UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended October 31, 2014
[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from _____ to _____.
Commission File No.
000-1416090
Inception
Mining, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada |
|
35-2302128 |
(State
or Other Jurisdiction of
Incorporation or Organization) |
|
(IRS
Employer
Identification Number) |
|
|
|
5320
South 900 East, Suite 260
Murray,
Utah |
|
84107 |
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
801-428-9703
(Registrant’s
telephone number, including area code)
Copies
to:
Fleming
PLLC
49
Front Street, Suite 206
Rockville
Centre, New York 11570
Phone:
(516) 833-5034
Fax:
(516) 977-1209
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports);
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-3 of the Exchange Act.
Large
accelerated filer |
[ ] |
Accelerated
filer |
[ ] |
Non-accelerated
filer |
[ ] |
Smaller reporting
company |
[X] |
(Do
not check if smaller reporting company) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
As
of December 22, 2014, there were 22,705,060 shares of the registrant’s common stock issued and outstanding.
INCEPTION
MINING, INC.
FORM
10-Q
TABLE
OF CONTENTS
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
Inception
Mining, Inc.
Condensed
Consolidated Balance Sheets
| |
October 31, 2014 | | |
July 31, 2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash | |
$ | 544 | | |
$ | 5,695 | |
Prepaid expenses and other assets | |
| 448,719 | | |
| 135,090 | |
Total Current Assets | |
| 449,263 | | |
| 140,785 | |
| |
| | | |
| | |
Land and mineral rights | |
| 950,160 | | |
| 950,160 | |
Total Assets | |
$ | 1,399,423 | | |
$ | 1,090,945 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 262,622 | | |
$ | 158,499 | |
Accrued interest payable | |
| 32,256 | | |
| 26,178 | |
Advances, related party | |
| - | | |
| 286,446 | |
Notes payable | |
| 13,000 | | |
| 18,000 | |
Convertible notes payable, net of debt discount of $139,172 and $124,103
as of October 31, 2014 and July 31, 2014, respectively | |
| 603,328 | | |
| 558,397 | |
Convertible note payable, related party, net of debt discount | |
| 30,028 | | |
| - | |
Warrant liability | |
| 66,330 | | |
| - | |
Derivative liability | |
| 608,814 | | |
| 112,851 | |
Total Liabilities | |
| 1,616,378 | | |
| 1,160,371 | |
| |
| | | |
| | |
Commitments and Contingencies (See Note 8) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Equity (Deficit) | |
| | | |
| | |
Preferred stock, $0.00001 par value; 10,000,000 shares authorized, none issued
and outstanding | |
| - | | |
| - | |
Common stock, $0.00001 par value; 500,000,000 shares authorized, 22,793,949 and 21,770,681
shares issued and outstanding as of October 31, 2014 and July 31, 2014, respectively | |
| 228 | | |
| 218 | |
Additional paid-in capital | |
| 7,189,450 | | |
| 5,968,852 | |
Stockholder subscriptions | |
| 77,495 | | |
| 44,842 | |
Accumulated deficit | |
| (7,484,128 | ) | |
| (6,083,338 | ) |
Total Stockholders’ Equity (Deficit) | |
| (216,955 | ) | |
| (69,426 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Equity (Deficit) | |
$ | 1,399,423 | | |
$ | 1,090,945 | |
See
accompanying notes to the condensed consolidated financial statements.
Inception
Mining, Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
| |
For the Three Months | |
| |
October 31, 2014 | | |
October 31, 2013 | |
Revenues | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Operating Expenses | |
| | | |
| | |
Exploration costs | |
| 138,779 | | |
| 8,020 | |
General and administrative | |
| 919,722 | | |
| 64,774 | |
Total Operating Expenses | |
| 1,058,501 | | |
| 72,794 | |
| |
| | | |
| | |
Loss from Operations | |
| (1,058,501 | ) | |
| (72,794 | ) |
| |
| | | |
| | |
Other Income/(Expenses) | |
| | | |
| | |
Change in derivative liability | |
| 148,074 | | |
| - | |
Gain (loss) on forgiveness of debt | |
| - | | |
| (147,778 | ) |
Interest expense | |
| (490,363 | ) | |
| (9,523 | ) |
Total Other Income/(Expenses) | |
| (342,289 | ) | |
| (157,301 | ) |
| |
| | | |
| | |
Loss from Operations before Income Taxes | |
| (1,400,790 | ) | |
| (230,095 | ) |
Provision for Income Taxes | |
| - | | |
| - | |
NET LOSS | |
$ | (1,400,790 | ) | |
$ | (230,095 | ) |
| |
| | | |
| | |
Net loss per share - Basic and Diluted | |
$ | (0.06 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted average number of shares outstanding during the period - Basic
and Diluted | |
| 23,600,278 | | |
| 20,431,333 | |
See
accompanying notes to the condensed consolidated financial statements.
Inception
Mining, Inc.
Condensed
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
| |
Preferred stock | | |
Common stock | | |
Additional | | |
Common | | |
| | |
Total | |
| |
($0.00001 Par) | | |
($0.00001 Par) | | |
Paid-in | | |
Stock | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Subscribed | | |
Deficit | | |
Deficiency | |
Balance, July 31, 2014 | |
| - | | |
| - | | |
| 21,770,681 | | |
| 218 | | |
| 5,968,852 | | |
| 44,842 | | |
| (6,083,338 | ) | |
| (69,426 | ) |
Shares issued for services | |
| - | | |
| - | | |
| 1,043,753 | | |
| 11 | | |
| 1,075,654 | | |
| - | | |
| - | | |
| 1,075,665 | |
Shares issued for conversion of debt | |
| - | | |
| - | | |
| 122,222 | | |
| 1 | | |
| 54,999 | | |
| - | | |
| - | | |
| 55,000 | |
Shares surrendered and cancelled | |
| - | | |
| - | | |
| (142,707 | ) | |
| (2 | ) | |
| 2 | | |
| - | | |
| - | | |
| - | |
Shares to be issued for services rendered | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 32,653 | | |
| - | | |
| 32,653 | |
Debt discount on convertible notes due to beneficial conversion feature | |
| - | | |
| - | | |
| - | | |
| - | | |
| 89,943 | | |
| - | | |
| - | | |
| 89,943 | |
Net loss for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,400,790 | ) | |
| (1,400,790 | ) |
Balance, October 31, 2014 | |
| - | | |
$ | - | | |
| 22,793,949 | | |
$ | 228 | | |
$ | 7,189,450 | | |
$ | 77,495 | | |
$ | (7,484,128 | ) | |
$ | (216,955 | ) |
See
accompanying notes to the condensed consolidated financial statements.
Inception
Mining, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| |
For the Three Months | |
| |
October 31, 2014 | | |
October 31, 2013 | |
Cash Flows From Operating Activities: | |
| | | |
| | |
Net Loss | |
$ | (1,400,790 | ) | |
$ | (230,095 | ) |
Adjustments to reconcile net loss to net cash used in operations | |
| | | |
| | |
Stock issued for services | |
| 32,653 | | |
| 95,000 | |
Change in derivative liability | |
| 109,399 | | |
| - | |
Change in warrant liability | |
| (14,952 | ) | |
| - | |
Change in BCF debt discount | |
| 228,763 | | |
| - | |
Loss on settlement of accounts payable | |
| - | | |
| 147,778 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| 762,037 | | |
| 6,371 | |
Accounts payable and accrued expenses | |
| 104,122 | | |
| (64,000 | ) |
Accrued interest | |
| 6,078 | | |
| 9,523 | |
Net Cash Used In Operating Activities | |
| (172,690 | ) | |
| (35,423 | ) |
| |
| | | |
| | |
Cash Flows From Investing Activities: | |
| | | |
| | |
Net Cash Used In Investing Activities | |
| - | | |
| - | |
| |
| | | |
| | |
Cash Flows From Financing Activities: | |
| | | |
| | |
Repayment of note payable | |
| (5,000 | ) | |
| (100,000 | ) |
Proceeds from notes payable | |
| 100,000 | | |
| - | |
Proceeds from advances-related party | |
| - | | |
| 73,027 | |
Proceeds from notes payable, related party | |
| 72,539 | | |
| - | |
Proceeds from issuance of common stock | |
| - | | |
| 62,000 | |
Net Cash Provided by Financing Activities | |
| 167,539 | | |
| 35,027 | |
| |
| | | |
| | |
Net Decrease in Cash | |
| (5,151 | ) | |
| (396 | ) |
Cash at Beginning of Period | |
| 5,695 | | |
| 31,125 | |
Cash at End of Period | |
$ | 544 | | |
$ | 30,729 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 13,000 | | |
$ | - | |
Cash paid for taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Common stock issued for payment of accounts payable | |
$ | - | | |
$ | 95,000 | |
Common stock issued for prepaid expenses | |
$ | 1,075,665 | | |
$ | - | |
Conversion of note payable into common stock | |
$ | 55,000 | | |
$ | - | |
See
accompanying notes to the condensed consolidated financial statements.
Inception
Mining, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A)
Basis of Presentation
The
accompanying unaudited condensed financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities
and Exchange Commission Regulation S-X and with the instructions to Form 10-Q. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash
flows at October 31, 2014 and 2013 and for the periods then ended have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been
condensed or omitted. Management suggests these condensed financial statements be read in conjunction with the July 31, 2014 audited
financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended
October 31, 2014 and 2013 are not necessarily indicative of the operating results for the full year.
On
May 1, 2013, the Company filed Articles of Merger with the Secretary of State of the State of Nevada pursuant to which its wholly-owned
subsidiary, Inception Mining Inc., a Nevada Corporation, was merged into the Company effective May 1, 2013. As a result of the
filing of the Articles of Merger, the Company’s corporate name was changed from Gold American Mining Corp. to Inception
Mining Inc.
(B)
Going Concern
As
reflected in the accompanying unaudited condensed consolidated financial statements, the Company is in the exploration stage with
minimal operations, has a net loss since inception of $7,484,128. In addition, there is a working capital deficiency (excess of
current liabilities over current assets) of $1,167,115 as of October 31, 2014. This raises substantial doubt about its ability
to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s
ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
(C)
Derivative Instrument Liability
The
Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for
derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments
or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship
designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as
hedge relationships and the types of relationships designated are based on the exposures hedged. At October 31, 2014 and July
31, 2014, the Company did not have any derivative instruments that were designated as hedges.
(D)
Fair Value of Financial Instruments
ASC
825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes
three levels of inputs that may be used to measure fair value:
|
● |
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities; |
|
|
|
|
● |
Level
2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially
the full term of the asset or liability; or |
|
|
|
|
● |
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.
|
Inception
Mining, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
Items
recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements
consisted of the following items as of October 31, 2014:
| |
Level 1 | | |
Level
2 | | |
Level 3 | | |
Total | |
Long-term investments | |
$ | – | | |
$ | – | | |
$ | –
| | |
$ | – | |
Total | |
| – | | |
| – | | |
| – | | |
| – | |
Warrant liability | |
| | | |
| | | |
| 66,330 | | |
| 66,330 | |
Debt Derivative | |
| – | | |
| – | | |
| 608,814 | | |
| 608,814 | |
Total | |
$ | – | | |
$ | – | | |
$ | 675,144 | | |
$ | 675,144 | |
The
table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative
liability) for the three months ended October 31, 2014.
Three
months ended October 31, 2014:
| |
Derivative Liabilities | | |
Warrant Liability | |
Balance, July 31, 2014 | |
$ | 112,851 | | |
$ | - | |
Transfers in upon initial fair value of derivative liabilities | |
| 591,432 | | |
| 81,282 | |
Change in fair value of derivative liabilities and warrant liability | |
| (5,526 | ) | |
| (14,952 | ) |
Transfers to permanent equity upon conversion of note | |
| (89,943 | ) | |
| - | |
Balance, October 31, 2014 | |
$ | 608,814 | | |
$ | 66,330 | |
| |
| | | |
| | |
Net gain for the period included in earnings relating to the liabilities
held at October 31, 2014 | |
$ | 5,526 | | |
$ | 14,952 | |
Level
3 Liabilities were comprised of our bifurcated convertible debt features on our convertible debenture.
Fluctuations
in the Company’s stock price relative to the conversion prices are a primary driver for the changes in the derivative valuations
during each reporting period. The Company’s stock price decreased approximately 20% from July 31, 2014 to October 31, 2014.
Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each
of the Company’s derivative instruments.
The
simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected
volatility would generally result in a higher fair value measurement.
NOTE
2 CONVERTIBLE NOTES PAYABLE
Convertible
notes payable were comprised of the following as of October 31, 2014 and July 31, 2014:
| |
| 10/31/2014 | | |
| 7/31/2014 | |
UP and Burlington convertible note payable | |
$ | 500,000 | | |
$ | 500,000 | |
Iconic Holdings Convertible note payable | |
| 27,500 | | |
| 82,500 | |
Dave Waverek Convertible note payable | |
| 100,000 | | |
| 100,000 | |
Typenex Convertible note payable | |
| 115,000 | | |
| - | |
Total Convertible notes payable | |
| 742,500 | | |
| 682,500 | |
Less unamortized discount | |
| (139,172 | ) | |
| (124,103 | ) |
Total notes payable net of unamortized debt discount | |
$ | 603,328 | | |
$ | 558,397 | |
Inception
Mining, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
UP
and Burlington Gold Mine
On
February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”),
entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased
the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of
$0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and
$150,000 and the assignment of a 3% net royalty. The Asset Purchase Agreement closed on February 25, 2013. On November 1, 2013,
one of the notes was renegotiated with the note holder. The original note was restructured and treated as an extinguishment and
as such is now convertible into shares of the Company’s common stock at $0.45 per share. All the other points of the note
remained the same. A beneficial conversion feature on the new note was recorded for $630,000. On February 11, 2014, the Company
converted $130,000 of principal into 288,889 shares of common stock. As of October 31, 2014, the outstanding balance on this note
was $500,000.
Iconic
Holdings
On
February 18, 2014, the Company entered into an unsecured Note Purchase Agreement for the sale of a 10% convertible promissory
note in which the Company will receive advances up to the principal amount of $220,000 with an original issue discount of 10%
of loaned funds. Through October 31, 2014, the Company has received funds totaling $75,000 and recorded additional principal due
to the original issue discount totaling $7,500. The note bears interest at the rate of 10% per annum and all interest and principal
must be repaid on February 18, 2015. The note is convertible into common stock, at the holder’s option, at the lower of
$0.45 or 60% of the lowest three daily volume weighted average price of the Company’s common stock during the 20 consecutive
trading days prior to the date of conversion. If the Company is placed on “chilled” status with the Depository Trust
Company, the discount will be increased by 10% until such chill is remedied. The note may not be prepaid in whole or in part by
the Company. The Company has identified the embedded derivatives related to the note. The embedded derivatives relate to conversion
features.
The
accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of
the inception date of the notes and to fair value as of each subsequent reporting date, which at October 31, 2014 was $19,790.
At the inception of the notes, the Company determined the aggregate fair value of $124,871 of the embedded derivatives.
The
fair value of the embedded derivatives were determined using the Binomial Option Pricing Model based on the following assumptions:
(1) dividend yield of 0%; (2) expected volatility of 131.64% to 156.78%, (3) weighted average risk-free interest rate of 0.05%
to 0.12%, (4) expected lives of 0.31 to 0.97 years, and (5) estimated fair value of the Company’s common stock from $0.80
to $0.94 per share based upon quoted market price. The initial fair value of the embedded debt derivatives of $124,871 were allocated
as a debt discount up to the proceeds of the notes ($82,500) with the remainder ($42,371) charged to current period operations
as interest expense. On September 2, 2014, the note holder elected to convert $55,000 of the principle balance of the note into
common stock at $0.45 per share. Accordingly, the Company issued 122,222 shares of common stock. The Company moved the related
portion of the derivative liability for the $55,000 converted of $89,943 to permanent equity. For the three months ended October
31, 2014, the Company amortized $39,901 of debt discount to current period operations as interest expense. As of October 31, 2014
the gross balance of the note was $27,500.
Dave
Waverek
On
June 7, 2014, the Company entered into an unsecured Note Purchase Agreement for the sale of a 20% convertible promissory note
in which the Company will receive the principal amount of $100,000. The note bears interest at the rate of 20% per annum and all
interest and principal must be repaid on June 7, 2016. The note is convertible, at the holder’s option into shares of the
Company’s common stock at $0.45 per share. A beneficial conversion feature on the new note was recorded for $100,000. During
the three months ended October 31, 2014, the Company recorded interest expense of $44,444 for accretion of the discount on the
note. As of October 31, 2014, accrued interest on the note was $6,953.
Typenex
On
November 1, 2013, the Company issued an unsecured Convertible Promissory Note (“Note”) to Typenex Co-Investment LLC
(“Typenex”), in the principal amount of $115,000 (the “Note”) due on June 24, 2015 and bears 10% per annum
interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”)
of $10,000 and legal fees reimbursement of $5,000).
The
Note is convertible into common stock, at holder’s option, at a 40% discount to the average of the three lowest bid prices
of the common stock during the 20 trading day period prior to conversion. However, should the average of the three lowest bid
prices as described above fall below $0.60, then the applicable discount increases to 45%. In addition, the conversion price is
to subject to be reduced should the Company issue or grant common stock or equivalents (as defined) at a lower issuance price
(dilutive issuance).
As
of October 31, 2014, the aggregate principal amount outstanding of the convertible promissory note was $115,000.
Inception
Mining, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
In
connection with the issuance of the Note, the Company issued detachable warrants granting the holder the right to acquire an aggregate
of 113,453 shares of the Company’s common stock at $1.40 per share. The warrants expire on September 30, 2019. The warrants
contain certain reset (anti-dilutive) provisions.
The
Company has identified the embedded derivatives related to the above described note and detached warrants. These embedded derivatives
included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires
that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent
reporting date.
At
the inception of the Note, the Company determined the fair value of $118,091 and $81,282 of embedded derivatives related to the
Note and warrants, respectively. The fair value of the embedded derivatives were determined using the Binominal Option Pricing
Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 119.21% (3) weighted average risk-free
interest rate of 0.11% to 1.82%, (4) expected life of 0.75 to 5.02 years, and (5) the quoted market price of the Company’s
common stock of $0.91 per share.
The
determined fair value of the aggregate derivatives of $199,373 were charged as a debt discount up to the net proceeds of the note
with the remainder $99,373 charged to current period operations as non-cash interest expense.
The
charge of the amortization of debt discounts and OID for the three months ended October 31, 2014 was $14,231 and $1,355 which
was accounted for as interest expense, respectively.
NOTE
3 DERIVATIVE LIABILITIES
Debt
derivatives
As
described in Note 2, the Company issued a convertible promissory note which is are convertible into common stock, at holders’
option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives
related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion
features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives
as of the inception date of debenture and to fair value as of each subsequent reporting date.
At
October 31, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $608,814.
The Company recorded a gain from change in fair value of debt derivatives of $5,526 for the three months ended October 31, 2014.
The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions:
(1) dividend yield of 0%, (2) expected volatility of 74.94% to 122.49%, (3) weighted average risk-free interest rate of 0.01 to
0.05% (4) expected life of 0.31 to 0.65 years, and (5) the quoted market price of the Company’s common stock of $0.72 per
share.
Based
upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of
ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based
upon earliest issuance date.
Warrant
liability
As
described in Note 2, the Company issued warrants in conjunction with the issuance with the Typenex Convertible Promissory Note.
These warrants contain certain reset provisions. The accounting treatment of derivative financial instruments requires that the
Company record fair value of the derivatives as of the inception date (issuance date) and to fair value as of each subsequent
reporting date.
At
October 31, 2014, the Company marked to market the fair value of the warrant liability and determined a fair value of $66,330.
The Company recorded a gain from change in fair value of warrant liability of $14,952 for the three months ended October 31, 2014.
The fair value of the warrant liability was determined using Binomial Option Pricing Model based on the following assumptions:
(1) dividend yield of 0%, (2) expected volatility of 122.49%, (3) weighted average risk-free interest rate of 1.62%, (4) expected
life of 4.92 years, and (5) the quoted market price of the Company’s common stock of $0.72 per share.
NOTE
4 CONVERTIBLE NOTE PAYABLE, RELATED PARTY
The Company entered into an unsecured
convertible note payable agreement with MDL Ventures, LLC, which is 100% owned by a stockholder, effective October 1, 2014. Principal
on the convertible note is convertible into common stock at the holder’s option at a price of $0.36 per share if converted
prior to January 1, 2015 or at the lower of $0.18 or 50% of the lowest three daily volume weighted average prices of the Company’s
common stock during the 20 consecutive days prior to the date of conversion.
Inception
Mining, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
5 COMMON STOCK
(A)
Common Stock Issuances
In
August 2014, the Company issued 300,000 shares for services valued at $285,000. The number of shares issued was based on quoted
market price. The services are being provided over a twelve month period.
In
September 2014, the Company issued 535,253 shares for services valued at $607,185. The number of shares issued was based on quoted
market price. The services are being provided over a twelve month period.
On
September 2, 2014, the Company issued 122,222 shares of common stock upon the conversion of $55,000 of note payable principle.
In
October 2014, the Company issued 208,500, shares for service valued at $183,480. The number of shares issued was based on quoted
market price. The services are being provided over a twelve month period.
On October 14, 2014, 142,707 shares
originally issued for legal services were cancelled, which the Company re-purchased for no value.
(B)
Warrants
The
following tables summarize the warrant activity during the three months ended October 31, 2014:
Stock Warrants | |
Number of Warrants | | |
Weighted
Average
Exercise Price | |
Balance at July 31, 2014 | |
| 345,695 | | |
| 0.90 | |
Granted | |
| 113,453 | | |
| 0.88 | |
Exercised | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | |
Balance at October 31, 2014 | |
| 459,148 | | |
$ | 0.90 | |
Outstanding Warrants | | |
Warrants Exercisable | |
Range of
Exercise Price | |
Number
Outstanding at
October 31, 2014 | | |
Weighted Average
Remaining
Contractual Life | | |
Weighted
Average
Exercise Price | | |
Number
Exercisable at
October 31, 2014 | | |
Weighted
Average
Exercise Price | |
$ |
0.88 - 0.90 | |
| 459,148 | | |
| 2.81
years | | |
$ | 0.90 | | |
| 459,148 | | |
$ | 0.90 | |
Inception
Mining, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
6 RELATED PARTY TRANSACTIONS
(A)
Acquisition of Mining Rights
On
February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”),
entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased
the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of
$0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and
$150,000 and the assignment of a 3% net royalty. The Asset Purchase Agreement closed on February 25, 2013. As of October 31, 2014,
the outstanding balances on these notes were $500,000 and $13,000, respectively. On November 1, 2013, one of the notes was renegotiated
with the note holder. The original note was restructured and treated as an extinguishment and as such is now convertible into
shares of the Company’s common stock at $0.45 per share. All the other points of the note remained the same. A beneficial
conversion feature on the new note was recorded for $630,000. At July 31, 2014 the beneficial conversion feature was fully amortized,
thus there is no amortization expense for the three month period ending October 31, 2014.
(B)
Consulting Agreement
In
February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $18,000
per month for twelve months. As of October 31, 2014, the Company owed $180,000 to the stockholder/director in accrued consulting
fees and recorded $54,000 as consulting expense, for the three months ended October 31, 2014.
(C)
Employment Agreements
On
February 25, 2013, the Company entered into an employment agreement with Michael Ahlin pursuant to which he was appointed as the
Chief Executive Officer, President, Treasurer, Secretary and Director of the Company. Under the terms of his employment agreement,
Mr. Ahlin will become eligible to receive an annual salary, bonus and stock option upon the Company achieving positive earnings
before interest, taxes, depreciation, and amortization (“EBITDA”) in two consecutive quarters as reflected in its
filings with the Securities and Exchange Commission (“SEC”). No expense has been recognized since inception of the
contract.
On
February 25, 2013, the Company entered into an employment agreement with Whit Cluff pursuant to which he was appointed as the
Chief Financial Officer and Director of the Company. Under the terms of his employment agreement, Mr. Cluff will become eligible
to receive an annual salary, bonus and stock option upon the Company achieving positive EBITDA in two consecutive quarters as
reflected in its filings with the SEC. No expense has been recognized since inception of the contract.
On
February 25, 2013, the Company entered into an employment agreement with Brian Brewer pursuant to which he was appointed as the
Chief Operating Officer and Director of the Company. Under the terms of his employment agreement, Mr. Brewer will become eligible
to receive an annual salary, bonus and stock option upon the Company achieving positive EBITDA in two consecutive quarters as
reflected in its filings with the SEC. No expense has been recognized since inception of the contract.
NOTE
7 AGREEMENTS AND COMMITMENTS
David
Rees Agreement
On
January 31, 2014, the Company entered into a Consulting Agreement with David Rees pursuant to which Mr. Rees will receive 50,000
shares of common stock of the Company, which such shares have been registered on a Registration Statement File No. 333-191244
in consideration of providing general corporate advisory and merger and acquisition services. The term of the Agreement is for
1 year. A total of $6,427 has been recognized in expense for the three months ended October 31, 2014.
Chienn
Consulting Agreement
On
January 31, 2014, the Company entered into a Consulting Agreement with Chienn Consulting Company, LLC (“Chienn”) pursuant
to which Chienn will receive 100,000 shares of restricted common stock of the Company in consideration of providing marketing,
sales and business development services for a period of one year. A total of $12,855 has been recognized in expense for
the three months ended October 31, 2014.
Inception
Mining, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
7 AGREEMENTS AND COMMITMENTS (CONTINUED)
Elliott
Foxcroft Agreement
On
March 27, 2014, the Company entered into an Advisory Agreement with Elliott Foxcroft (“Forcroft”) pursuant to which
Foxcroft will receive 300,000 shares of restricted common stock of the Company, of which 100,000 shares have been issued, in consideration
for providing/assist the Company with general legal, corporate advisory and M&A matters. Mr. Foxcroft will help the Company
source, identify and evaluate potential acquisition targets (the “Target Acquisitions”) for a period of 90 days. A
total of $25,710 was recognized as expense related to the Advisory Agreement for the three months ending October 31, 2014.
Desert
Bloom Capital Agreement
On
August 1, 2014, the Company entered into an Advisory Agreement with Desert Bloom Capital, Ltd. (“Desert Bloom”) pursuant
to which Desert Bloom will receive 1,400,000 shares of restricted common stock of the Company, of which 500,000 shares have been
issued, in consideration for providing/assisting the Company with identifying strategic alliances and with the Company's business
development activities for the period of one year. Per the agreement, 500,000 shares of common stock were issued upon signing,
100,000 shares of common stock will be issued on the first day of the month for the next four months and 500,000 shares of common
stock will be issued on the first day of the sixth month. Expense will be recognized ratably over the period of the agreement
based upon the quoted market value of the shares at the time of issuance. Future issuances of shares will be subject to revaluation
until such shares are issued in accordance with Accounting Standards Codification 505-50. As of October 31, 2014, the value of
the services for shares issued was $491,000. As of October 31, 2014, $342,868 was recognized in consulting expense related to
the agreement.
Golden
State Securities Agreement
On
August 29, 2014, the Company entered into an Advisory Agreement with Golden State Securities, Inc. (“Golden State”)
pursuant to which Golden State will receive 1,090,003 shares of restricted common stock of the Company, of which 272,503 shares
have been issued, in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan,
strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining
thereto for the period of one year. Per the agreement, 272,503 shares of common stock were issued upon signing and 90,833 shares
of common stock will be issued on the first day of the fourth month through the twelfth month. Expense will be recognized ratably
over the period of the agreement based upon the quoted market value of the shares at the time of issuance. Future issuances of
shares will be subject to revaluation until such shares are issued in accordance with Accounting Standards Codification 505-50.
As of October 31, 2014, the value of the services for shares issued was $321,554. As of October 31, 2014, $211,431 was recognized
in consulting expense related to the agreement.
SSGH
Agreement
On
September 3, 2014, the Company entered into an Advisory Agreement with SSGH, LLC. (“SSGH”) pursuant to which SSGH
will receive 651,000 shares of restricted common stock of the Company, of which 162,750 shares have been issued, in consideration
for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives
and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one
year. Per the agreement, 162,750 shares of common stock were issued upon signing and 54,250 shares of common stock will be issued
on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement
based upon the quoted market value of the shares at the time of issuance. Future issuances of shares will be subject to revaluation
until such shares are issued in accordance with Accounting Standards Codification 505-50. As of October 31, 2014, the value of
the services for shares issued was $167,633. As of October 31, 2014, $106,550 was recognized in consulting expense related to
the agreement.
JFS
Investments Agreement
On
September 5, 2014, the Company entered into an Advisory Agreement with JFS Investments PR, LLC. (“JFS”) pursuant to
which JFS will 434,003 shares of restricted common stock of the Company, of which 108,500 shares have been issued, in consideration
for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives
and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one
year. Per the agreement, 108,500 shares of common stock were issued upon signing and 36,167 shares of common stock will be issued
on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement
based upon the quoted market value of the shares at the time of issuance. Future issuances of shares will be subject to revaluation
until such shares are issued in accordance with Accounting Standards Codification 505-50. As of October 31, 2014, the value of
the services for shares issued was $95,480. As of October 31, 2014, $31,390 was recognized in consulting expense related to the
agreement.
NOTE
8 CONCENTRATION OF RISK
Financial
instruments that potentially subject the Company to credit risk consist principally of cash. The cash balance identified in the
balance sheet is held in an account with a financial institution and insured by the Federal Deposit Insurance Corporation (FDIC)
up to $250,000. At times, cash maintained on deposit may be in excess of FDIC limits. Cash may also be maintained at commercial
financial institutions which are not insured by the FDIC.
NOTE 9 SUBSEQUENT EVENTS
In November 2014 the Company cancelled
88,889 shares.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward
Looking Statements
Except
for historical information, the following Management’s Discussion and Analysis contains forward-looking statements based
upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding,
among other things, (a) discussions about mineral resources and mineralized material, (b) our projected sales and profitability,
(c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for
working capital, (g) our lack of operational experience and (h) the benefits related to ownership of our common stock. Forward-looking
statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable
by use of the words “may,” “will,” “should,” “expect,” “anticipate,”
“estimate,” “believe,” “intend,” or “project” or the negative of these words or
other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties,
and other factors that may cause our actual results, performance, or achievements to be materially different from the future results,
performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” as
well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters
described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this Report will in fact occur as projected.
Overview
(Plan of Operation)
On
February 25, 2013, Inception Mining, Inc. (“Inception” or the “Company”) and its majority shareholder
(the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”),
entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Inception Resources, LLC, a Utah corporation
(“Inception Resources”), pursuant to which Inception purchased the U.P. and Burlington Gold Mine in consideration
of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment
of a 3% net royalty. Inception Resources was an entity owned by and under the control of a shareholder. This transaction is deemed
an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”).
We were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended)
immediately prior to our acquisition of the gold mine pursuant to the terms of the Assert Purchase Agreement. As a result of such
acquisition, our operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently,
we believe that acquisition has caused us to cease to be a shell company as we no longer have nominal operations.
We
are a mining exploration stage company engaged in the acquisition, exploration, and development of mineral properties, primarily
for gold, from owned mining properties. Inception Resources has acquired one project, as described below. Our target properties
are those that have been the subject of historical exploration. We have not generated revenue from mining operations.
On
February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the U.P. and Burlington Gold Mine (“UP & Burlington” or the “Mine”) pursuant to that certain
asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its
wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the
other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). We are presently in the exploration stage at
UP & Burlington. UP & Burlington contains two Federal patented mining claims which Inception Resources acquired for the
purpose of the exploration and potential development of gold on the 40 acres which comprises UP & Burlington.
UP
& Burlington is a private gold property which was discovered in 1892 which has been held unused in a family trust for the
past 75 years. UP & Burlington is located in County of Lemhi, Northwest of Salmon, Idaho, at an elevation of 7,994 feet. The
UP & Burlington site is located six miles from the city of Salmon; is 0.6 miles away from the closest major road (Ridge Rd.);
and is 1.56 miles away from the closest major power line. We believe Salmon, along with the surrounding County of Lemhi, provides
an excellent infrastructure for our mine. Salmon has a population of 3,122 and Lemhi County has a population of 7,806. In September
2011, heavy maintenance and right-of-way repair was completed and a new road to UP & Burlington was constructed.
UP
& Burlington’s two gold mining claims were brought to patent in 1900, which covers the Mine’s 40 acres. Subsequently,
in 1989, a U.S. Forest Survey was performed on the UP & Burlington site confirming that the patented claims cover an area
which is six hundred feet by three thousand feet (600‘x3000’). The Mine’s patented claims remove the challenges
associated when working on U.S. Forest lands, Bureau of Land Management (“BLM”), state or other property types. With
our purchase of UP & Burlington, we have the benefit of working on private land, which requires only a hauling / road permit
to commence significant operations.
As
part of our initial Plan of Operations, we have compiled a two-phase plan in which we intend to fund underground mining with operating
profits from surface mining, if any. During Phase I, we plan to obtain the necessary permitting, make additional access road and
surface improvements, implement surface mining on a 2,500 foot per day-lighted vein to depths of 40 – 60 feet, and achieve
Confirmatory Core Drilling (NI43-101), Vein Definition and Ore Valuation. In Phase II, we plan to contract an underground mining
and operations plan, expand portal development leveraging existing underground access and implement underground mining to a depth
based on optimizing costs versus processed ore value. There is no guarantee that we will be successful in implementing either
Phase I or Phase II.
Our
Tactical Plan includes obtaining a Lemhi County Conditional Use Permit, an Idaho Department of Lands Surface Reclamation Bond
and permitting for the U.S. Forest Service Access Road, as well as obtaining major contracts such as geotechnical contracts, surface
mining contracts, toll processing contracts and underground mine plan contracts.
The
Company and its independent consultants have developed a detailed exploration drilling program to confirm and expand mineralized
zones in the Mine and collect additional environmental and technical data. The first phase of metallurgical testing, engineering
and environmental programs and studies began in 2013 and soon thereafter updated the historic feasibility study and environmental
permit applications.
We
also plan to review opportunities and acquire additional mineral properties with current or historic precious and base metal mineralization
with meaningful exploration potential.
Results
of Operations
Three-months
ended October 31, 2014 compared to the three-months ended October 31, 2013
We
had a net loss of $1,256,406 for the three-months ended October 31, 2014, and a net loss of $230,095 for the three-months ended
October 31, 2013. This change in our results over the two periods is primarily the result of the new professional and consulting
agreements, where the Company utilizes the expertise, professional relationships, and knowledge of said consultants, are classified
as general and administrative expenses entered into during the three months ended October 31, 2014 as well as the increase in
exploration costs, a loss on derivatives and the changes in debt discounts which are included in other Income/Expense. The following
table summarizes key items of comparison and their related increase (decrease) for the three months ended October 31, 2014 and
2013:
| |
Three-Months
Ended October 31, | | |
Increase/ | |
| |
2014 | | |
2013 | | |
(Decrease) | |
Revenues | |
$ | - | | |
$ | - | | |
$ | - | |
Exploration Costs | |
| 138,779 | | |
| 8,020 | | |
| 130,759 | |
General and Administrative | |
| 919,722 | | |
| 64,774 | | |
| 854,948 | |
Total Operating Expenses | |
| 1,058,501 | | |
| 72,794 | | |
| 985,707 | |
(Loss) from Operations | |
| (1,058,501 | ) | |
| (72,794 | ) | |
| 985,707 | |
Total Other Income/(Expense) | |
| (342,289 | ) | |
| (157,301 | ) | |
| (184,988 | ) |
Loss from Operations Before Taxes | |
| (1,400,790 | ) | |
| (230,095 | ) | |
| (1,170,695 | ) |
Net Loss | |
$ | (1,400,790 | ) | |
$ | (230,095 | ) | |
$ | (1,170,695 | ) |
The
Company had no revenues in both periods.
Liquidity
and Capital Resources
Our
balance sheet as of October 31, 2014 reflects assets of $1,399,423. We had cash in the amount of $544 and working capital deficit
in the amount of $1,022,731 as of October 31, 2014. Thus, we do not have sufficient working capital to enable us to carry out
our stated plan of operation for the next twelve months. We will need to raise approximately $2,000,000 in order to fully implement
our business plan.
Working
Capital
| |
October
31, 2014 | | |
July
31, 2014 | |
Current assets | |
$ | 449,263 | | |
$ | 140,785 | |
Current liabilities | |
| 1,616,378 | | |
| 1,160,371 | |
Working capital deficit | |
$ | (1,167,115 | ) | |
$ | (1,019,586 | ) |
We
anticipate generating losses and, therefore, may be unable to continue operations in the future, if we don’t acquire additional
capital and issue debt or equity or enter into a strategic arrangement with a third party.
Going
Concern Consideration
As
reflected in the accompanying unaudited condensed consolidated financial statements, the Company is in the exploration stage with
no revenue generating operations and has a net loss since inception of $7,339,744. In addition, there is a working capital deficit
of $1,022,731 as of October 31, 2014. This raises substantial doubt about its ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement
its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
| |
Three-months
Ended October 31, | |
| |
2014 | | |
2013 | |
Net Cash Used in Operating Activities | |
$ | (172,690 | ) | |
$ | (35,423 | ) |
Net Cash Used in Investing Activities | |
| - | | |
| - | |
Net Cash Provided by Financing Activities | |
| 167,539 | | |
| 35,027 | |
Net Increase (Decrease) in Cash | |
$ | (5,151 | ) | |
$ | (396 | ) |
Operating
Activities
Net
cash flow used in operating activities during the three months ended October 31, 2014 was $172,690, an increase of $137,267 from
the $35,423 net cash outflow during the three months ended October 31, 2013. This increase in the cash used in operating activities
was primarily due to increased operating activities of the Company.
Financing
Activities
Financing
activities during the three months ended October 31, 2014 provided $167,539, an increase of $132,512 from the $35,027 provided
by financing activities during the three months ended October 31, 2013. During the three months ended October 31, 2014, the company
received $72,539 in advances from related parties and $100,000 in proceeds from a convertible note. The Company also made $5,000
in payments on notes payable.
We
are currently seeking up to $2,000,000 in equity financing in order to fully implement our business plan.
Critical
Accounting Policies
Our
financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the
United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application
of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the
following aspects of our financial statements is critical to an understanding of our financials.
Costs
of acquiring mining properties and any exploration and development costs are expensed as incurred unless proven and probable reserves
exist and the property is a commercially mineable property. Mine development costs incurred either to develop new gold and silver
deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are
capitalized. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations.
Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying
value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in
excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value
of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated
salvage value.
The
Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the
prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination
has been made that economic production does not appear reasonably certain. As of October 31, 2014, none of our properties have
proven reserves.
Recent
Accounting Pronouncements
For
recent accounting pronouncements, please refer to the notes to financial statements in Part I, Item 1 of this quarterly report.
Off-Balance
Sheet Arrangements
The
Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect
on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
a smaller reporting company, we are not required to include disclosure under this item.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in
our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized,
and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated
and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow
timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation
of our management, including the principal executive officer and the principal financial and accounting officer, of the effectiveness
of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of
the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited
number of employees, management concluded that our disclosure controls and procedures were ineffective as of October 31, 2014.
Management
has identified control deficiencies regarding the lack of segregation of duties, tax compliance issues and the need for a stronger
internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the
Company’s accounting staff and reliance on outside consultants for external reporting. The small size of the Company’s
accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.
To
mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions,
along with the use of legal and outside accounting consultants. As we grow, we expect to increase our number of employees, which
will enable us to implement adequate segregation of duties within the internal control framework.
These
control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material
misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we have
determined that these control deficiencies as described above together constitute a material weakness.
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial
officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments
in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over
time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting that occurred during the period covered by this quarterly
report 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
We
may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect
on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers and directors
in their capacity as such that could have a material impact on our operations or finances.
ITEM
1A. RISK FACTORS
As
a smaller reporting company, we are not required to include disclosure under this item.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
Not
Applicable.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
Exhibit
No. |
|
Description |
|
|
|
3.1 |
|
Articles
of Incorporation (1) |
3.2 |
|
Certificate
of Amendment, effective March 5, 2010 (2) |
3.3 |
|
Certificate
of Amendment, effective June 23, 2010 (3) |
3.4 |
|
Articles
of Merger, effective May 17, 2013 (4) |
3.5 |
|
Bylaws
(1) |
4.1 |
|
Form
of Subscription Agreement entered by and between Inception Mining Inc. and Accredited Investors (5) |
4.2 |
|
Letter
Amendment dated November 1, 2013 to Promissory Note dated January 17, 2013 between Inception Resources, LLC and U.P and Burlington
Development, LLC (8) |
4.3 |
|
Note
Purchase Agreement by and among the Company and the Iconic Holdings, LLC, dated February 18, 2014 (9) |
4.4 |
|
Convertible
Promissory Note issued to Iconic Holdings, LLC (9) |
4.5 |
|
Securities
Purchase Agreement by and among the Company and Typenex Co-Investment, LLC, dated September 24, 2014 (10) |
4.6 |
|
Convertible
Promissory Note issued to Typenex Co-Investment, LLC (10) |
4.7 |
|
Warrant
to Purchase Shares of Common Stock issued to Typenex Co-Investment, LLC (10) |
10.1 |
|
Asset
Purchase Agreement dated February 25, 2013, by and between Gold American, its majority shareholder Brett Bertolami, and its
wholly-owned subsidiary, Inception Development Inc. on one hand, and Inception Resources, LLC on the other hand (6) |
10.2 |
|
Employment
Agreement by and between the Company and Michael Ahlin dated February 25, 2013 (6) |
10.3 |
|
Employment
Agreement by and between the Company and Whit Cluff dated February 25, 2013 (6) |
10.4 |
|
Employment
Agreement by and between the Company and Brian Brewer dated February 25, 2013 (6) |
10.5 |
|
Consulting
Agreement by and between the Company and Jeff Pike dated February 25, 2013 (6) |
10.6 |
|
Consulting
Agreement by and between the Company and First Trust Management Inc. dated February 25, 2013 (6) |
10.7 |
|
Consulting
Agreement by and between the Company and Danzig Ltd. dated February 25, 2013 (6) |
10.8 |
|
Consulting
Agreement by and between the Company and BKBK Holding LLC dated February 25, 2013 (6) |
10.9 |
|
Consulting
Agreement by and between the Company and Highland Ventures LLC dated February 25, 2013 (6) |
10.10 |
|
Consulting
Agreement by and between the Company and Monte Carlo LLC dated February 25, 2013 (6) |
10.11 |
|
Consulting
Agreement by and between the Company and Powder Moon Corporation dated February 25, 2013 (6) |
10.12 |
|
Consulting
Agreement by and between the Company and Lee Kimball dated February 25, 2013 (6) |
10.13 |
|
Consulting
Agreement by and between the Company and Mitch Cohen dated February 25, 2013 (6) |
10.14 |
|
Debt
Exchange Agreement by and between Gold American Mining Corp. and Brett Bertolami dated February 25, 2013 (6) |
10.15 |
|
Agreement
by and between Crawford Cattle Company LLC, as seller, and, Inception Mining Inc., as Buyer dated as of August 30, 2013 (7) |
21.1 |
|
List
of Subsidiaries (11) |
31.1* |
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2*
32.1* |
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification
by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32
.2* |
|
Certification
by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* |
Filed
herewith. |
(1) |
Incorporated
by reference from Form SB-2 filed with the SEC on October 31, 2007. |
(2) |
Incorporated
by reference from Form 8-K filed with the SEC on March 10, 2010. |
(3) |
Incorporated
by reference from Form 8-K filed with the SEC on June 28, 2010. |
(4) |
Incorporated
by reference from Form 10-Q filed with the SEC on May 20, 2013. |
(5) |
Incorporated
by reference from Form 8-K filed with the SEC on August 5, 2013. |
(6) |
Incorporated
by reference from Form 8-K filed with the SEC on March 1, 2013. |
(7) |
Incorporated
by reference from Form 8-K filed with the SEC on September 6, 2013. |
(8) |
Incorporated
by reference from Form 10-Q filed with the SEC on March 17, 2014. |
(9) |
Incorporated
by reference from Form 8-K filed with the SEC on March 12, 2014. |
(10)
(11) |
Incorporated
by reference from Form 8-K filed with the SEC on October 7, 2014.
Incorporated
by reference from Form 8-K filed with the SEC on March 1, 2013. |
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.
|
INCEPTION
MINING, INC. |
|
|
|
Date:
December 22, 2014 |
By: |
/s/
Michael Ahlin |
|
Name: |
Michael
Ahlin |
|
Title: |
Chief
Executive Officer (Principal Executive Officer) |
|
|
|
|
By: |
/s/
Whit Cluff |
|
Name: |
Whit
Cluff |
|
Title: |
Chief
Financial Officer (Principal Financial and Accounting Officer) |
EXHIBIT
31.1
OFFICER’S
CERTIFICATE
PURSUANT
TO SECTION 302
I,
Michael Ahlin, certify that:
1. |
I
have reviewed this Quarterly Report on Form 10-Q of Inception Mining, Inc.; |
|
|
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
|
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
|
4. |
I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
(a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
me by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
(b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
(c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
(d) |
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
|
|
|
5. |
I
have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
|
|
(a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
(b) |
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
December 22, 2014 |
By: |
/s/
Michael Ahlin |
|
Name: |
Michael
Ahlin |
|
Title: |
Chief
Executive Officer (Principal Executive Officer) |
EXHIBIT
31.2
OFFICER’S
CERTIFICATE
PURSUANT
TO SECTION 302
I,
Whit Cluff, certify that:
1. |
I
have reviewed this Quarterly Report on Form 10-Q of Inception Mining, Inc.; |
|
|
|
2. |
Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
|
|
|
3. |
Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
|
4. |
I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
(a) |
Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
me by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
(b) |
Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
(c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and |
|
|
|
|
(d) |
Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and |
|
|
|
5. |
I
have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
|
|
(a) |
All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
|
|
|
(b) |
Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
December 22, 2014 |
By: |
/s/
Whit Cluff |
|
Name: |
Whit
Cluff |
|
Title: |
Chief
Financial Officer (Principal Accounting Officer) |
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Inception Mining, Inc. (the “Company”) for the period ended October
31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Ahlin,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:
1. |
The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and |
|
|
2. |
The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
Date:
December 22, 2014 |
By: |
/s/
Michael Ahlin |
|
Name: |
Michael
Ahlin |
|
Title: |
Chief
Executive Officer (Principal Executive Officer) |
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Inception Mining, Inc. (the “Company”) for the period ended October
31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Whit Cluff, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:
1. |
The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and |
|
|
2. |
The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
Date:
December 22, 2014 |
By: |
/s/
Whit Cluff |
|
Name: |
Whit
Cluff |
|
Title: |
Chief
Financial Officer (Principal Financial and Accounting Officer) |
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