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

The following management discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed financial statements and related notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2019,2020, as filed with the SEC on April 2, 2020.January 23, 2021.

Cautionary Notice Regarding Forward Looking Statements

Readers are cautioned that the following discussion contains certain forward-looking statements and should be read in conjunction with the “Special Note Regarding Forward-Looking Statements” appearing at the beginning of this Quarterly Report.

The information contained in this Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

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

Corporate History

We were incorporated in the State of Colorado on July 10, 1985 and re-domiciled in Nevada in March 2013. In 2011, we closed a series of transactions, whereby we acquired certain assets of Shea Mining & Milling, LLC, which assets include land, buildings, a dormant milling facility, abandoned milling equipment, water permits, mine tailings, mine dumps and the assignment of a note payable, a lease and a contract agreement with permits. We completed the Shea Exchange Agreement in order to offer toll milling services of precious minerals. Toll milling is a process whereby mined material is crushed and ground into fine particles to ease the extraction of any precious minerals contained therein, such as gold, silver, and platinum group metals. Custom milling and refining can include many different processes to extract precious metals from carbon or concentrates. These toll-processing services also distill, dry, mix, or mill chemicals and bulk materials on a contractual basis and provide a chemical production outsourcing option for industrial companies which lack the expertise, capacity, or regulatory permits for in-house production.

Overview of the Company

We have an office in Gadsden, Alabama and, through a subsidiary, a property in Tonopah, Nevada. Our business plan is to purchase equipment and build a facility on the Tonopah property to serve as a permitted custom processing toll milling facility which includes an analytical lab, pyrometallurgical plant, and hydrometallurgical recovery plant. We are required to obtain several permits before we can begin construction of a small-scale mineral processing facility and the required additional buildings to conduct permitted processing toll milling activities and commence operations.

Water Pollution Control Permit with Nevada Department of Environmental Protection

Through the Company’s wholly owned subsidiaries,subsidiary, 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 our WPCP application, NDEP suggested that we take the following actions: (i) retain a Nevada Certified Environmental Manager (“CEM”), (ii) perform Meteoric Profile II water testing on ground water directly below the mill as well as surrounding wells located off site, and (iii) determine baseline values of water using the Meteoric Profile II results. NDEP regulations require that the Company delay any new construction planned for “metal extraction” until after the permits are in place.

Advanced Surveying & Professional Services, a Professional Land Surveyor (“PLS”), completed surveys and testing of the Tonopah property required for the application of our required permits. After completion of the survey, it was determined the property is 1,186 acres. The scope of work the PLS completed includes: (i) setting a total of 19 permanent monuments at angle points along lines, (ii) setting eight permanent monuments locating US Hwy 95, (iii) recording a professional map indicating longitude and latitude for all corners, and (iv) providing a digital map accessible in Auto Cad software.

Site Preparation

We have completed the initial grading of specific designated areas on the 40 undisturbed acres of land including clearing all vegetation, removing of all scrap metal, and the excavation of the building pad for preparation of the our planned new 21,875 square foot processing plant and have completed the removal of all the extra and unnecessary materials and old equipment that has accumulated on the land. We have also refurbished a trailer that will act as our construction office.

Business Plan

The Company is reexamining its next steps for developing a processing facility. In an effort to move the Company’s business plan forward, the Company may evaluate opportunities to acquire, license, or joint venture with other parties involved in toll milling, processing, or mining related activities, which may include Granite Peak Resources, LLCGPR and its affiliated entities including, but not limited to, Sustainable Metal Solutions, LLC NovaMetallix, Inc,(“SMS”), Remedy Environmental LLC, and Black Bear Natural Resources, LTD.

On March 27, 2020The Company owns tailings located on the Tonopah property and the rights to some tailings located in Manhattan, Nevada. The Company has not disturbed or processed any of this material, but recently authorized GPR engaged NovaMetallix, Inc. (“NMX”), a member of the Sustainable Metal Solutions LLC, and a GPR affiliate, to conduct a study of the quantity and quality of the Company’s historic mine tailings which are subject to GPR’s First Deed of Trust, andexamine the economic feasibility of processing themthe tailings to reclaim their residual content of gold, silver, and other valuable metals.  NMX, a firm comprised of world class mining, geological and metallurgical engineering professionals, is the leading force in the rapidly developing field of sustainable metals.  NMX has agreed to conduct the study of the Company’s tailings metals in exchange for GPR’s agreement to underwrite its cost and expense, and the exclusive right to process the tailings should their economic assessment prove positive. The terms of such processing to be mutually agreed upon between GPR NMX and the Company in the future based on the results of the assessment.  It was previously erroneously disclosed the Company had engaged NMX.

On April 17, 2020,In addition, the Company and Sustainable Metal Solutions, LLC (“SMS”), an affiliate of GPR, agreed to form a joint venture styled Esmeralda Renewal Energy Zone, LLC (“EREZ”). Theinto which the Company has agreed towill contribute the solar energy rights attributable to its 1,0831,086 acres to EREZ in exchange for SMS’s agreement to develop, manage and underwrite the EREZ venture.

Products and Services

We plan to establish ourselves as a custom processing and permitted toll milling service provider. Our business plan is to build a facility on our Tonopah property, which includes an analytical lab, pyrometallurgical, and hydrometallurgical recovery plant.

The Company’s intention is to become a full service permitted custom toll milling and processing company that facilitates the extraction of precious and strategic minerals from mined material. The Company is in the process of obtaining the permits needed for construction and operation of our permitted custom processing toll milling facility with state of the artstate-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 neededsorely needing milling and processing services.

While Nevada has a historic role as a mining center with good proximate geology and ample mined product, very little custom processing toll milling capacity remains in the state. During the last several decades, other processing facilities have been shuttered due to high costs of regulations and the vertical integration of milling within large mining companies leaving junior miners with few options for local milling services. As a result, we are in a unique position among processing facilities because we are capable of true permitted custom processing. We have the only ball mill located within a custom toll milling facility within 300 miles allowing us to serve miners in the western United States, Canada, Mexico, and Central America.

Many junior miners are undercapitalized, have limited access to capital markets and have a large supply of mined material that requires milling be performed. Many large mining companies reserve their milling capacity for their inventory, which does not make providing third party services worthwhile. This provides the Company with an opportunity to provide these potential customers with badlydearly 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 initially came from. This eliminatesThereby eliminating the need for the Company to store or dispose of those tailings.their voluminous remains.

Results of Operation

Comparison of Three Months and Nine Months Ended September 30, 2020March 31, 2021 to Three Months and Nine Months Ended September 30, 2019March 31, 2020

Revenues

We had no revenues from any operations for the three months ended March 31, 2021 and nine months ended September 30, 2020 and 2019.2020. 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 $106,058$342,697 for the three months ended September 30, 2020,March 31, 2021, as compared to $862$52,220 for the same period in 2019. For2020. The increase for the three months ended September 30, 2019, generalMarch 31, 2021, was principally a result of increased engineering and administrativedevelopment expenses declined materially due to reduced office costs consistentassociated with lackevaluating future uses of funding.the Company’s property. In the three months ended September 30,March 31, 2020, the $106,058$52,220 total related principally to resumptioncontinuance of normalnominal accounting, legal, and legal costs plus the additional cost of the combined loss on modification of options and warrants.office expenses consistent with modest funding. We anticipate that that operating expenses will increase during the remainder of 2020for fiscal 2021 as we continue to access more funding support.  assess the Company’s future.

Other Income and Expenses

We receive monthly lease payments of from American Tower Corporation for a cellular tower located on our Tonopah land. As such Other Income for the three months ended September 30, 2020March 31, 2021 was $2,099 compared to $1,825$2,099 for the respective period in 2019.

Periodically the Company reviews the outstanding claims that have not been satisfactorily resolved. In some instances, these claims remain outstanding beyond their statutory limit on collection in which case they are written off. The2020. Additionally, gain on derecognition of claims duringdebt for the ninethree months ended September 30, 2020 amountedMarch 31, 2021 was $22,523, as compared to $115,424 resultingnone in a $579,221 net loss for the period.three months ended March 31, 2020.

Interest expense for the ninethree months ended September 30, 2020March 31, 2021 was $362,357,$163,473, compared to $475,825$194,330 for the same period in 2019. During2020. The decrease of $30,857 in the nine months ended September 30, 2020current period was primarily due to our reassessment of the rate of interest being accrued on certain delinquent vendor claims was reexamined and reduced to a rate morerates likely to apply to the claims upon resolution. This interest accrual reduction of approximately 25% resulted in a cumulative savings of $143,312 in the nine months ended September 30, 2020.amounts due certain unsecured creditors.

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 ofincreases in convertible debt pursuant to our LOC during the ninethree months ended September 30, 2020March 31, 2021 and 2019.2020. 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 $10,260,900$10,651,502 at September 30, 2020.March 31, 2021. Cash was $2,316$1,626 at September 30, 2020,March 31, 2021, as compared to cash of $1,945$1,199 at December 31, 2019.2020.

Our cash reserves will not be sufficient to meet our operational needs and thus, we need to raise additional capital to pay for our operational expenses and provide for capital expenditures. Our basic operational expenses are currently estimated at approximately $20,000$25,000 per month. Above the basic operational expenses, we estimate that we need approximately $10,000,000 to begin limited toll milling operations. If we are not able to raise additional working capital, we may have to cease operations altogether.

Recent Financings

During the nine months ended September 30, 2020, a related party advanced $190,665 which it used to pay directly, on the Company’s behalf, to reduce certain accounts payable and assist with operating expenses. The advance was made by Granite Peak Resources, LLC (“GPR”), a related party which intends to convert the advance into a convertible promissory note. Additionally, $106,558 was provided by the exercise of options and warrants in May and August, 2020 at a reduced price of $0.023 per share providing $106,558 for operations. As the options and warrants exercised in August 2020 were modified as to exercise date, their modification resulted in a combined loss of $115,722 .

 On March 16, 2020 the Company executed a Line of Credit (“LOC”) with GPR, a related party, evidenced by a convertible promissory note. The LOC is for up to $2,500,000, matures over three years, bears interest at 10% per annum, is convertible into shares of the Company’s common stock at a per share price of $0.04,$2.00, and will beis secured by the real and personal property of the Company and its subsidiaries and pledged securities GPR already has under lien and pledge.lien. The LOC is for funding operating expenses critical to the Company’s basic operations and redirection and all requests for funds may be approved or disapproved in GPR’s sole discretion.

During the three months ended March 31, 2021, GPR advanced $365,012 to pay directly on the Company’s behalf, certain administrative costs as well as engineering and development expenses to assess the future uses of the Company’s real property. During the three months ended March 31, 2020. GPR advanced $50,780 which it used to pay directly certain of the Company’s providers of administrative expenses. The advances were made by GPR, a related party, pursuant to the terms of our LOC.

Going Concern

The condensed consolidated financial statements contained in this quarterly report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. The Company has accumulated losses from inception through the period ended September 30, 2020March 31, 2021 of $104,441,348$104,831,950, and a working capital deficit of $10,260,900$10,651,502, 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. In addition, virtually all of the Company’s assets are encumbered or pledged under senior secured debt that is in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives to finance its capital requirements, as well as for general and administrative expenses. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that the Company will be successful with its fund-raising initiatives, management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussionsproviding it is successful in resolving its liabilities and other claims with third party investorsits unsecured creditors and existing shareholders.GPR’s assistance.

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 couldwould likely 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 couldwould significantly and materially restrict its future plans for developing its business and achieving commercial revenues.future. If the Company is unable to obtainresolve the necessary capital,claims of its unsecured creditors, the Company may have to cease operations.

Working Capital Deficiency

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

Cash Flows

Operating Activities

Net cash (used in) provided by operating activities was $(106,187)$427 and $1,644, during$659 for the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, respectively. During the nine months ended September 30, 2019 cashCash was provided by operating activities during both periods primarily due to payments advanced under the significant reductionsLOC for operating expenses offset by net increases in legal and accounting services and normal office expenses as a result of lack of funding.accrued liabilities.

Financing Activities

For the ninethree months ended September 30,March 31, 2021, net cash provided by financing activities was $-0-. For the three months ended March 31, 2020, net cash provided by financing activities was $106,558, primarily due to the exercise of stock options and warrants. For the nine months ended September 30, 2019, net cash provided by financing activities was $-0-.also $0.

Off-Balance Sheet Arrangements

During the ninethree months ended September 30, 2020,March 31, 2021, 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 ninethree months ended September 30, 2020March 31, 2021 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, 2019.2020. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.

Impairment of Long-lived Assets

We review our property and mining and mineral rights subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Indicators of potential impairment include: an adverse change in legal factors or in the business climate that could affect the value of the asset; an adverse change in the extent or manner in which the asset is used or is expected to be used, or in its physical condition; and current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of the asset. If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset. If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted cash flows. During the three months ended September 30, 2019, the company evaluated thatprior year, however, we decided to combine the carrying value of our mining and mineral assets while not impaired, should be combined as they are inseparable and depend upon each other in value creation. See Note 3. There were no impairment charges in the ninethree months ended September 30, 2020.March 31, 2021.

Recent Accounting Standards

In May 2014,December 2019, the FinancialFASB issued ASU 2019-12, Income Taxes-Simplifying the Accounting Standards Board (“FASB”for Income Taxes ("ASU 2019-12") issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts. Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment, however, there is an exception for tax laws with Customers,” which requiresdelayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to recognizeestimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount of revenue to which it expects tothat would be entitledrecognized if the year-to-date loss were the anticipated loss for the transfer of promised goods or services to customers.full year. ASU 2014-09 will replace most existing revenue recognition guidance2019-12 removes this exception and provides that, in U.S. GAAP when it becomes effective. The new standardthis situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-l2 is effective for annual reporting periods for public business entitiesfiscal years beginning after December 15, 2017,2020, 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 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 andthose 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 adoptedis currently evaluating the effect that this standard during 2018, but asupdate will have on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, "Topic 326"). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company doeswill be required to adopt this ASU for financial years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of topic 326 is not have any significant leases, it does not expect itexpected to have a material impacteffect on itsthe Company’s consolidated financial position or results of operations.statements and financial statement disclosures.

During the ninethree months ended September 30, 2020March 31, 2021 and through the date of this filing, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer and Treasurer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of June 30, 2020March 31, 2021 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2020March 31, 2021 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.

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

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

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

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

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the ninethree months ended September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

On April 29, 2014, Stephen E. Flechner filed suit in the United States District Court for the District of Colorado against Standard Metals Processing, Inc. alleging that Standard Metalsthe Company 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 Metalsthe Company filed an Answer and a Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United StatesU.S. District Court for the Northern District of Alabama, Middle Division. On January 16, 2015, Standard Metalsthe Company filed a Motion for Summary Judgment. On January 23, 2015, the Court issued an Order granting in part and denying in part Standard Metals’the Company’s Motion to Dismiss or, Alternatively, to Stay or Transfer the action to the United StatesU.S. 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’the Company’s 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 StatedU.S. 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 judgementjudgment through September 30, 2020March 31, 2021, totaling $921,882,$1,007,924, resulting in a total amount of $3,314,128$3,400,170 being included in the Accrual for settlement of lawsuits relating to this matter in the accompanying September 30, 2020March 31, 2021 condensed consolidated balance sheet.

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this Item. We note, however, that an investment in our common stock involves a number of very significant risks. Investors should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended December 31, 20192020 as filed with SEC on April 2, 2020,January 26, 2021, in addition to other information contained in such Annual Report and in this Quarterly Report on Form 10-Q, in evaluating the Company and our business before purchasing shares of our common stock. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.

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

During the nine months ended September 30, 2020 options to purchase 2,750,000 shares and warrants to purchase 1,882,920 were exercised at a reduced price of $0.023 per share consistent with the market price for the Company’s common stock. This exercise generated $106,558 to be used in operations.None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

SIGNATURES

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

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