The accompanying footnotes are an integral
part of these unaudited condensed consolidated financial statements.
Notes
to Condensed Consolidated Financial Statements
For the
Six Months Ended June 30, 2018
(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 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 condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, assuming we will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30,
2018, the Company had a net loss of approximately $681,401. At June 30, 2018, the Company had an accumulated deficit of
approximately $103,866,209 and a working capital deficit of approximately $10,100,121. 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 for which there is substantial doubt of occurrence. During the six months ended June 30,
2018, the Company received net cash proceeds of $94,000 from the convertible promissory notes payable. Management believes
that private placements of equity capital and/or additional debt financing will be needed to fund our long-term
operating requirements for which there is substantial doubt of occurrence. 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., and Tonopah Resources, Inc.
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, 2017 filed June 8, 2018. In the opinion of management, all adjustments (consisting of
normal recurring adjustments unless otherwise indicated) considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year
as a whole.
Shea
Mining and Milling Assets
The
Company recorded the estimated fair value of the Shea Mining and Milling assets as an aggregate amount on the condensed balance
sheets. The assets include the mine tailings and dumps, the land, water rights and the milling facility (the buildings and equipment).
None of the assets have been put into production, nor has the Company performed any repair or updates to any of the equipment
or buildings. As such, the Company will continue to classify them under a single listing.
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 June 30, 2018, 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 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. Management believes the provisions of the
Tax Reform Law will have a favorable impact on the Company’s consolidated financial statements when it attains 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
in the three months ended June 30, 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 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 ended June 30, 2018 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 – PROPERTY, PLANT AND EQUIPMENT
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 21,875 square foot building and servicing
and drilling various wells for our future operations. The Company has begun to reassess the recoverability of these
assets which it plans to complete prior to filing its Form 10-Q for the three months ending September 30, 2018.
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 six months ended June 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, pursuant to their original contract terms, 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 period ending June
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
six months ending June 30, 2018, of $81,463.
After
these note conversions, there was $168,000 of principal and $12,516 of accrued interest outstanding on convertible debentures,
and a related unamortized discount of $0 at June 30, 2018. At June 30, 2018, these notes were in default.
NOTE
5 – SHAREHOLDERS’ EQUITY
Common
Stock - Convertible promissory notes conversion
During
the six months ended June 30, 2018, one of the outstanding convertible promissory notes payable issued in the year ending December
31, 2016, two issued during the year ending December 31, 2017, and three issued in the first six months of 2018, totaling principal
of $259,796 and accrued interest of $3,385, were converted into 4,745,842 shares of restricted common stock, at conversion prices
ranging from $0.025 to $0.09. (Note 4)
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 three months ended June 30, 2018 and 2017. As of June 30, 2018, there was $0
in unrecognized compensation expense.
The
Company did not grant any options during the six months ended June 30, 2018, 250,000 options were exercised, and no options expired,
or were cancelled. There are no unvested options as of June 30, 2018.
The
following tables summarize information about stock options outstanding and exercisable:
|
|
Options
Outstanding and Exercisable at June 30, 2018
|
|
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
|
|
|
2.6 years
|
|
$
|
0.46
|
|
|
$
|
—
|
|
$0.61 to $1.00
|
|
|
9,550,000
|
|
|
2.5 years
|
|
$
|
0.67
|
|
|
$
|
—
|
|
$1.01 to $1.50
|
|
|
14,500,000
|
|
|
2.6 years
|
|
$
|
1.25
|
|
|
$
|
—
|
|
$1.51 to $2.25
|
|
|
3,000,000
|
|
|
3.1 years
|
|
$
|
1.63
|
|
|
$
|
—
|
|
$0.40 to $2.25
|
|
|
32,576,223
|
|
|
2.6 years
|
|
$
|
0.98
|
|
|
$
|
—
|
|
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 six months ended June 30, 2018, and no warrants were exercised, expired, or were
cancelled. At June 30, 2018 there were 6,125,640 warrants outstanding, with exercise prices ranging from $0.20 to $1.23, a weighted
exercise price of $0.77 and a weighted remaining contractual life of 2 years.
The
aggregate intrinsic value of the 6,125,640 outstanding and exercisable warrants at June 30, 2018 and December 31, 2017 was $0.
The intrinsic value is the difference between the closing stock price on June 30, 2018 and December 31, 2017 and the exercise
price, multiplied by the number of in-the-money warrants had all warrant holders exercised their warrants on June 30, 2018 or
December 31, 2017.
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 June 30,
2018, totaling $395,000, resulting in a total amount of $2,552,000 being included in the Accrual for settlement of lawsuits relating
to this matter in the accompanying June 30, 2018 condensed consolidated balance sheet.
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. The Company settled two other matters with Midwest as most previously disclosed in our Form 10-K for
the year ending December 31, 2016. As of the date of this filing this settlement has been paid in full.
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 $861,561 as of June 30, 2018. 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 June 30, 2018 and December 31, 2017, with
related accrued interest of $861,561 and $768,982, 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. 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
June 30, 2018 and December 31, 2017, the weighted average shares from stock options of 32,326,223, warrants of 1,379,798 and Convertible
Promissory note shares of approximately 1,635,000 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
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 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 $861,561 as of June 30, 2018. 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 in NOTE 7.