Notes
to Condensed ConsolidatED Financial Statements
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(unaudited)
NOTE
1 – NATURE OF BUSINESS
Standard
Metals Processing, Inc. (“we,” “us,” “our,” “Standard Metals” or the “Company”)
is an exploration stage company, incorporated in Nevada having offices in Gadsden, Alabama and through its subsidiary, a property
in Tonopah, Nevada. The business plan is to purchase and install the equipment necessary to complete a facility on the Tonopah
property to serve as a permitted custom processing toll milling facility (which includes an analytical lab, pyrometallurgical
plant, and hydrometallurgical recovery plant).
The
Company plans to perform permitted custom processing toll milling which is a process whereby mined material is crushed and ground
into fine particles to ease the extraction of any precious minerals contained therein, such as minerals in the gold, silver and
platinum metal groups. Custom milling and refining can include many different processes that are designed specifically for each
ore load and to maximize the extraction of precious metals from carbon or concentrates. These toll-processing services also distill,
dry, mix, or mill chemicals and bulk materials on a contractual basis and provide a chemical production outsourcing option for
industrial companies, which lack the expertise, capacity, or regulatory permits for in-house production.
We
are required to obtain several permits before we can begin construction of a small-scale mineral processing facility to conduct
permitted processing toll milling activities and construction of the required additional buildings and well relocation necessary
for us to commence operations.
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America, assuming we will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2019, the Company
had a net loss of $482,905. At September 30, 2019, the Company had an accumulated deficit of $103,667,867 and a working capital
deficit of $9,901,779. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent on their ability to raise the required additional capital
or debt financing to meet short and long-term operating requirements. During the nine months ended September 30, 2019, a related
party advanced $109,055 in direct payments on the Company’s behalf to reduce certain accounts payable by $51,055, and convertible
promissory notes payable by $58,000. As the related party has indicated it wishes to apply its advance to convertible notes, it
was classified as such at September 30, 2019.
Management
believes that private placements of equity capital and/or additional debt financing will be needed to fund our long-term operating
requirements. The Company may also encounter business endeavors that require significant cash commitments or unanticipated problems
or expenses that could result in a requirement for additional cash. If the Company raises additional funds through the issuance
of equity or convertible debt securities, the percentage ownership of our current shareholders could be reduced, and such securities
might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable
terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to
take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations.
We are continuing to pursue external financing alternatives to improve our working capital position. If the Company is unable
to obtain the necessary capital, the Company may have to cease operations.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Standard Metals Processing, Inc., and its wholly owned subsidiary Tonopah
Milling and Metals Group, Inc. and its wholly owned subsidiaries Tonopah Custom Processing, Inc., (“TCP”) and Tonopah
Resources, Inc. (“TR”). All significant intercompany transactions, accounts and balances have been eliminated in consolidation.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”), for interim financial information pursuant to the
rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all
of the information and footnotes required by US GAAP for complete financial statements. The unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our
Form 10-K for the year ended December 31, 2018 filed March 5, 2020. In the opinion of management, all adjustments (consisting
of normal recurring adjustments unless otherwise indicated) considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the
year as a whole.
Mineral
Properties
Mineral
property acquisition costs are recorded at cost and are deferred until the viability of the property is determined. No properties
have produced operating revenues at this time. Exploration, mineral property evaluation, option payments, related acquisition
costs for mineral properties acquired under an option agreement, general overhead, administrative and holding costs to maintain
a property on a care and maintenance basis are expensed in the period they are incurred. When reserves are determined for a property
and a bankable feasibility study is completed, subsequent exploration and development costs on the property would be capitalized.
If a project were to be put into production, capitalized costs would be depleted on the unit of production basis.
Management
reviews the net carrying value of each mineral property as changes may materialize with a property or at a minimum, on an annual
basis. Where information and conditions suggest impairment, estimated future net cash flows from each property are calculated
using estimated future prices, proven and probable reserves and value beyond proven and probable reserves, and operating, capital
and reclamation costs on an undiscounted basis. If it is determined that the future cash flows are less than the carrying value,
a write-down to the estimated fair value is made with a charge to loss for the period. Where estimates of future net cash flows
are not available and where other conditions suggest impairment, management assesses if the carrying value can be recovered.
Management’s
estimates of gold prices, recoverable reserves, probable outcomes, operating capital and reclamation costs are subject to risks
and uncertainties that may affect the recoverability of mineral property costs. The Company does not own any mining claims. It
owns tailings located on the Tonopah property and some tailings located in Manhattan, Nevada. The Company has not disturbed or
processed any of this material and does not intend to do so in the foreseeable future.
Impairment
of Long-Lived Assets and Long-Lived Assets
The
Company will periodically evaluate the carrying value of long-lived assets to be held and used, including but not limited to,
mineral properties, mine tailings, mine dumps, capital assets and intangible assets, when events and circumstances warrant
such a review and at least annually. The carrying value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss
is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is
determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses
on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost
to dispose.
Use
of Estimates
Preparing
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue
Recognition and Deferred Revenue
As
of September 30, 2019, the Company has not recognized any revenues from custom permitted processing toll milling.
Income
Taxes
Income
taxes are accounted for based upon an asset and liability approach. Accordingly, deferred tax assets and liabilities arise from
the difference between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax
amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received,
as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period
plus or minus the change in deferred tax assets and liabilities during the period.
Accounting
guidance requires the recognition of a financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate settlement with the relevant tax authority. The Company believes its income tax filing positions
and deductions will be sustained upon examination and accordingly, no reserves, or related accruals for interest and penalties
have been recorded at September 30, 2019 and December 31, 2018. The Company recognizes interest and penalties on unrecognized
tax benefits as well as interest received from favorable tax settlements within income tax expense.
On
December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The
Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant
changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform
Law reduces the federal corporate tax rate from 34% to 21% effective January 1, 2018. Management believes the provisions of the
Tax Reform Law will have a favorable impact on the Company’s consolidated financial statements should it attain a level
of profitable operations.
Recent
Accounting Standards
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue
to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most
existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting
periods for public business entities beginning after December 15, 2017, including interim periods within that reporting period.
The new standard permits the use of either the retrospective or cumulative effect transition method. The Company adopted ASU 2014-09
on January 1, 2018, and as there have been no revenues to date, the adoption did not have a material impact on the Company’s
financial position or results of operations, and no transition method was necessary upon adoption.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of
over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use
asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these
leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs
of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term.
Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use
asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual
periods beginning January 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into
after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The
Company adopted the standard during 2018, but as the Company does not have any significant leases, it does not expect
it to have a material impact on its financial position or results of operations.
During
the nine months ended September 30, 2019 and through the date of this filing, there were several new accounting pronouncements
issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by
the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material
impact on the Company’s consolidated financial statements.
NOTE
3 – MINING AND MINERAL RIGHTS
The
Company is preparing the Tonopah property site for the construction of a permitted custom processing toll milling facility including
grading the land, installing fencing and working with contractors for our planned 21,875 square foot building and servicing and
drilling various wells for our future operations.
The
Company has continued to assess the realizability of its mining and mineral rights. Based on an assessment the Company conducted
in January 2020. The Company decided its land, mineral rights and water rights are inseparable and depend on each other in value
creation. Accordingly, during the nine months ended September 30, 2019, the Company combined the carrying value
of the assets to present them more clearly as to their intended use together:
FORMERLY -
|
|
|
|
Property, Plant and Equipment:
|
|
|
|
Shea Mining & Milling asset purchase
|
|
$
|
2,108,300
|
|
Equipment, net of $21,000 accumulated depreciation.
|
|
|
0
|
|
Construction in progress
|
|
|
1,775,224
|
|
|
|
$
|
3,883,524
|
|
NOW -
|
|
|
|
|
Mining Assets and Mineral Rights
|
|
$
|
3,883,524
|
|
NOTE
4 – CONVERTIBLE NOTES PAYABLE
In
January 2018, the Company issued three convertible promissory notes in the principal amounts of $8,000, $40,000 and $15,000. The
notes are due one year from date of issuance and accrue interest at 6%. The notes are convertible into common shares of the Company
at a conversion price of $0.05, with no adjustments to the conversion price. The conversion feature meets the definition of conventional
convertible debt and therefore qualifies for the scope exception in Accounting Standards Codification (“ASC”) 815-10-15-74(a)
and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature
under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock
of the Company on the date of funding as compared to the conversion price, determined there was a $38,000 beneficial conversion
feature to recognize, which will be amortized over the term of the note using the effective interest method. Amortization expense
of $38,000 was recognized related to these discounts in the nine months ended September 30, 2018, including the accelerated amortization
upon conversion of two of these notes, as discussed below.
On
January 29, 2018, five of the outstanding convertible promissory notes payable issued in the year ending December 31, 2017 and
two of the January 2018 convertible promissory notes payable, totaling principal of $144,796 and accrued interest of $3,385, were
converted into 2,693,978 shares of restricted common stock, at conversion prices ranging from $0.025 to $0.075. Upon conversion
the related unamortized debt discount of $46,250 (including the $38,000 mentioned previously) was immediately expensed.
During
May 2018 and June 2018, two of the convertible promissory notes outstanding as of the year ending December 31, 2017, and two notes
that were issued in May 2018 totaling principal of $105,000 together with accrued interest of $2,387, were converted into an aggregate
of 2,051,864 shares of restricted common stock, at conversion prices ranging from $0.05 to $0.09. Upon conversion the related
unamortized debt discount of $16,277 was expensed and is included in the $71,860 amortization expense for the nine months ended
September 30, 2018.
On
June 14, 2018, the Company settled an outstanding account payable through the issuance and subsequent conversion of a convertible
promissory note in the principal amount of $10,000. The note, which was issued December 29, 2017, was due December 29, 2018 and
accrued interest at 6%. The note was convertible into common shares of the Company at a conversion price of $0.025. The note was
issued as a settlement in exchange for a $91,463 account payable, that the noteholder purchased from a vendor on December 29,
2017. Upon conversion of the note into 411,046 shares of restricted common stock of the Company, the noteholder signed a debt
settlement and release agreement for the outstanding account payable, resulting in a gain on settlement to be recognized in the
nine months ending September 30, 2018, of $81,463.
During
the nine months ended September 30, 2019 a related party advanced $109,055 in direct payments on the Company’s behalf, to
reduce certain accounts payable by $51,055 and outstanding convertible promissory notes by $58,000. The advance was made
by Granite Peak Resources, LLC, a related party, and was subsequently included in a line of credit evidenced by a convertible
promissory note. See Note 9. Accordingly, the $109,055 advance has been classified as such at September 30, 2019.
After
the foregoing note conversions and advance received, there was $219,055 of principal and $81,251 of accrued interest
outstanding on convertible debentures, and a related unamortized discount of $0 at September 30, 2019. With exception of the $109,055
of principal advanced by a related party during the nine months ended September 30, 2019, the pre-existing convertible notes are
in default.
NOTE
5 – SHAREHOLDERS’ DEFICIT
Option
Grants
The
Company uses the Black-Scholes pricing model as a method for determining the estimated fair value for stock awards. Compensation
expense for stock awards is recognized on a straight-line basis over the vesting period of service awards and for performance-based
awards, the Company recognizes the expense when the performance condition is probable of being met.
The
Company reviews its current assumptions on a periodic basis and adjusts them as necessary to ensure an accurate valuation. The
risk-free interest rate is based on the Federal Reserve Board’s constant maturities of the U.S. Treasury bond obligations
with terms comparable to the expected life of the options at their issuance date. The Company uses historical data to estimate
expected forfeitures, expected dividend yield, expected volatility of the Company’s stock and the expected life of the options.
In June 2018, 250,000 options granted in 2015 and originally exercisable at $0.75 per share were exercised at a price of $0.10
per share in exchange for $25,000 in cash.
The
Company recorded no compensation expense for the nine months ended September 30, 2019 and the year ended December 31, 2018. As
of June 30, 2019, there was $0 in unrecognized compensation expense.
The
Company did not grant any options during the nine months ended September 30, 2019, no options were exercised, and no options expired,
or were cancelled. There are no unvested options as of September 30, 2019.
The
following tables summarize information about stock options outstanding and exercisable:
|
|
Options Outstanding and Exercisable at
September 30, 2019
|
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value(1)
|
|
$0.40 to $0.60
|
|
|
5,276,223
|
|
|
|
1.0 years
|
|
|
$
|
0.46
|
|
|
$
|
—
|
|
$0.61 to $1.00
|
|
|
9,550,000
|
|
|
|
0.8 years
|
|
|
$
|
0.67
|
|
|
$
|
—
|
|
$1.01 to $1.50
|
|
|
14,500,000
|
|
|
|
0.9 years
|
|
|
$
|
1.25
|
|
|
$
|
—
|
|
$1.51 to $2.25
|
|
|
3,000,000
|
|
|
|
1.4 years
|
|
|
$
|
1.63
|
|
|
$
|
—
|
|
$0.40 to $2.25
|
|
|
32,576,223
|
|
|
|
1.0 years
|
|
|
$
|
0.98
|
|
|
$
|
—
|
|
|
(1)
|
The aggregate intrinsic
value in the table represents the difference between the closing stock price on September 30, 2019 and December 31, 2018, and
the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all
option holders exercised their options on September 30, 2019 and December 31, 2018.
|
Common
Stock Purchase Warrants
For
warrants granted to non-employees in exchange for services, the Company recorded the fair value of the equity instrument using
the Black-Scholes pricing model unless the value of the services is more reliably measurable.
The
Company did not grant any warrants during the nine months ended September 30, 2019, and no warrants were exercised, expired, or
were cancelled. At September 30, 2019 there were 4,865,640 warrants outstanding, with exercise prices
ranging from $0.20 to $1.23, a weighted exercise price of $0.84 and a weighted remaining contractual life of one year.
The
aggregate intrinsic value of the 4,865,640 outstanding and exercisable warrants at September 30, 2019 and December 31, 2018 was
$0. The intrinsic value is the difference between the closing stock price on September 30, 2019 and December 31, 2018 and the
exercise price, multiplied by the number of in-the-money warrants had all warrant holders exercised their warrants on September
30, 2019 or December 31, 2018.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
Legal
Matters
Stephen
E. Flechner v. Standard Metals Processing, Inc.
On
April 29, 2014, Stephen E. Flechner filed suit in the United States District Court for the District of Colorado against Standard
Metals Processing, Inc. alleging that Standard Metals had refused to allow him to exercise stock options granted to him pursuant
to a Stock Option Agreement, dated April 1, 2010, and a second Stock Option Agreement, dated January 21, 2011. On June 12, 2014,
Standard Metals filed an Answer and a Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United States
District Court for the Northern District of Alabama, Middle Division. On January 16, 2015, Standard Metals filed a Motion for
Summary Judgment. On January 23, 2015, the Court issued an Order granting in part and denying in part Standard Metals’ Motion
to Dismiss or, Alternatively, to Stay or Transfer the action to the United States District Court for the Northern District of
Alabama, Middle Division. The Court in its Order stayed further proceedings in Colorado pending the issuance of orders by the
Alabama court. Thereafter, on January 26, 2015, the Court issued an Order vacating the February 20, 2015 Trial Preparation Conference
and the March 9, 2015 Bench Trial. On March 23, 2015, the Court issued an Order denying Standard Metals’ Motion for Summary
Judgment. On March 30, 2015, Flechner filed a Motion to Lift the Stay. On March 31, 2015, the Court issued an Order granting Flechner’s
Motion to Lift the Stay. On April 6, 2015, the Court issued an Order scheduling a Bench Trial for July 29, 2015. On April 9, 2015,
Flechner filed a Motion for Reconsideration of the Court’s March 23, 2015 Order Denying Flechner’s Motion to Enforce
the Confidential Settlement Agreement to Settle Certain Issues. On May 1, 2015, the Court issued an Order Granting Flechner’s
Motion to Enforce the Confidential Settlement Agreement to Settle Certain Issues. On August 12, 2015 the United Stated District
Court for the District of Colorado issued a judgment in favor of Stephen E. Flechner for $2,157,000.
An
amended final judgment was ordered in adjudication of the Complaint by the U.S. District Court for the District of Colorado (the
“Court”) on August 28, 2015 in favor of Flechner in the amount of $2,157,000, plus interest through the date of judgment
of $235,246, plus interest of $472.76/day from August 28, 2015 until paid in full. The Company, in good faith anticipation of
a settlement did not appeal the judgment and therefore, the Company’s notice of appeal was dismissed on November 17, 2015.
This judgment is now non-appealable. The Company has recognized the daily interest due from the date of the August 28, 2015 judgment
through September 30, 2019, totalling $728,569, resulting in a total amount of $3,120,815 being included in the Accrual
for settlement of lawsuits relating to this matter in the accompanying September 30, 2019 condensed consolidated balance sheet.
NOTE
7 – RELATED PARTY TRANSACTIONS
During
March 2019, the Company was informed that a change of control of the Company had occurred. Granite Peak Resources, LLC (“GPR”)
through its members (including Pure Path Capital Management LLC) acquired 69,464,434 shares of common stock (including 4,500,000
warrants to purchase common stock). The members transferred their shares of common stock of the Company in exchange for a pro-rata
ownership interest in GPR. GPR also acquired the senior secured creditor position previously held by Pure Path Capital Group LLC,
which includes a $2,500,000 first deed of trust on the Tonopah property and an outstanding promissory note with a principal balance
of $2,229,187 and accrued interest of $1,096,235 as of March 31, 2019. The members of Granite Peak Resources LLC are listed in
the Schedule 13D filed by GPR on March 29, 2019. GPR has not communicated to the Company any plans to change any of the current
officers or directors or governing documents and has expressed the purpose of its acquisition is to assist the Company execute
on its business plan and resolve its current obligations and other claims. As of the date of this filing, GPR is the beneficial
owner of 52.3% of the Company’s common stock and the Company’s largest secured creditor. The background regarding
Pure Path’s Senior Secured Note is described below.
During
the Company’s acquisition of the Shea assets in 2011, Pure Path purchased the Loan Modification Agreement and the NJB Forbearance
Agreement directly from NJB Mining, Inc. In connection with the assignment of a forbearance agreement the Company and Pure Path
executed an Agreement in Principle setting forth terms of the forbearance agreement (collectively the “Pure Path Agreements”).
Pursuant to the Pure Path Agreements, Pure Path was to receive participation payments to be received on a quarterly basis for
seven years after the final closing at a rate of 5% of adjusted gross revenue as such terms are defined in the Pure Path Agreements,
past and future consulting fees for approximately $1,150,000, collection remedies and legal proceedings against the Company including
foreclosure on the Deed of Trust, registration rights, rights of first refusal, tag along rights, preemptive rights, exclusive
worldwide rights pertaining to financing and joint ventures, and other negative covenants regarding approval of corporate actions.
Pursuant
to the Settlement and Release Agreement executed October 10, 2013 with the Company, Pure Path relinquished the foregoing rights
and obligations owed to it and agreed to forbear collection remedies and legal proceedings against the Company including foreclosure
on the Deed of Trust, and, in connection with the settlement and release of various debts of approximately $1,500,000 and the
consulting fees owed by the Company, the Company issued 27,000,000 restricted shares and a Promissory Note (the “Pure Path
Note”) for an amount of up to $2,500,000 with a beginning principal balance of $1,933,345 bearing interest of 8% per year
for the current balance of the amounts owed under the Pure Path Agreements. The outstanding principal balance on the Pure Path
Note was $2,229,187 as of both September 30, 2019 and December 31, 2018, with related accrued interest of $1,096,399 and $955,701,
respectively. The Note is in default.
On
February 11, 2015, the Company issued an unsecured promissory note (the “Note”) to Tina Gregerson Family Properties,
LLC, an entity controlled by a former director of the Company. The Note for up to $750,000 was provided in tranches. Maturity
of each tranche is one year from the date of receipt. Interest accrues at 8% per annum on each tranche. Under the terms of the
Note, the Company received $477,500. At September 30, 2019 and December 31, 2018, there is $172,454 and $140,535 interest accrued.
The Note is in default.
NOTE
8 – EARNINGS (LOSS) PER SHARE
Basic
net loss per common share is computed by dividing net loss applicable to common shareholders by the weighted average number of
common shares outstanding during the periods presented. Diluted net loss per common share is determined using the weighted average
number of common shares outstanding during the periods
presented,
adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of options,
warrants and conversion of convertible debt. In periods where losses are reported, the weighted average number of common shares
outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
At
September 30, 2019 and December 31, 2018, the weighted average shares from stock options of 32,576,223, warrants of 4,865,640
and Convertible Promissory note shares of 2,005,850 were excluded from the diluted weighted average common
share calculation due to the antidilutive effect such shares would have on net loss per common share.
NOTE
9 - SUBSEQUENT EVENTS
On
December 17, 2019 the Company issued a promissory note to Granite Peak Resources (“GPR”) for $192,080 representing
the disbursements made on the Company’s behalf during 2019. The note is payable one year from its issuance and accrues interest
at 6% per annum.
In
December 2019, 4,500,000 options granted in 2013 and originally exercisable at $0.44 per share were exercised by GPR at a price
of $0.0426 per share (the current fair market value per share based on the average of the median price and VWAP for the preceding
90 days) in exchange for the $192,080 note.
The
Company entered into a Forbearance Agreement with GPR effective December 20, 2019. GPR has agreed to forbear any foreclosure proceedings
for six months in exchange for the Company pledging the stock of the its subsidiaries as additional collateral under its outstanding
obligations. During the nine months ended September 30, 2019, GPR advanced $109,055 in direct payments on the Company’s
behalf to reduce certain accounts payable by $51,055, and outstanding convertible promissory notes by $58,000.
On
March 16, 2020 the Company executed a Line of Credit (“LOC”) with GPR evidenced by a promissory note. The LOC is for
up to $2,500,000, matures over three years and may be increased by up to another $1,000,000 and extended an additional two years,
respectively, at GPR’s sole option. The LOC is for funding operating expenses critical to the Company’s redirection
and all requests for funds may be approved or disapproved in GPR’s sole discretion. The LOC bears interest at 10% per annum,
is convertible into shares of the Company’s common stock at a per share price of $0.04 based on the last closing sale price
and will be secured by the real and personal property GPR already has under lien. The $109,055 advanced by GPR during the nine
months ended September 30, 2019 will be incorporated into this LOC.