017, as compared to cash and cash equivalents of $1,326 at December 31, 2016.

 

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 $25,000 per month. Above the basic operational expenses, we estimate that we need approximately $5,000,000 to begin limited toll milling operations. If we are not able to raise additional working capital, we may have to cease operations altogether.

 

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Recent Financings

 

On February 15, 2017 and March 1, 2017, the Company issued convertible promissory notes in the aggregate principal amount of $60,000. The notes are due one year after issuance, accrue interest at 6% per annum and are convertible into shares of common stock at a price of $0.02 per share.

 

On March 14, 2017, the Company received cash proceeds of $60,000, and on April 18, 2017, the Company issued a convertible promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.075 per share, with no adjustments to the conversion price.

 

On June 22, 2017, the Company received cash proceeds of $10,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.065 per share, with no adjustments to the conversion price.

 

On August 22, 2017, the Company received cash proceeds of $10,000, and on February 7, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.08 per share, with no adjustments to the conversion price.

 

On October 17, 2017, the Company received cash proceeds of $10,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding, with no adjustments to the conversion price. The note is convertible into shares of common stock at $0.05 per share.

 

On December 26, 2017, the Company received cash proceeds of $5,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.025 per share, with no adjustments to the conversion price.

 

On December 29, 2017, the Company received cash proceeds of $4,796, and on January 24, 2018, the Company issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.025 per share, with no adjustments to the conversion price.

 

On January 22, 2018, the Company received cash proceeds of $15,000 and issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.05 per share, with no adjustments to the conversion price.

 

On January 22, 2018, the Company received cash proceeds of $8,000 and issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.05 per share, with no adjustments to the conversion price.

 

On January 26, 2018, the Company received cash proceeds of $40,000 and issued a promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.05 per share, with no adjustments to the conversion price.

 

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, 2017 of approximately $103,175,000, and a working capital deficit of approximately $9,738,000, 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.

 

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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 

         
   December 31,
2017
   December 31,
2016
 
Current assets  $25,330   $44,582 
Current liabilities   9,762,893    9,313,134 
Working capital deficiency  $(9,737,563)  $(9,268,552)

 

The decrease in current assets is mainly due to the amortization of prepaid expenses. 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 new convertible debt of approximately $160,000 and the amortization of debt discounts during the year ended December 31, 2017, offset by conversions of $60,000.

 

Cash Flows

 

  

Years Ended 

December 31, 

 
   2017   2016 
Net cash used in operating activities  $(158,937)  $(361,921)
Net cash provided by investing activities       56,500 
Net cash provided by financing activities   159,796    305,000 
Increase (decrease) in cash  $859   $(421)

 

Operating Activities

 

Net cash used in operating activities was $158,935 for the year ended December 31, 2017. Cash used in operating activities during the year ended December 31, 2017 was primarily due to the payments on the settlement of lawsuits of $80,000, as well as the net loss of $596,693 offset by amortization of debt discounts and an increase in accounts payable and accrued expenses.

 

Net cash used in operating activities was $361,921 for the year ended December 31, 2016, primarily due to a net loss of $940,935, increased by a decrease in accounts payable and accrued expenses, and offset by the amortization of debt discounts.

 

Investing Activities

 

For the year ended December 31, 2016, net cash provided by investing activities was $56,500 from the sale of equipment.

 

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Financing Activities

 

For the year ended December 31, 2017, net cash provided by financing activities was $159,796, which was from the issuance of short term convertible debt notes, of which $60,000 was converted.

 

For the year ended December 31, 2016, net cash provided by financing activities was $285,000 from the issuance of convertible debt notes, which were converted during July of 2016, and $20,000 for the sale of common stock.

 

Off-Balance Sheet Arrangements

 

During the year ended December 31, 2017, 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 quarter ended September 30, 2017 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, 2016. 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 during the years ended December 31, 2017 and December 31, 2016.

 

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, 2017 and 2016. The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense.

 

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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 will continue to analyze the provisions of the Tax Reform Law to assess the impact on the Company’s consolidated financial statements.

 

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 is currently evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor determined the effect of the standard on its ongoing financial reporting, 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 is currently evaluating the timing of adoption and the potential impact of this standard, 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.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

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 DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

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ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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, 2017, 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, 2017, 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 Internal Control 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.

 

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.

 

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As a result of our continued material weaknesses described below, management has concluded that, as of December 31, 2017, 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, 2015:

 

●             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 2015 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 quarter ended December 31, 2017.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. 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 March 31, 2016:

 

Name   Age   Positions with the Company
         
J. Bryan Read   55   Chief Executive Officer, Director, and Secretary
Sharon L. Ullman   70   Chief Financial 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.

 

Sharon L. 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.

 

23 

 

 

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, 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.

 

Family Relationships

 

There are no other family relationships between or among any of our sole director and executive officer and any incoming directors or executive officers.

 

Code of 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.

 

Compliance with 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.

 

24 

 

 

Audit Committee, Compensation Committee and Financial Expert

 

The Company does have a formal audit committee but currently does not have a financial expert. The audit committee consists of Sharon Ullman. There were no audit committee meetings held during 2017. Financial information relating to quarterly reports was disseminated to all board members for review. The audited financial statements for the years ended December 31, 2017 and 2016 were provided to each member of the board in which any concerns by the members were directed to management and the auditors.

 

The Company has a compensation committee comprised of Sharon Ullman. There were no compensation committee meetings during 2017 and no actions taken by written consent

 

ITEM 11. EXECUTIVE COMPENSATION

 

General Philosophy

 

Our Board of Directors is responsible for establishing and administering the Company’s executive and director compensation.

 

Executive Compensation

 

The following table summarizes the compensation of each named executive officer for the fiscal years ended December 31, 2017 and 2016 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        
Name and Principal Position   Year     Salary     Bonus     Awards  (1)     Compensation     Total ($)
                                     
J. Bryan Read,     2017                                          
Chief Executive Officer     2016     $     $     $     $     $  
                                                 
Sharon L. Ullman     2017     $       $             $       $    
Chief Financial Officer and Director     2016     $     $     $     $     $  

 

(1)The amounts shown are the aggregate grant date fair values of these awards computed in accordance with Financial Accounting Standards Board (“FASB”) guidance now codified as Accounting Standards Codification (“ASC”) FASB ASC Topic 718, “Stock Compensation” (formerly under FASB Statement No. 123(R)).

 

Employment Agreements

 

We have not entered into any severance or change of control provisions with any of our other executive officers.

 

Equity Compensation Plans

 

Outstanding Equity Awards at Year End

 

No options were exercised by our named executive officers during the year ended December 31, 2017. The following table sets forth information of outstanding option awards held by named executive officers as of December 31, 2017:

 

Name   Number of
Securities
Underlying
Unexercised
Options
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
    Option
Exercise
Price
    Option
Expiration
Date
Sharon L. Ullman     4,500,000           $ 0.40     11/13/2020
                             

 

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Director Compensation

 

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.

 

ITEM 12. 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 June 6, 2018, 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 June @@, 2018.

 

Name and Address  Amount of Beneficial
Ownership (1)
   Percentage of
Class %
 
         
Sharon Ullman   19,680,000(2)   15.4%
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)   19,830,000    15.4%
           
Pure Path Capital Management, LLC   23,400,000    18.2%
5348 Vegas Drive          
Suite 623          
Las Vegas, NV 89108          
           
Tina Gregerson Family Properties LLC   14,270,000    11.1%
611 Walnut Street          
Gadsden, AL 35901          

 

  (1) Except as otherwise indicated, each person possesses sole voting and investment power with respect to the shares shown as beneficially owned. Shares are deemed owned in the same percentage as the individual’s ownership in the entity owning such shares.

 

  (2) Shares are held in the name of Afignis, LLC of which Ms. Ullman is the Managing Manager and includes 4,500,000 options that are currently vested and exercisable.
  (*) Less than 1%

 

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Equity Compensation Plans

 

The following table sets forth certain information regarding equity compensation plan information as of December 31, 2017:

 

Plan category  Number of securities to
be issued upon exercise
of outstanding options
(a)
   Weighted-average
exercise price of
outstanding options
   Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(b)
 
Equity compensation plans approved by security holders   25,694,380(1)  $    49,305,620 
             
Equity compensation plans not approved by security holders   800,000(2)  $      
    800,000(3)  $      
    31,843(4)  $      
    5,250,000(5)  $      
Total   32,576,223    0.98      

 

  (1) granted pursuant to the 2014 Option Plan, for individual grants. See the notes to the financial statements
  (2) granted to Stephen King
  (3) granted to Steven Flechner
  (4) represents 26,223 granted to Stephen King and 5,619 granted to Steven Flechner in accordance with the correction and adjustment. See Note 9 in the financial statements regarding the adjustment/correction of the 2010 Option Plan
  (5) represents 4,500,000 options granted and vested to Sharon Ullman and 750,000 options granted and vested to Jim Stieben.

 

ITEM 13. 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.

 

Pure Path Capital Management Company, LLC

 

As of April 6, 2017, Pure Path Capital Management Company, LLC (“Pure Path”) is currently the direct beneficial owner of approximately 18.2% of the Company. On October 11, 2013, we issued 27,000,000 shares of common stock to Pure Path Capital Management Company, LLC to settle a portion of the debt the Company owes to Pure Path.

 

Pure Path purchased the Loan Modification Agreement and the NJB Forbearance Agreement directly from NJB Mining, Inc. on December 9, 2011. The Company entered into an amended and restated forbearance agreement with Pure Path (the “Forbearance Agreement”) on December 21, 2011, whereby Pure Path extended the provisions of the NJB Forbearance Agreement. Pure Path provided additional extensions to stay any action of the Forbearance Agreement until August 31, 2013; such extensions were provided without additional consideration.

 

In connection with the assignment of the Forbearance Agreement, the Parties 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.

 

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Pursuant to the Agreement, 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 and relinquishment of rights by Pure Path, the Company issued 27,000,000 restricted shares and a Promissory Note in the amount of $1,933,345 bearing interest of 8% per year for the current balance of the amounts owed under the Pure Path Agreements.

 

The Company and Pure Path executed an addendum removing Pure Path’s ability to convert its note into shares of Series B Preferred Stock.

 

The Company retired and cancelled the entire class of Series B Preferred Stock, such class is no longer available for issuance.

 

Tina Gregerson/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.

 

Director Independence

 

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.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Our Board of Directors appointed Turner, Stone & Company, L.L.P. (“Turner”) to audit our financial statements for the year ended December 31, 2017. The following tables set forth the fees billed to the Company for professional services rendered by Turner for the years ended December 31, 2017 and 2016:

 

Services  2017   2016 
Audit fees  $37,950   $47,950 
Audit related fees        
Tax fees        
All other fees        
Total fees  $37,950   $47,950 

 

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Audit Fees

 

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-Q for 2017, and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the year ended December 31, 2017.

 

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.

 

Tax Fees

 

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.

 

All Other 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-Approval Policies 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 2017 was obtained in reliance on the waiver of the pre-approval requirement afforded in SEC regulations.

 

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ITEM 15. 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.

 

Exhibit   Description
3.1   Amended and Restated Articles of Incorporation filed with the State of Nevada (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended 2010 filed on March 21, 2011).
3.2   Articles of Amendment, effective January 4, 2013 (incorporated by reference to Exhibit 9.01 to the Company’s Current Report on Form 8-K filed on March 13, 2013).
3.3   Amendment to the Articles of Incorporation and Plan of Conversion filed with the State of Colorado with effective dates of March 4 and March 5, 2013 (incorporated by reference to the Schedule 14C information filed on February 11, 2013).
3.4   Amended and Restated By-Laws effective January 12, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 13, 2010).
10.1   2010 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 27, 2011).
10.2   Exchange Agreement, dated March 15, 2011, by and between the Company, Shea Mining & Milling, LLC, Afignis, LLC, Leslie Lucas Partners, LLC, Wits Basin Precious Minerals Inc. and Alfred A. Rapetti, (incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.3   Assignment and Assumption of Loan Documents and Loan Modification Agreement, dated March 15, 2011, by and between the Company, Shea Mining & Milling, LLC and NJB Mining, Inc, (incorporated by reference to Exhibit 10.14 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.4   Term Loan Agreement, dated August 25, 2009, by and between Shea Mining & Milling, LLC and NJB Mining, Inc (assumed by the Company on March 15, 2011), (incorporated by reference to Exhibit 10.15 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.5   Promissory Note, dated August 25, 2009, issued by Shea Mining & Milling, LLC to NJB Mining, Inc (assumed by the Company on March 15, 2011), (incorporated by reference to Exhibit 10.16 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.6   Deed of Trust and Security Agreement with Assignment of Rents and Fixture Filing, dated August 21, 2009, executed by Shea Mining & Milling, LLC in favor of NJB Mining, Inc (assumed by the Company on March 15, 2011), (incorporated by reference to Exhibit 10.17 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.7   Assignment of Lease and Rents, dated August 21, 2009, executed by Shea Mining & Milling, LLC in favor of NJB Mining, Inc (assumed by the Company on March 15, 2011), (incorporated by reference to Exhibit 10.18 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.8   Environmental Indemnity, dated August 25, 2009, by and between Shea Mining & Milling, LLC and NJB Mining, Inc (assumed by the Company on March 15, 2011), (incorporated by reference to Exhibit 10.19 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.9   Lease Agreement, dated April 6, 2010, by and between Father Gregory Ofiesh, Mary Jane Ofiesh and Shea Mining (assumed by the Company on March 15, 2011), (incorporated by reference to Exhibit 10.20 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.10   First Amendment to Lease Agreement and Contract Agreement, effective as of March 15, 2010, by and between Father Gregory Ofiesh, Mary Jane Ofiesh, the Company and Liberty Processing, LLC, (incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended December 31, 2010 (File No. 000-14319)).
10.11   Employment Agreement with Mark D. Dacko dated May 19, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 19, 2011).
10.12   Standard Gold, Inc. 2010 Stock Incentive Plan (amended as of July 25, 2011), (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2011 (File No. 000-14319)).  
10.13   Forbearance Agreement, dated September 1, 2011, by and between Standard Gold, Inc. and NJB Mining, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2011 (File No. 000-14319)).  

 

30 

 

 

10.14   Amended and Restated Forbearance Agreement dated December 21, 2011 between Standard Gold, Inc., and Pure Path Capital Management Company, LLC, (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on December 23, 2011).
10.15   Articles of Amendment to the Articles of Incorporation of Standard Gold, Inc. (incorporated by reference to Exhibit A to the Company’s Schedule 14C filed on February 11, 2013).
10.16   Plan of Conversion of Standard Gold, Inc., a Colorado corporation, into Standard Gold, Inc., a Nevada corporation (incorporated by reference to Exhibit B to the Company’s Schedule 14C filed on February 11, 2013).
10.17   Articles of Incorporation of Standard Gold, Inc. (incorporated by reference to Exhibit C to the Company’s Schedule 14C filed on February 11, 2013).
10.18   Bylaws of Standard Gold, Inc. (incorporated by reference to Exhibit D to the Company’s Schedule 14C filed on February 11, 2013).
10.19   Statement of Correction (Document Number 20111157771) (incorporated by reference to Exhibit 3(i).01 to the Company’s Form 8-K filed on March 13, 2013).
    Statement of Correction (Document Number 20111178093) (incorporated by reference to Exhibit 3(i).02 to the Company’s Form 8-K filed on March 13, 2013).
    Articles of Amendment (Document Number 20131009270) (incorporated by reference to Exhibit 3(i).03 to the Company’s Form 8-K filed on March 13, 2013).
23.1**   Consent of Independent Registered Public Accounting Firm.
24**   Power of Attorney (included on the signature page hereto).
31.1**   Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**   Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**   XBRL Instance Document
101.SCH**   XBRL Taxonomy Extension Schema
101.CAL**   XBRL Taxonomy Extension Calculation
101.DEF**   XBRL Taxonomy Extension Definition
101.LAB**   XBRL Taxonomy Extension Label
101.PRE**   XBRL Taxonomy Extension Presentation

 

** Filed herewith electronically

 

31 

 

 

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:  June 8, 2018  By:   /s/ 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/ J. Bryan Read   Chief Executive Officer, Secretary and Director   June 8, 2018
J. Bryan Read        
         
/s/ Sharon Ullman   Chief Financial Officer and Director   June 8, 2018
Sharon Ullman        

 

32 

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

STANDARD METALS PROCESSING, INC. AND SUBSIDIARIES 

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017 AND 2016

 

TABLE OF CONTENTS

 

  Page
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
   
CONSOLIDATED FINANCIAL STATEMENTS:  
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statements of Changes in Shareholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-7

 

33 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING 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, 2017 and 2016 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, 2017 and 2016, 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.

 

Explanatory Paragraph – 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.

 

/s/ Turner, Stone & Company, L.L.P.

 

Dallas, Texas

June 8, 2018

 

We have served as the Company’s auditor since 2013.

 

F-2 

 

 

STANDARD METALS PROCESSING, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS

 

   December 31,
2017
   December 31,
2016
 
         
Assets          
Current assets:          
Cash  $2,185   $1,326 
Prepaid expenses   11,145    31,256 
Assets held for Sale   12,000    12,000 
           
Total current assets   25,330    44,582 
Shea Mining and Milling Assets   2,108,300    2,108,300 
Property, plant and equipment:          
Machinery and equipment   21,000    21,000 
Construction in progress   1,775,224    1,775,224 
    1,796,224    1,796,224 
Accumulated depreciation   (21,000)   (21,000)
Net property, plant and equipment   1,775,224    1,775,224 
Total Assets  $3,908,854   $3,928,106 
           
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 note, net of Discount of $34,860 at December 31, 2017 and $0 at December 31, 2016.   299,936    175,000 
Accrual for settlement of lawsuits   2,501,000    2,581,000 
Due to Wits Basin Precious Minerals Inc.   16,616    16,616 
Accounts payable   2,429,386    2,210,219 
Accrued interest - Related party $871,317 and $678,466 at December 31, 2017 and December 31, 2016   953,222    741,747 
Accrued expenses   855,046    880,865 
Accounts payable to related party   1,000    1,000 
           
Total current liabilities   9,762,893    9,313,134 
           
Long-term debt          
Convertible promissory note, net of Discount of $47,507 at December 31, 2016.       12,493 
           
Commitments and Contingencies (Note 9)          
           
Preferred stock, 50,000,000 shares authorized:          
Series A, $.001 par value, 10,000,000 and 10,000,000 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively   10,000,000    10,000,000 
           
Shareholders’ deficit:          
           
Common stock, $0.001 par value, 500,000,000 shares authorized: 124,501,581 issued and 119,501,581 outstanding at December 31, 2017 and 121,492,869 issued and 116,492,869 outstanding  at December 31, 2016, respectively   119,502    116,493 
Additional paid-in capital   87,201,267    87,064,101 
Accumulated deficit   (103,174,808)   (102,578,115)
Total shareholders’ deficit   (15,854,039)   (15,397,521)
Total Liabilities and Shareholders’ deficit  $3,908,854   $3,928,106 

 

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

 

F-3 

 

 
STANDARD METALS PROCESSING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Years ended 
   December 31, 2017   December 31, 2016 
         
Revenues  $   $ 
           
Operating expenses:          
General and administrative   122,615    333,080 
           
Total operating expenses   122,615    333,080 
Loss from operations   (122,615)   (333,080)
           
Other income (expense):          
Other income   7,829    7,300 
Interest expense   (389,260)   (366,085)
Amortization of debt discount   (92,647)   (249,070)
           
Total other income (expense)   (474,078)   (607,855)
Loss before income tax provision   (596,693)   (940,935)
           
Income tax provision        
Net loss  $(596,693)  $(940,935)
           
Basic net loss per common share  $(0.01)  $(0.01)
           
Basic weighted average common shares outstanding   118,965,783    110,080,311 

 

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

 

F-4 

 

 

STANDARD METALS PROCESSING, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT 

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

                   Additional   Common         
   Preferred Stock   Common stock outstanding   paid-in   Stock   Accumulated     
   Shares   Amount   Shares   Amount   capital   Issuable   deficit   Total 
                                 
Balance at December 31, 2015      $    104,075,936   $104,076   $86,438,911   $40,000   $(101,637,180)  $(15,054,193)
                                         
Stock issued for the conversion of Notes payable and accrued interest             8,141,905    8,142    222,130             230,272 
                                         
Common stock issued for cash received in prior year             4,000,000    4,000    36,000    (40,000)         
                                         
Conversion feature of convertible debt                       285,000             285,000 
                                         
Stock issued for cash             275,028    275    19,725             20,000 
                                         
Warrants issued in settlement of lawsuit                       62,335              62,335 
                                         
Net loss for the year ended December 31, 2016                              (940,935)   (940,935)
                                         
Balance at December 31, 2016      $    116,492,869   $116,493   $87,064,101   $   $(102,578,115)  $(15,397,521)
                                         
Stock issued for the conversion of Notes payable and accrued interest             3,008,712    3,009    57,166              60,175 
                                         
Conversion feature of convertible debt                       80,000              80,000 
                                         
Net loss for the year ended December 31, 2017                                 (596,693)   (596,693)
                                         
                                         
                                         
Balance at December 31, 2017      $   $119,501,581   $119,502   $87,201,267   $   $(103,174,808)  $(15,854,039)

 

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

 

F-5 

 

 

STANDARD METALS PROCESSING, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the year ended 
   December 31, 2017   December 31, 2016 
OPERATING ACTIVITIES:          
Net loss  $(596,693)  $(940,935)
Adjustments to reconcile net loss to cash flows used in operating activities:          
Amortization of debt issuance costs   92,647    249,070 
Changes in operating assets and liabilities:          
Prepaid expenses   20,111    (1,219)
Accounts payable   219,167    149,527 
Accrued expenses   185,831    189,860 
Accounts payable related party       (874)
Accrual for settlement of lawsuits   (80,000)   (7,350)
           
Net cash used in operating activities   (158,937)   (361,921)
           
INVESTING ACTIVITIES:          
Proceeds from the sale of assets       56,500 
           
Net cash provided by investing activities       56,500 
           
FINANCING ACTIVITIES:          
Cash received on common stock subscribed       20,000 
Cash proceeds from convertible promissory notes   159,796    285,000 
           
           
Net cash provided by financing activities   159,796    305,000 
           
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS   859    (421)
CASH AND CASH EQUIVALENTS, beginning of period   1,326    1,747 
CASH AND CASH EQUIVALENTS, end of period  $2,185   $1,326 
           
Supplemental cash flow disclosures          
Cash paid for interest cost  $   $73,351 
Income taxes paid  $   $ 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:          
Debt discount on convertible notes payable  $80,000   $285,000 
Common stock issued  $   $40,000 
Warrants issued in settlement of lawsuit  $   $62,335 
Conversions into common stock of convertible debt and accrued interest  $60,175   $230,272 

 

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

 

F-6 

 

 

STANDARD METALS PROCESSING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 and 2016

 

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, pyrometallugircal 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 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, 2017, the Company incurred losses from operations of approximately $597,000. At December 31, 2017, the Company had an accumulated deficit of approximately $103,175,000 and a working capital deficit of approximately $9,738,000. 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, 2017, the Company received net cash proceeds of approximately $160,000 from the convertible promissory notes payable, and an additional $63,000 subsequent to year end. Management believes that private placements of equity capital and/or additional debt financing will be needed to fund our long-term operating requirements. The Company may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash. If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. We are continuing to pursue external financing alternatives to improve our working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Standard Metals Processing, Inc., and its wholly-owned subsidiaries 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-7

 

 

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, 2017 and December 31, 2016.

 

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, 2017, we have recorded no revenues from custom permitted processing toll milling.

 

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-8

 

 

At December 31, 2017 and 2016, the weighted average shares from stock options of 32,576,223 and 32,576,223, respectively and warrants of 6,125,640 and 6,275,640, and number of equivalent shares of convertible notes payable 3,020,704 and 1,000,000 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, 2017 and 2016. 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 will continue to analyze the provisions of the Tax Reform Law to assess the impact on the Company’s consolidated financial statements.

 

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. 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 is currently evaluating the timing of adoption and the potential impact of this standard, 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-9

 

 

During the year ended December 31, 2017 and through June 8, 2018, 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 Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date of December 31, 2017, 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 – SHEA MILLING AND MINING ASSETS

 

On March 15, 2011, the Company entered into an exchange agreement by and between the Company, Shea Mining, Afignis, LLC, Leslie Lucas Partners, LLC, Wits Basin Precious Minerals, Inc., (“Wits Basin”) and Alfred A. Rapetti (the “Shea Exchange Agreement”) whereby the Company acquired certain assets from Shea Mining, which assets include those located in Tonopah , mine dumps, a property lease and a contract agreement in exchange for 35,000,000 shares of our unregistered shares.

 

In connection with the Shea Exchange Agreement, the Company was also assigned the ownership of approximately a six square mile section of mine dump material in Manhattan, Nevada (“Manhattan”). The Company has not disturbed, moved or processed any of this material and currently has no intention to do so.

 

During the year ended December 31, 2015 Management analyzed the Shea Mining and Milling assets and determined that all the acquired assets except for the Tonopah land and water rights were fully impaired and recorded an impairment reducing the net carrying value of the Miller’s Landing assets to $2,108,300.

 

The Company has made some preparations including grading the land, installing fences and drilling various wells for future operations. The Company plans to resume preparing the Tonopah property site for the construction of a permitted custom processing toll milling facility and will work with contractors for the 21,875 square foot building and servicing the various wells.

 

The Company does not conduct any mining activity.

 

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT  

 

Components of our property, plant and equipment are as follows:

 

   December 31, 
   2017   2016 
Machinery and equipment  $21,000   $21,000 
Construction in Progress   1,775,224    1,775,224 
Less accumulated depreciation   (21,000)   (21,000)
   $1,775,224   $1,775,224 

 

F-10

 

 

NOTE 5 – Senior Secured Promissory Note, related party

 

On October 10, 2013, a Senior Secured Convertible Promissory 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 note. The 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, mineral rights, etc.

 

On April 11, 2016 the Company and Pure Path executed an addendum removing Pure Path’s ability to convert its note into shares of Series B Preferred Stock (Note 8).

 

The outstanding principal balance on the note was $2,229,187 as of both December 31, 2017 and 2016, with related accrued interest of $768,982 and $582,264, respectively.

 

NOTE 6 – PROMISSORY NOTES PAYABLE - RELATED PARTY

 

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. Under the terms of the 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 $871,317 and $678,466 as of December 31, 2017 and 2016, respectively.

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE

 

On December 29, 2017, the Company received cash proceeds of $4,756, and on January 22, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.025 per share, 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 $3,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. No amortization expense was recognized in the year ended December 31, 2017 as the amount was insignificant.

 

On December 26, 2017, the Company received cash proceeds of $5,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.025 per share, 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 $3,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. No amortization expense was recognized in the year ended December 31, 2017 as the amount was insignificant.

 

F-11

 

 

On October 17, 2017, the Company received cash proceeds of $10,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.05 per share, 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 $6,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. Amortization expense of $750 was recognized in the year ended December 31, 2017.

 

On August 22, 2017, the Company received cash proceeds of $10,000, and on February 7, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.08 per share, 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 $4,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. Amortization expense of $1,000 was recognized in the year ended December 31, 2017.

 

On June 22, 2017, the Company received cash proceeds of $10,000, and on January 24, 2018, the Company issued a convertible promissory note in exchange for the cash proceeds. The convertible promissory note accrues interest at 6% per annum and is due one year from the date of funding. The note is convertible into shares of common stock at $0.065 per share, 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 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, 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 $4,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. Amortization expense of $2,000 was recognized in the year ended December 31, 2017.

 

On March 14, 2017, the Company received cash proceeds of $60,000, and on April 18, 2017, the Company issued a convertible promissory note in exchange for the cash proceeds. The promissory note accrues interest at 6% per annum and is due one year from the date of issuance. The note is convertible into shares of common stock at $0.075 per share, 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 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 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 no beneficial conversion feature to recognize.

 

On February 15, 2017 and March 1, 2017, the Company issued convertible promissory notes in the aggregate principal amount of $60,000. The notes are due one year after issuance, accrue interest at 6% per annum and are convertible into shares of common stock at a price of $0.02 per share. The Company then analyzed the conversion under ASC 470-20 Debt with conversion and other options for consideration of a beneficial conversion feature. The Company recorded a discount for the intrinsic value of the conversion feature of $60,000, which was to be amortized over the term of the note. On March 7, 2017, the convertible promissory notes payable, totaling $60,174 including accrued interest, were converted into 3,008,712 shares of restricted common stock and the remaining debt discount of $58,164 was recorded as amortization of debt discount.

 

F-12

 

 

The Company issued a convertible promissory note in the principal amount of $65,000 effective on November 28, 2016. The note is due one year after issuance, accrues interest at 6% per annum and is convertible into shares of common stock at a price of $0.06 per share. The Company analyzed the conversion under ASC 470-20 Debt with conversion and other options for consideration of a beneficial conversion feature. The Company recorded a discount for the intrinsic value of the conversion feature of $65,000 and will amortize this debt discount over the term of the note.

 

On December 28, 2016 the convertible promissory notes payable totaling $65,000 and accrued interest of $353 were converted into 3,262,838 shares of restricted common stock.

 

The Company issued a convertible promissory note in the principal amount of $60,000 on August 1, 2016. The note is due two years after issuance, accrues interest at 8% per annum and is convertible into shares of common stock at a price of $0.06 per share. The Company analyzed the conversion under ASC 470-20 Debt with conversion and other options for consideration of a beneficial conversion feature. The Company recognized a discount for the intrinsic value of the conversion feature of $60,000 which will be amortized over the term of the note.

 

Between January 22, 2016 and March 31, 2016, the Company issued Convertible Promissory Notes totaling $160,000. The Convertible promissory notes accrue interest at 8% and mature 2 years from the date of issue. At the option of the holder the Convertible Promissory Notes convert into shares of the Company’s Common Stock. The $55,000 convertible promissory note was convertible at $0.021 per share based on the ninety day VWAP ending on the date of funding, the $30,000 convertible promissory note was convertible at $0.05 per share based on the ninety day VWAP ending on the date of funding, and the $75,000 convertible promissory note was convertible at $0.05 per share based on a fifty percent discount to the closing sale price on the last trading day immediately preceding the issue date. The Company analyzed the conversion under ASC 470-20 Debt with conversion and other options for consideration of a conversion feature. The Company recognized a discount for the intrinsic value of the conversion feature of $160,000 to be amortized over the term of the notes.

 

On July 22, 2016 the convertible promissory notes payable totaling $160,000 and accrued interest of $4,919 were converted into 4,879,067 shares of restricted common stock, with the remaining debt discount immediately amortized.

 

In the year ended December 31, 2011, the Company issued 3 separate Convertible promissory notes totaling $175,000, with an interest rate of 6%, and are convertible at $0.50 per share. As of December 31, 2017, all of these Notes are past due, and the original terms apply in the default period. Accrued interest on these notes totaled $68,165 and $57,665 at December 31, 2017 and 2016, respectively.

 

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 equaling $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:

 

F-13

 

 

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 OTCQB 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.

 

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.

 

Agreement with Holder of Series A Preferred Stock

 

Simultaneous with the Shea Exchange Agreement (Note 3), Wits Basin exchanged 19,713,544 shares of the Company’s common stock it held for 10,000,000 shares ($.001 par value each) of “Series A Preferred Stock” with an original issue price of $1.00 per share. The Company executed an Agreement with Wits to exchange these preferred shares for shares of common stock.

 

The Company entered into an Agreement on July 29, 2016 with the holder of the Series A Preferred Stock, Wits Basin and Wits Basins’ secured creditor regarding exchange options for the Series A Preferred Stock. Under the terms of the Agreement, upon the occurrence of a Triggering Event (as defined below), the holders of the Preferred Stock will receive the corresponding compensation, the “Triggering Events” and their corresponding compensation are set forth below:

 

F-14

 

 

Liquidation Rights, Stated Value and Redemption.

 

The Series A Preferred Stock has a stated value of $10,000,000 (referred to herein as “Stated Value”), payable only upon certain events.

 

(a)          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 Stated 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.

 

(b)          Upon the occurrence of a Triggering Event (as defined below), the holders of the Preferred Stock will receive the corresponding compensation. The “Triggering Events” and their corresponding compensation are set forth below:

 

(1)If either of the following occur:

 

(i)            the Company receives proceeds of $10,000,000 or more in a cash offering; or 

(ii)           the Company’s Common Stock trades at $3.00 or more (with proportionate adjustments for stock splits) for 90 consecutive trading days;

 

then all of the 10,000,000 shares of the Preferred Stock will be exchanged for 5,000,000 shares of Common Stock.

 

(2)If 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 Over the Counter Markets (or other applicable exchange) (the “Market”) of $200,000,000 or more over any consecutive 95 day period following the effective date of this agreement and the effective date of any required duly authorized amendment to the Standard’s Articles of Incorporation, the terms of the Preferred Stock and the subsequent consent of the holder’s secured creditor to the final form and terms of such amendment, and items (1)(i) or (1)(ii) of Section (b) have not been met, then the Company has the right to: 

 

(i)            issue the number of shares of Common Stock equal to the Stated Value using the average closing sale price of the Common Stock on the Over the Counter Markets of the prior 15 trading days from the date of the notice. The Company will provide 10 days’ prior written notice to the holder and any known secured party of such holder of the Series A Stock of its intention to proceed with this option; or 

(ii)           issue a portion of the Stated Value in shares of Common Stock based on the valuation formula in 3(b)(2)(A) and pay the remaining Stated Value in cash. 

 

If this above section is triggered, the Company has three years to choose option (i) or (ii) and pay the Stated Value. The Company has 60 days from the date of notice of its election to pay under either (i) or (ii). Upon payment of the Stated Value, the Series A Shares will be retired.

 

If the above section is triggered and the Company fails to pay the Stated Value within the three year time frame, the Company will take all necessary action to return the Series A Preferred Shares in their original form (containing all original terms and conditions) to the holder with the exception that the Stated Value will be increased to $10,100,000 upon delivery and the Company will lose the exchange options provided in Section (3)(b).

 

The previous terms of the Series A Preferred Stock would have required the Company to make a payment of $10,000,000 upon the Company having an average market capitalization of $200,000,000. This Agreement gives the Company additional payment options and allows for the payment to be made completely or partially in common shares, depending on the Triggering Event.

 

F-15 

 

 

The Company issued five million shares of restricted common stock on April 1, 2016 that are being held in escrow pending a Series A Preferred Stock Triggering Event.

 

Series B Preferred Stock

 

There are no shares of Series B Preferred Stock issued and outstanding. The class of stock has been retired.

 

On April 11, 2016 the Company and Pure Path, a related party, executed an addendum to their Senior Secured Convertible Promissory Note (Note 6) removing Pure Path’s ability to convert its note into shares of Series B Preferred Stock. Subsequently, the Company retired and cancelled the entire class of Series B Preferred Stock..

 

Common Stock

 

Common Stock issued on conversion of notes payable

 

On July 22, 2016 three convertible promissory notes payable totaling $160,000 and accrued interest of $4,919 were converted into 4,879,067 shares of restricted common stock.

 

On December 28, 2016 a convertible promissory note payable totaling $65,000 and accrued interest of $353 were converted into 3,262,838 shares of restricted common stock.

 

Sale of Common Stock

 

On August 17, 2016 the company received a subscription agreement and $20,000 for 275,028 shares of the Company common stock.

 

Option Grants 

 

2014 Option Plan

 

By Board Resolution effective January 27, 2014, the Company adopted a 2014 Stock Incentive Plan (the “Plan”) to compensate employees and consulting groups in their efforts to enhance the long-term shareholder value of the Company. Pursuant to the Plan, selected persons are offered opportunities to participate in the Company’s growth and success and are encouraged to acquire and maintain stock ownership in the Company. The Plan grants options to purchase shares of the Company’s common stock vesting at dates beginning on the date of grant and issuable at chronological or performance increments. The Plan Administrator may also grandfather in existing options granted during 2013. The shareholders approved the 2014 Plan at the 2014 annual meeting.

 

Under administration by the Compensation Committee (the “Plan Administrator”), a maximum of 75,000,000 shares of common stock are available for issuance under the Plan, subject to adjustment from time to time. Awards may be granted under the Plan to officers, directors, employees and consultants of the Company and as the Plan Administrator selects. The Plan Administrator is authorized, in its sole discretion, to issue options as incentive stock options, which shall be appropriately designated. The term of each option to purchase common stock of the Company is established by the Plan Administrator or, if not so established, is 10 years from the grant date. 

 

The Plan Administrator establishes the time at which each option shall vest and become exercisable. If not established in the instrument evidencing the option, the option shall vest and become exercisable according to the following schedule: (i) after one year of the participant’s continuous employment or service with the company or its related corporations, one quarter of the total options will be vested and exercisable; (ii) after each additional six-month period of continuous service completed thereafter, an additional one eighth of the total options will be vested and exercisable; and (iii) after four years, 100% of the options will be vested and exercisable. Under the terms of the Plan, the exercise price for shares shall be paid in cash or check to the Company unless the Plan Administrator determines otherwise.

 

F-16 

 

 

The Plan Administrator shall determine whether the options will continue to be exercisable, and the terms and conditions of such exercise, if a participant ceases to be employed or provide services to the Company. If not so established in the instrument evidencing such options, any portion of an option that is not vested and exercisable on the date of termination of the participant’s employment or service relationship (the “Employment Termination Date”) shall expire on such date. Any portion of an option that is vested and exercisable on the Employment Termination Date shall expire upon the earliest to occur of: (i) if the participant’s Employment Termination Date occurs by reason of retirement, disability or death, the one-year anniversary of such Employment Termination Date; (ii) if the participant’s Employment Termination Date occurs for reasons other than cause, retirement, disability or death, the three-month anniversary of such Employment Termination Date; or (iii) the last day of the option term. Notwithstanding the foregoing, if the participant dies after the Employment Termination Date while the Option is otherwise exercisable, the portion of the option that is vested and exercisable on such Employment Termination Date shall expire upon the earlier to occur of: (a) the last day of the option term; or (b) the first anniversary of the date of death, unless the Plan Administrator determines otherwise.

 

If a participant is terminated for cause, the options shall automatically expire at the time the Company first notifies the participant of the termination. If a participant’s employment is suspended pending investigation of whether they will be terminated for cause, the participant’s rights under any option shall be suspended during the period of investigation. Awards granted under the Plan may not be assigned, except, to the extent permitted by Section 422 of the Internal Revenue Code (the “IRC”), and the Plan Administrator may permit such assignment, transfer and exercisability, and may permit a participant to designate a beneficiary who may exercise the award or receive compensation under the award after the participant’s death. Any award permitted to be assigned shall be subject to the terms and conditions contained in the instrument evidencing the award.

 

The Plan may only be amended by the Company’s Board of Directors, as it deems advisable. Shareholder approval shall be required for any amendment to the extent required for compliance with Section 422 of the IRC, as amended or any applicable law or regulation. The Board may suspend or terminate the Plan at any time. Incentive stock options may not be granted more than 10 years after the later of the Plan’s adoption by the Board or the adoption by the Board of any amendment to the Plan that constitutes adoption of a new plan for the purpose of Section 422 of the IRC. Participants who are residents of California shall be subject to additional terms and conditions until the Common Stock becomes a publicly traded security, under the California Securities Code.

 

On January 16, 2015 the Company’s Chief Operating Officer was granted 2,250,000 options under the 2014 Plan with an exercise price of $1.15 per share for a term of seven years. The options shall vest and become exercisable as follows: (i) 750,000 shall vest on the Date of Grant; (ii) 187,500 shall vest on each of the following dates: April 1, 2015, July 1, 2015, October 1, 2015, January 1, 2016, April 1, 2016, July 1, 2016, October 1, 2016 and January 1, 2017. On March 27, 2015 the Company executed an addendum to the Chief Operating Officer’s employment agreement wherein he agreed to take on additional responsibilities. As consideration, the Company issued an additional 7,000,000 options under the 2014 Plan with an exercise price of $1.00 for a term of seven years. The 7,000,000 options vested in full on grant.

 

The following tables summarize information about the Company’s stock options:  

 

   Number of
Options
   Weighted
Average
Exercise
Price
 
Options outstanding - December 31, 2015   35,076,223   $0.99 
Granted        
Canceled or expired   (2,500,000)   0.88 
Exercised        
Options outstanding –December 31, 2016   32,576,223   $0.98 
Granted        
Canceled or expired        
Exercised        
Options outstanding –December 31, 2017   32,576,223   $0.98 

 

F-17 

 

 

There are no unvested options as of December 31, 2017.

 

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

 

    Options Outstanding and Exercisable at December 31, 2017 
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   2.9 years  $0.46   $ 
$0.61 to $1.00    9,800,000   2.7 years  $0.67   $ 
$1.01 to $1.50    14,500,000   2.8 years  $1.25   $ 
$1.51 to $2.25    3,000,000   3.3 years  $1.63   $ 
$0.40 to $2.25    32,576,223   2.9 years  $0.98   $ 

 

    Options Outstanding and Exercisable at December 31, 2016 
Range of
Exercise Prices
   Number 
Exercisable
   Weighted 
Remaining 
Contractual 
Life
  Weighted 
Average 
Exercise 
Price
   Aggregate 
Intrinsic
Value(1)
 
$0.40 to $0.60    5,276,223   3.9 years  $0.46   $ 
$0.61 to $1.00    9,800,000   3.7 years  $0.67   $ 
$1.01 to $1.50    14,500,000   3.8 years  $1.25   $ 
$1.51 to $2.25    3,000,000   4.3 years  $1.63   $ 
$0.40 to $2.25    32,576,223   3.9 years  $0.98   $ 

 

  (1) The aggregate intrinsic value in the table represents the difference between the closing stock price on December 31, 2017 and 2016 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, 2017 and 2016.

 

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 and Wits Basin (Note 3) executed a Settlement Agreement on January 22, 2016 (Note 9). Pursuant to the terms of the Settlement Agreement, the Company issued 630,000 warrants to purchase common stock at an exercise price of $0.70 and 630,000 warrants at an exercise price of $0.30 to investors of Wits Basin. The warrants are exercisable until December 31, 2018.

 

F-18 

 

 

The following table summarizes information about the Company’s stock purchase warrants outstanding at December 31, 2017 and December 31, 2016:

 

   Number   Weighted 
Average 
Exercise 
Price
   Range 
of 
Exercise 
Price
   Weighted 
Remaining 
Contractual 
Life
Outstanding at December 31, 2015   5,015,640   $0.88   $0.20 – 2.00    4.4 years
Granted   1,260,000   $2.00   $0.30 – 1.25    
Cancelled or expired               
Exercised      $   $    
Outstanding at December 31, 2016   6,275,640   $0.86   $0.20 – 2.00    3.2 years
Granted                 
Cancelled or expired   (150,000)  $2.00   $2.00    
Exercised                 
Outstanding at December 31, 2017   6,125,640   $0.77   $0.20 – 1.23    
Warrants exercisable at December 31, 2017   6,125,640              

 

The aggregate intrinsic value of the 6,125,640 and 6,275,640 outstanding and exercisable warrants at December 31, 2017 and 2016 was $0. The intrinsic value is the difference between the closing stock price on December 31, 2017 and 2016 and the exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised their warrants on December 31, 2017 and 2016.

 

NOTE 9 – 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. 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. 

 

 

F-19 

 

 

Midwest Investment Partners, LLC v. Standard Metals Processing, Inc.

 

On March 17, 2014, Midwest Investment Partners, LLC filed suit against Standard Metals Processing, Inc. in Vanderburgh County Superior Court, Vanderburgh, Indiana, alleging that Standard Metals had wrongfully refused to remove a transfer restriction on Midwest’s shares of Standard Metals stock pursuant to Rule 144 of the Securities Act. On March 27, 2014, Standard Metals filed a Notice of Removal of a Civil Action requesting that the case proceed in the United States District Court for the Southern District of Indiana, Evansville Division as an action properly removed pursuant to 28 U.S.C. §§ 1441 (a) and (b). On April 15, 2014, Standard Metals served and filed its Answer and Affirmative Defenses to Plaintiff’s Complaint and Demand for Jury Trial. On November 26, 2014, Standard Metals filed a Motion for Summary Judgment. On February 11, 2015, the Court issued an Order granting Standard Metals’ Motion for Summary Judgment and entered a Final Judgment in favor of Standard Metals and terminating the action. During the year ended December 31, 2017 the Company has paid $80,000 towards the judgment.

 

Wits Basin Precious Minerals, Inc., Lee Levine, Michael Lepore, Mark McLain, Morton Waldman, Allan Staller, Thomas McAdam, Arthur Brown, DJ Sikka, and Bryan Reichel v. Standard Metals Processing, Inc. f/k/a Standard Gold, Inc., Nevada Corporation

 

On September 10, 2014, Wits Basin Precious Minerals, Inc. filed suit against Standard Metals Processing, Inc. in the United States District Court for the District of Nevada asserting breach of contract, anticipatory breach of contract and equitable relief. On October 16, 2014, Wits Basin filed an Amended Complaint, adding new parties and alleging that Standard Metals had refused to allow it to exercise its option to purchase shares granted to it pursuant to an Exchange Agreement, dated March 15, 2011, so that Wits Basin could obtain shares to meet its requirements under private option agreements it had entered into with option holders, allowing those option holders certain rights, options and warrants to purchase stock in Standard Metals. On November 5, 2014, Standard Metals filed a Second Motion to Dismiss Wits Basin et al.’s Amended Complaint. On March 13, 2015, the Court issued an Order granting in part and denying in part Standard Metals’ Motion to Dismiss the action. The Court dismissed with prejudice Wits Basin et al.’s claims of breach of contract and anticipatory repudiation of the contract. However, the Court allowed Wits Basin et al’s claim against Standard Metals of interference with contract to go forward. The Company and Wits Basin executed a Settlement Agreement on January 22, 2016. Pursuant to the terms of the Settlement Agreement, the Company issued 630,000 warrants to purchase common stock at an exercise price of $0.70 and 630,000 warrants at an exercise price of $0.30 to investors of Wits Basin. The warrants are exercisable until December 31, 2018. The Company will also pay $14,665 in plaintiffs’ legal fees. As of December 31, 2017, $8,350 of the attorneys’ fees have been paid and all warrants have been issued.

 

NOTE 10 - INCOME TAXES

 

The components of income tax expense for the years ended December 31, 2017 and 2016 consist of the following:

 

   2017   2016 
Current tax provision  $   $ 
Deferred tax benefit   (203,000)   (321,000)
Valuation allowance   203,000    321,000 
Total income tax provision  $   $ 

 

F-20 

 

 

Reconciliations between the statutory rate and the effective tax rate for the years ended December 31, 2017 and 2016 consist as follows:

 

   2017   2016 
Federal statutory tax rate   (34.0)%   (34.0)%
State taxes, net of federal benefit   0%   0%
Permanent differences       %
Valuation allowance   34%   34%
Effective tax rate        

 

Significant components of the Company’s deferred tax assets as of December 31, 2017 and 2016 are summarized below. The calculations presented below at December 31, 2017 reflect the new U.S. federal statutory corporate tax rate of 21% effective January 1, 2018 (see Note 2).

 

   2017   2016 
Deferred tax assets:          
Net operating loss carryforwards  $7,133,000   $11,299,000 
Impairment of assets   6,941,000    11,310,000 
Stock based compensation   2,228,000    3,607,000 
Loss on settlement of debt   32,000    51,000 
Total deferred tax asset   16,334,000    26,267,000 
Valuation allowance   (16,334,000)   (26,267,000)
   $   $ 

 

As of December 31, 2017, the Company had approximately $33,969,000 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 generated prior to this date is limited to approximately $1,000,000 annually.

 

As of December 31, 2017, 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. Our net deferred tax asset and valuation allowance decreased by $9,933,000 in the year ended December 31, 2017, $10,089,000 of which related to the decrease in the expected future tax rate as a result of the Tax Reform Law.

 

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.

 

F-21 

 

 

NOTE 11 – SUBSEQUENT EVENTS 

 

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 after issuance, accrues interest at 6% per annum and is convertible into shares of common stock at a price of $0.05 per share.

 

On January 29, 2018 six of the 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.

 

F-22