UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): October 2, 2015
INCEPTION
MINING INC.
(Exact
name of registrant as specified in its charter)
Nevada |
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333-147056 |
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35-2302128 |
(State
or Other Jurisdiction
of Incorporation) |
|
(Commission
File Number) |
|
(IRS
Employer
Identification Number) |
5320
South 900 East, Suite 260
Murray,
Utah 84117
801-312-8113
Copies
to:
BRUNSON
CHANDLER & JONES, PLLC
175
S. Main Street, 15th Floor
Salt
Lake City, UT 84111
Direct:
801.303.5721
Main
Office: 801.303.5730
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Preliminary
Note:
This
Form 8-K/A amends the Form 8-K filed by Inception Mining Inc. (the “Company”) on October 7, 2015 (the “Original
8-K”), describing the consummation of a Merger as described herein. This 8-K/A is being filed to amend the Original 8-K
to add Item 5.03 describing the change of the Company’s fiscal year and to add the financial statements for the business
acquired as required in Rule 8-04(b) of Regulation S-X and the pro forma financial information required by Rule 8-05 of Regulation
S-X.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Form 8-K and other reports filed by Inception Mining Inc., a Nevada corporation, from time to time with the Securities and Exchange
Commission (collectively the “Filings”) contain or may contain forward looking statements and information that are
based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions
made by the Company’s management. When used in the filings the words “anticipate”, “believe”, “estimate”,
“expect”, “future”, “intend”, “plan” or the negative of these terms and similar
expressions as they relate to the Company’s or Company’s management identify forward looking statements. Such statements
reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions and
other factors (including the risks contained in the section of this report entitled “Risk Factors”) relating to the
Company’s industry, the Company’s operations and results of operations and any businesses that may be acquired by
the Company. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Although
the Company’s management believes that the expectations reflected in the forward looking statements are reasonable, the
Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements
to conform these statements to actual results. The following discussion should be read in conjunction with the Company’s
financial statements and the related notes filed with this Form 8-K.
In
this Form 8-K, references to “we”, “our”, “us”, the “Company”, or “Inception”
refer to Inception Mining Inc., a Nevada corporation.
Item
2.01 Completion of Acquisition or Disposition of Assets.
On
August 4, 2015, Inception Mining Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and
among Inception Mining Inc., Clavo Rico, LTD, a Turks and Caicos corporation (“Clavo Rico”), and CR Acquisition Corp.,
a Nevada corporation (“Merger Subsidiary”). On August 5, 2015, after realizing there would be some administrative
delays with the transfer agent on the issuance of shares, the parties entered into an Addendum to the Merger Agreement in which
the parties agreed that Inception Mining Inc. would operate the Clavo Rico mine in Honduras and receive the proceeds for all operations
beginning August 5, 2015. After the transfer agent issues were resolved, and the shares were able to be issued (a precondition
to the closing of the Merger Agreement), the Merger Agreement closed on October 2, 2015 (the “Closing”). Pursuant
to the terms of the Merger Agreement, at the Closing, the Merger Subsidiary merged with and into Clavo Rico, the separate corporate
existence of Merger Subsidiary ceased, and Clavo Rico will continue as the surviving corporation and as a wholly-owned subsidiary
of the Company (the “Merger”). As consideration for the Merger, (i) the shareholders of Clavo Rico at the time of
the Closing received a total of 240,225,901 shares of the Company in the aggregate to be held in book entry, to be issued on a
pro rata basis and (ii) the Company assumed certain promissory notes of Clavo Rico in the amount of $8,883,306.
Employment
Agreements
On
August 1, 2015, the Company amended the previously entered into employment agreement with Michael Ahlin pursuant to which the
eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with
the Securities and Exchange Commission (“SEC”) were removed.
Other
Agreements
On
September 25, 2015, as required by the Merger Agreement, the Company retired 2,600,000 share of common stock issued in the name
of Trent D’Ambrosio.
On
September 25, 2015, as required by the Merger Agreement, the Company retired 2,000,000 share of common stock issued in the name
of Michael Ahlin.
On
September 25, 2015, as required by the Merger Agreement, the Company agreement to retired 1,000,000 share of common stock issued
in the name of Whit Cluff.
On
September 25, 2015, as required by the Merger Agreement, the Company retired 350,000 share of common stock issued in the name
of MDL Ventures LLC.
As
compensation for the work in closing the Merger Agreement and for services rendered to date, certain officers and directors were
issued shares of the Company’s common stock on October 2, 2015. Whit Cluff was issued 1,375,000 shares; Trent D’Ambrosio
was issued 3,855,929 shares; and Michael Ahlin was issued 2,750,000 shares.
Overview
We
are a mining company engaged in the acquisition, exploration, and development of mineral properties, primarily for gold, from
owned mining properties and or potential joint venture agreement. Inception Resources has acquired two projects, as described
below. Our target properties are those that have been the subject of historical exploration and production.
Clavo
Rico Gold/Silver Mine: El Corpus, Honduras, Central America
On
October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held
Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession
through its subsidiary Minera Cerros del Sur, and holds other mining concessions. Its workings include several historical underground
operations dating back to the early Mayan and Spanish occupation.
Through
its operating subsidiaries, Clavo Rico is engaged in processing a significant historical tailings body along with several open
pit ore bodies, utilizing a new 600,000-ton membrane-lined leach system and ADR recovery plant. Processing had increased
to an average of 300 ounces per month with one month of 700 ounces prior to the last rain season at which time the company elected
to install a new crushing circuit, allowing for an increase in monthly production and greater reliability. After installing the
new cone and subsequent reworking of the primary crusher and other equipment, production has recently recovered and is stabilized
at more than 500 ounces per month. Precious metals, including silver, are recovered via an electro-winning circuit and then smelted
into doré onsite. The subsequent doré bars, being approximately 94% pure, are then picked up by an armored car service
and held in the Capital of Tegucigalpa. Upon completion of assay work, and payment of Honduran taxes and fees, the doré
is shipped via air to Asahi Refining (previously Johnson Mathey) in Salt Lake City, Utah. The doré is again assayed and
then sold either via Asahi or other dealers.
The
primary operation of Clavo Rico sits on 20 hectares and acquisition of adjacent property is in progress. The concession extends
well beyond the surface boundary limits. The tailings were the byproduct of a historical underground mine production and a vat
leach system. Government requirements to place the tailings on a membrane lining allowed for the expansion of further mining on
fresh ore bodies and the construction a larger membrane lined leach pad and new ADR process plant. The current operation has available
open pit ore bodies to allow for extended operations at the current processing level. Tailings grade between 2-3 grams per ton
(GPT) and fresh ore bodies have ranged from 2-6 GPT. Mine life has not been forecast as the concessions are so extensive that
costs to determine at this point were not justified. However, the current known and assayed ore will allow for several years’
production at cost levels well below those of major producers. With the stabilization of extraction and crushing, and minor
capex, production is expected to be more efficient.
New
ore bodies associated with the property have been preliminarily mapped and drilled, leading to future mine planning and expanded
operations. The acquisition includes all of the current mining operations and primary concession along with the rights to acquire
the additional concessions. Efforts are underway to accumulate all available data and then along with new proposed drilling and
geotechnical analysis the company will move towards a 43-101 compliant Resource Analysis of the known ore bodies. The Company’s
exploration team will focus on bringing those new bodies to production within the next two years and will also embark on a comprehensive
mapping of the additional concessions.
UP
& Burlington Gold Mine, Salmon, Lemhi County, Idaho
In
addition to operations obtained during the Clavo Rico Merger, the Company plans to still continue its existing operations. On
February 25, 2013 the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the UP and Burlington Gold Mine (“UP & Burlington”) pursuant to an 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.
Discovered
in 1892, UP & Burlington is a private gold property that has been held unused in a family trust for the past 75 years. UP
& Burlington is located in Lemhi County, Northwest of Salmon, Idaho, at an elevation of 3,994 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
of six hundred feet by three thousand feet (600’ x 300’). 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.
The
Company has obtained the necessary permitting, cut additional access roads made surface improvements, and initiated surface mining
on a 2,500 foot per day lighted vein for bulk sampling, 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 confirmation and expansion drilling
will begin in 2013. The Company intends to continue drilling, metallurgical testing, engineering and environmental programs
and studies and has 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.
Item
1. BUSINESS
Competitive
Business Conditions
We
compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities,
personnel and financial resources. There is a limited supply of desirable mineral lands available for claim-staking, lease or
acquisition in the United States, Honduras, and other areas where we may conduct exploration activities. Because we compete with
individuals and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage
in acquiring desirable mineral properties. From time to time, specific properties or areas that would otherwise be attractive
to us for exploration or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial
resources. Competition in the mining industry is not limited to the acquisition of mineral properties but also extends to the
technical expertise to find, advance, and operate such properties; the labor to operate the properties; and the capital needed
to fund the acquisition and operation of such properties. Competition may result in our company being unable not only to acquire
desired properties, but to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration
activities or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with
other companies for these resources would have a material adverse effect on our results of operation and business. The mineral
exploration industry is highly fragmented, and we are a very small participant in this sector. Many of our competitors explore
for a variety of minerals and control many different properties around the world. Many of them have been in business longer than
we have and have established strategic partnerships and relationships and have greater financial resources than we do.
There
is significant competition for properties suitable for gold exploration. As a result, we may be unable to continue to acquire
interests in attractive properties on terms that we consider acceptable. We will be subject to competition and unforeseen limited
sources of supplies in the industry in the event spot shortages arise for supplies such as dynamite, and certain equipment such
as drill rigs, bulldozers and excavators that we will need to conduct exploration. If we are unsuccessful in securing the products,
equipment and services we need we may have to suspend our exploration plans until we are able to secure them.
Market
for Gold
In
the event that gold is produced from our property, we believe that wholesale purchasers for the gold would be readily available.
Readily available wholesale purchasers of gold and other precious metals exist in the United States and throughout the world.
Among the largest are Handy & Harman, Engelhard Industries and Johnson Matthey, Ltd. Historically, these markets are liquid
and volatile. Wholesale purchase prices for precious metals can be affected by a number of factors, all of which are beyond our
control, including but not limited to:
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fluctuation
in the supply of, demand and market price for gold; |
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mining
activities of our competitors; |
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sale
or purchase of gold by central banks and for investment purposes by individuals and financial institutions; |
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interest
rates; |
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currency
exchange rates; |
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inflation
or deflation; |
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fluctuation
in the value of the United States dollar and other currencies; and |
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political
and economic conditions of major gold or other mineral-producing countries. |
If
we find gold that is deemed of economic grade and in sufficient quantities to justify removal, we may seek additional capital
through equity or debt financing to build a mine and processing facility, or enter into joint venture or other arrangements with
large and more experienced companies better able to fund ongoing exploration and development work, or find some other entity to
mine our property on our behalf, or sell or lease our rights to mine the gold. Upon mining, the ore would be processed through
a series of steps that produces a rough concentrate. This rough concentrate is then sold to refiners and smelters for the value
of the minerals that it contains, less the cost of further concentrating, refining and smelting. Refiners and smelters then sell
the gold on the open market through brokers who work for wholesalers including the major wholesalers listed above. We have not
found any gold as of today, and there is no assurance that we will find any gold in the future.
Compliance
with Government Regulation
Mining
Operations
UP
and BURLINGTON (Lemhi County, Idaho): Mine operation is governed by both federal and state law. We will be required to comply
with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals
in the United States generally. Federal laws, such as those governing the purchase, transport or storage of explosives, and those
governing mine safety and health, also apply. The Company plans to obtain a Lemhi County Conditional Use Permit, an Idaho Department
of Lands Surface Reclamation Bond and permitting for the U.S. Forest Service Access Road.
When
the mine comes into production we will also be subject to the rules and regulations of the Mine Safety and Health Administration,
a Division of the United States Department of Labor.
CLAVO
RICO (Honduras, Central America): The mining operations in Honduras are governed by the national entities Honduran Institute of
Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA). The Clavo Rico mine has operated under
a grandfathered concession granted many years ago and has now complied with all regulatory requirements of the above agencies
and the recently adopted HONDURAN Mining laws (The General Mining Law was approved by Legislative Decree No. 238-2012, dated January
23, 2013), including employee health and safety regulations, Environmental requirements, water discharge requirements, and potential
reclamation requirements. As the above ministries have only limited operational experience and the new mining law has only recently
been adopted, the interpretation, adoption and enforcement of many regulations are evolving. Other local ordinances (municipality
of El Corpus) minor and most regulatory efforts are as a result of interaction between the mine and the local populace, (examples
include use of the mine haul road for local traffic, restricting mine operations to daylight hours for noise considerations, watering
for dust control, etc.) where no regulation or law exists, we have attempted to duplicate best practices as required in other
business climates.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
Environmental
Laws
Mining
activities at the Company’s properties are also subject to various environmental laws, both federal and state, including
but not limited to the federal National Environmental Policy Act, CERCLA (as defined below), the Resource Recovery and Conservation
Act, the Clean Water Act, the Clean Air Act and the Endangered Species Act, and certain Idaho state laws governing the discharge
of pollutants and the use and discharge of water. Various permits from federal and state agencies are required under many of these
laws. Local laws and ordinances may also apply to such activities as construction of facilities, land use, waste disposal, road
use and noise levels.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), imposes strict,
joint, and several liability on parties associated with releases or threats of releases of hazardous substances. Liable parties
include, among others, the current owners and operators of facilities at which hazardous substances were disposed or released
into the environment and past owners and operators of properties who owned such properties at the time of such disposal or release.
This liability could include response costs for removing or remediating the release and damages to natural resources. Our properties,
because of past mining activities, could give rise to potential liability under CERCLA.
Under
the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies may incur costs for generating,
transporting, treating, storing, or disposing of hazardous or solid wastes associated with certain mining-related activities.
RCRA costs may also include corrective action or cleanup costs.
Mining
operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, such as crushers
and storage facilities, and from mobile sources such as trucks and heavy construction equipment. All of these sources are subject
to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality
laws. Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in
order to comply with the permitting conditions.
Under
the federal Clean Water Act and the delegated Colorado water-quality program, point-source discharges into waters of the
State are regulated by the National Pollution Discharge Elimination System (NPDES) program. Storm water discharges also are regulated
and permitted under that statute. Section 404 of the Clean Water Act regulates the discharge of dredge and fill
material into Waters of the United States, including wetlands. All of those programs may impose permitting and other requirements
on our operations.
The
National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of major federal actions.
The federal action requirement must be satisfied if the project involves federal land or if the federal government provides financing
or permitting approvals. NEPA does not establish any substantive standards, but requires the analysis of any potential impacts.
The scope of the assessment process depends on the size of the project. An Environmental Assessment (EA) may be adequate for smaller
projects. An Environmental Impact Statement (EIS), which is much more detailed and broader in scope than an EA, is required for
larger projects. NEPA compliance requirements for any of our proposed projects could result in additional costs or delays.
The
Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S. Department of Interior.
The purpose of the ESA is to conserve and recover listed endangered and threatened species and their habitat. Under the ESA, endangered
means that a species is in danger of extinction throughout all or a significant portion of its range. The term threatened under
such statute means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful
to take a listed species, which can include harassing or harming members of such species or significantly modifying their habitat.
Future identification of endangered species or habitat in our project areas may delay or adversely affect our operations.
U.S.
federal and state reclamation requirements often mandate concurrent reclamation and require permitting in addition to the posting
of reclamation bonds, letters of credit or other financial assurance sufficient to guarantee the cost of reclamation. If reclamation
obligations are not met, the designated agency could draw on these bonds or letters of credit to fund expenditures for reclamation
requirements. Reclamation requirements generally include stabilizing, contouring and re-vegetating disturbed lands, controlling
drainage from portals and waste rock dumps, removing roads and structures, neutralizing or removing process solutions, monitoring
groundwater at the mining site, and maintaining visual aesthetics.
Research
and Development
During
the fiscal year ended July 31, 2015 we have had no expense related to research and development.
Corporate
Office
Our
principal executive office is located at 5320 South 900 East, Suite 260, Murray, Utah 84117. Our main telephone number is 801-312-8113.
Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are
available free of charge through the Securities and Exchange Commission’s website at www.sec.gov as soon as reasonably practicable
after those reports are electronically filed with or furnished to the SEC.
Employees
As
of the date of this filing, we currently employ one hundred twenty-three (123) full-time employees in the U.S. and Honduras. We
have contracts with various independent contractors and consultants to fulfill additional needs, including investor relations,
exploration, development, permitting, and other administrative functions, and may staff further with employees as we expand activities
and bring new projects on line.
Legal
Proceedings
We
are not involved in any pending legal proceeding or litigations and, to the best of our knowledge, no governmental authority is
contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely
to have a material adverse effect on the Company.
Item
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. You should consider carefully the following risks, along with
all of the other information included in this report, before deciding to buy our common stock. Additional risks
and uncertainties not currently known to us or that we currently deem to be immaterial may also impair our business operations.
If we are unable to prevent events that have a negative effect from occurring, then our business may suffer.
Risks
Relating to Our Company
We
have incurred losses since our inception in 2007 and may never be profitable, which raises doubt about our ability to continue
as a going concern.
Since
our inception in 2007, we have had nominal operations and incurred operating losses. As of April 30, 2015, our accumulated deficit
since inception was approximately $8,872,245. We have substantial current obligations and at April 30, 2015, we had approximately
$1,551,114 of current liabilities as compared to only approximately $657,955 of current assets. Since inception, we have been
able to raise only minimal additional capital, and we have minimal cash on hand. Accordingly, the Company does not have sufficient
cash resources or current assets to pay its current obligations, and we have been meeting many of our obligations through the
issuance of our common stock to our employees, consultants and advisors as payment for the goods and services.
Our
management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions
along with the substantial turmoil in the capital and credit markets, there is a significant possibility that we will be unable
to obtain financing to continue our operations.
As
we are in the beginning stages of our exploration activities on UP & Burlington and such property has not generated revenue
in the recent past, we expect to incur additional losses in the foreseeable future, and such losses may continue to be significant.
To become profitable, we must be successful in raising capital to continue with our mining efforts, exploration activities, meet
the work commitment requirements on UP & Burlington, discover economically feasible mineralization deposits and establish
reserves, successfully develop the properties and finally realize adequate prices on our minerals in the marketplace. It could
be years before we receive any revenues from gold production, if ever. Thus, we may never be profitable.
These
circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph
to our independent registered public accounting firm’s report on our audited financial statements as of and for the year
ended July 31, 2014. If we are unable to continue as a going concern, investors will likely lose all of their investment in our
company.
We
have a limited operating history.
As
an early stage company that has recently made acquisitions, we are subject to all the risks inherent in the initial organization,
financing, expenditures, complications and delays inherent in a new business. Investors should evaluate an investment in us in
light of the uncertainties encountered by developing companies in a competitive environment. Our business is dependent upon the
implementation of our business plan. There can be no assurance that our efforts will be successful or that we will ultimately
be able to attain profitability. Additionally, the Company’s recent merger with the operating foreign entity was based on
a review of all historical data and potential revenue streams and resources as could be ascertained from the submission of documents
and a thorough review of all data made available. We believe the materials to be accurate and have attempted to discount the valuations
due to perceived risks of foreign operations and the tasks of incorporating a non-public entity into Inception.
The
feasibility of mineral extraction from UP & Burlington has not yet been established, as we have not completed exploration
or other work necessary to determine if it is commercially feasible to develop the properties.
UP
& Burlington does not have any proven or probable reserves. A “reserve,” as defined by the SEC, is that part of
a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. A reserve
requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically extracted and produced.
We have not yet completed our feasibility study with regard to UP & Burlington. As a result, we currently have no reserves
and there are no assurances that we will be able to prove that there are reserves on UP & Burlington.
Exploring
for gold is an inherently speculative business.
Natural
resource exploration, and exploring for gold in particular, is a business that by its nature is very speculative. There is a strong
possibility that we will not discover gold or any other resources that can be mined or extracted at a profit. Even if we do discover
gold or other deposits, the deposit may not be of the quality or size necessary for us to make a profit after extracting it. Few
properties that are explored are ultimately developed into producing mines. Unusual or unexpected geological formations, geological
formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides and the inability to
obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral exploration programs
and the subsequent development of gold deposits.
We
will require significant additional capital to continue our exploration activities, and, if warranted, to develop
mining operations.
We
will be required to raise significantly more capital in order to develop UP & Burlington for mining production, assuming economically
viable reserves exist. There is no assurance that our investments in UP & Burlington will be financially productive. Our ability
to obtain necessary funding depends upon a number of factors, including the price of gold, base metals, and other minerals we
are able to mine, the status of the national and worldwide economy, and the availability of funds in the capital markets. If we
are unable to obtain the required financing in the near future for these or other purposes, our exploration activities would be
delayed or indefinitely postponed, we would likely lose our lease and options to acquire an ownership interest in UP & Burlington
and this would likely lead to failure of our Company. Even if financing is available, it may be on terms that are not favorable
to us, in which case, our ability to become profitable or to continue operating would be adversely affected. If we are unable
to raise funds to continue our exploration and feasibility work on UP & Burlington, or if commercially viable reserves are
not present, the market value of our securities will likely decline, and our investors may lose some or all of their investment.
The
global financial conditions may have an impact on our business and financial condition in ways that we currently cannot predict.
The
continued pressure on commodities markets and related turmoil in the global financial system may have an impact on our business
and financial position. The recent high costs of consumables may negatively impact costs of our operations. In addition, current
financial market conditions may limit our ability to raise capital through credit and equity markets. As discussed further below,
the prices of the metals that we may produce are affected by a number of factors, and it is unknown how these factors will be
impacted by a continuation of the financial crisis.
Fluctuating
gold and mineral prices could negatively impact our business plan.
The
potential for profitability of our gold and mineral mining operations and the value of any mining properties we may acquire will
be directly related to the market price of gold and minerals that we mine. Historically, gold and other mineral prices have widely
fluctuated, and are influenced by a wide variety of factors, including inflation, currency fluctuations, regional and global demand,
and political and economic conditions. Fluctuations in the price of gold and other minerals that we mine may have a significant
influence on the market price of our common stock and a prolonged decline in these prices will have a negative effect on our results
of operations and financial condition.
Our
business is subject to extensive environmental regulations which may make exploring for or mining prohibitively expensive, and
which may change at any time.
All
of our operations are subject to extensive environmental regulations which could make exploration expensive or prohibit it altogether.
We may be subject to potential liabilities associated with the pollution of the environment and the disposal of waste products
that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental
pollution, which may reduce the amount of money that we have available to use for exploration. This may adversely affect our financial
position, which may cause you to lose your investment. If we are unable to fully remedy an environmental problem, we might be
required to suspend operations or to enter into interim compliance measures pending the completion of the required remedy. If
a decision is made to mine our properties and we retain any operational responsibility for doing so, our potential exposure for
remediation may be significant, and this may have a material adverse effect upon our business and financial position. We have
not yet purchased insurance for potential environmental risks (including potential liability for pollution or other hazards associated
with the disposal of waste products from our exploration activities). However, if we mine one or more of our properties and retain
operational responsibility for mining, then such insurance may not be available to us on reasonable terms or at a reasonable price.
All of our exploration and, if warranted, development activities may be subject to regulation under one or more local, state and
federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations
and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion of our
business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited
to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch as posting
of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits,
increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental
laws.
We
may be denied the government licenses and permits which we need to explore on our properties. In the event that we discover commercially
exploitable deposits, we may be denied the additional government licenses and permits which we will need to mine our properties.
Exploration
activities usually require the granting of permits from various governmental agencies. For example, exploration drilling on unpatented
mineral claims requires a permit to be obtained from the United States Bureau of Land Management, which may take several months
or longer to grant the requested permit. Depending on the size, location and scope of the exploration program, additional permits
may also be required before exploration activities can be undertaken. Prehistoric or Indian grave yards, threatened or endangered
species, archeological sites or the possibility thereof, difficult access, excessive dust and important nearby water resources
may all result in the need for additional permits before exploration activities can commence. As with all permitting processes,
there is the risk that unexpected delays and excessive costs may be experienced in obtaining required permits. The needed permits
may not be granted at all. Delays in or our inability to obtain necessary permits will result in unanticipated costs, which may
result in serious adverse effects upon our business.
The
values of our properties are subject to volatility in the price of gold and any other deposits we may seek or locate.
Our
ability to obtain additional and continuing funding, and our profitability in the unlikely event we ever commence mining operations
or sell our rights to mine, will be significantly affected by changes in the market price of gold. Gold prices fluctuate widely
and are affected by numerous factors, all of which are beyond our control. Some of these factors include the sale or purchase
of gold by central banks and financial institutions; interest rates; currency exchange rates; inflation or deflation; fluctuation
in the value of the United States dollar and other currencies; speculation; global and regional supply and demand, including investment,
industrial and jewelry demand; and the political and economic conditions of major gold or other mineral producing countries throughout
the world, such as Russia and South Africa. The price of gold or other minerals have fluctuated widely in recent years, and a
decline in the price of gold could cause a significant decrease in the value of our properties, limit our ability to raise money,
and render continued exploration and development of our properties impracticable. If that happens, then we could lose our rights
to our properties and be compelled to sell some or all of these rights. Additionally, the future development of our properties
beyond the exploration stage is heavily dependent upon the level of gold prices remaining sufficiently high to make the development
of our properties economically viable. You may lose your investment if the price of gold decreases. The greater the decrease in
the price of gold, the more likely it is that you will lose money.
Our
property titles may be challenged. We are not insured against any challenges, impairments or defects to our mineral claims or
property titles. We have not fully verified title to our properties.
Our
future unpatented claims will be created and maintained in accordance with the federal General Mining Law of 1872. Unpatented
claims are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property
interests because the validity of unpatented claims is often uncertain. This uncertainty arises, in part, out of the complex federal
and state laws and regulations under the General Mining Law. Defending any challenges to our future property titles may be costly,
and may divert funds that could otherwise be used for exploration activities and other purposes. In addition, unpatented claims
are always subject to possible challenges by third parties or contests by the federal government, which, if successful, may prevent
us from exploiting our discovery of commercially extractable gold. Challenges to our title may increase our costs of operation
or limit our ability to explore on certain portions of our properties. We are not insured against challenges, impairments or defects
to our property titles, nor do we intend to carry extensive title insurance in the future. Potential conflicts to our mineral
claims are discussed in detail elsewhere herein.
Honduran
mining operations have increased exposure.
Sustaining
foreign mining operations, such as those in Honduras, comes with increased uncertainty, due to less stable governments, political
interruptions, volatility in taxes and fees, implementation of new laws and regulations, and more. The effect of this exposure
can lead to closure of operations, nationalization, and strikes, all of which are beyond the company’s control. Granting
and maintaining concessions is highly subject to political whim and maintaining the concessions is subject to a number of factors
and variables beyond the company’s control. We do not currently insure against these interruptions but have chosen to structure
our operations to minimize exposure to capital assets by subcontracting major areas of work, and to otherwise keep our financial
exposure limited even at the expense of operation costs and our bottom line.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and other financial risks.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and with increasing taxes and fees associated with
importing of necessary goods, equipment and services not adequately found in country and with exporting of the finished gold doré.
Recent enactment of the Honduran mining laws has helped stabilize the fees, but continual review by the various government operations,
and central bank subject the historical operations to review and could impact our ability to export on a timely basis and/or face
possible fines etc. associated with repatriation of past revenues, etc.
Possible
amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.
The
U.S. Congress has considered proposals to amend the General Mining Law of 1872 that would have, among other things, permanently
banned the sale of public land for mining. The proposed amendment would have expanded the environmental regulations to which we
might be subject and would have given Indian tribes the ability to hinder or prohibit mining operations near tribal lands. The
proposed amendment would also have imposed a royalty of 8% of gross revenue on new mining operations located on federal public
land, which might have applied to our future properties. The proposed amendment would have made it more expensive or perhaps too
expensive to recover any otherwise commercially exploitable gold deposits which we might find on our future properties. While
at this time the proposed amendment is no longer pending, this or similar changes to the law in the future could have a significant
impact on our business model.
Market
forces or unforeseen developments may prevent us from obtaining the supplies and equipment necessary to explore for gold and other
resources.
Gold
exploration, and resource exploration in general, demands contractors available for such work, and unforeseen shortages of supplies
and/or equipment could result in the disruption of our planned exploration activities. Current demand for exploration drilling
services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled
times for our exploration program. Fuel prices are extremely volatile as well. We will attempt to locate suitable equipment, materials,
manpower and fuel if sufficient funds are available. If we cannot find the equipment and supplies needed for our various exploration
programs, we may have to suspend some or all of them until equipment, supplies, funds and/or skilled manpower become available.
Any such disruption in our activities may adversely affect our exploration activities and financial condition.
We
may not be able to maintain the infrastructure necessary to conduct exploration activities.
Our
exploration activities depend upon adequate infrastructure. Reliable roads, bridges, power sources, and water supply are important
factors that affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference
in the maintenance or provision of such infrastructure could adversely affect our exploration activities and financial condition.
Our
exploration activities may be adversely affected by the local climates, which could prevent or impair us from exploring our properties
year round.
The
local climate in our area of operations may impair or prevent us from conducting exploration activities on our properties year
round. Because of its rural location and limited infrastructure in this area, our property is generally impassible for several
days each year as a result of significant rain or snow events. Earthquakes, heavy rains, snowstorms, and floods could result in
serious damage to or the destruction of facilities, equipment or means of access to our properties, or may otherwise prevent us
from conducting exploration activities on our properties.
We
do not currently carry any property or casualty insurance.
Our
business is subject to a number of risks and hazards generally, including but not limited to, adverse environmental conditions,
industrial accidents, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory
environment, and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result
in damage to our properties, equipment, infrastructure, personal injury or death, environmental damage, delays, monetary losses
and possible legal liability. You could lose all or part of your investment if any such catastrophic event occurs. We do not carry
any property or casualty insurance at this time (but we will carry all insurances that we are required to by law, such as motor
vehicle and workers compensation, plus other coverage that may be in the best interest of the Company). Even if we do obtain insurance,
it may not cover all of the risks associated with our operations. Insurance against risks such as environmental pollution or other
hazards as a result of exploration and operations are often not available to us or to other companies in our business on acceptable
terms. Should any events against which we are not insured actually occur, we may become subject to substantial losses, costs and
liabilities, which will adversely affect our financial condition.
Reclamation
obligations could require significant additional expenditures.
We
are responsible for the reclamation obligations related to any exploratory and mining activities. The satisfaction of current
and future bonding requirements and reclamation obligations will require a significant amount of capital. There is a risk we will
be unable to fund these additional bonding requirements, and further, increases to our bonding requirements or excessive actual
reclamation costs will negatively affect our financial position and results of operation.
Title
to mineral properties can be uncertain, and we are at risk of loss of ownership of our property.
Our
ability to explore and mine future leased and optioned properties depends on the validity of title to that property. These uncertainties
relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory
guidelines, assessment work and possible conflicts with other claims not determinable from descriptions of record. Since a substantial
portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty
is inherent in the mining industry. Thus, there may be challenges to the title to future properties, which, if successful, could
impair development and/or operations.
Our
ongoing operations and past mining activities of others are subject to environmental risks, which could expose us
to significant liability and delay, suspension or termination of our operations.
Mining
exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws
regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations
mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations
on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities
are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating
the design and use of exploration methods and equipment.
Environmental
and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which
will require stricter standards and enforcement, and increased fines and penalties for non-compliance. Such changes may prevent
us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business.
Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus
causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that
we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental
hazards may exist on UP & Burlington, or we may acquire properties in the future that have unknown environmental issues caused
by previous owners or operators, or that may have occurred naturally.
UP
& Burlington is subject to royalties on production.
As
part of our purchase of UP & Burlington, we granted a Net Smelter Royalty (“NSR”) of 3%. In addition, historical
royalties may be asserted by third parties currently unknown to us.
Our
industry is highly competitive, attractive mineral lands are scarce, and we may not be able to obtain quality properties.
We
compete with many companies in the mining industry, including large, established mining companies with capabilities, personnel
and financial resources that far exceed our limited resources. In addition, there is a limited supply of desirable mineral lands
available for claim-staking, lease or acquisition in the United States, and other areas where we may conduct exploration activities.
We are at a competitive disadvantage in acquiring mineral properties, since we compete with these larger individuals and companies,
many of which have greater financial resources and larger technical staffs. Likewise, our competition extends to locating and
employing competent personnel and contractors to prospect, develop and operate mining properties. Many of our competitors can
offer attractive compensation packages that we may not be able to meet. Such competition may result in our company being unable
not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund
our operation and advance our properties. Our inability to compete with other companies for these resources would have a material
adverse effect on our results of operation and business.
We
depend on our Chief Executive Officer and Chief Financial Officer and the loss of these individuals could adversely
affect our business.
Our
company is completely dependent on our Chief Executive Officer, Michael Ahlin, and our Chief Financial Officer, Whit Cluff who
are also members of our Board of Directors. As of the date of this report the two are significant to the company. Thus, the loss
of either Ahlin or Cluff could significantly and adversely affect our business, and certainly the loss of both of these individuals
on or about the same time could result in a complete failure of the Company. We do not carry any life insurance on the life of
Ahlin or Cluff.
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured
losses that could materially and adversely affect our operations.
Exploration
for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result
in the discovery of economically feasible mineralization. Few properties that are explored are ultimately advanced to the stage
of producing mines. We are subject to all of the operating hazards and risks normally incident to exploring for and developing
mineral properties such as, but not limited to:
| ● | economically
insufficient mineralized material; |
| ● | fluctuations
in production costs that may make mining uneconomical; |
| ● | unanticipated
variations in grade and other geologic problems; |
| ● | difficult
surface or underground conditions; |
| ● | industrial
accidents; personal injury, fire, flooding, cave-ins and landslides; |
| ● | metallurgical
and other processing problems; |
| ● | mechanical
and equipment performance problems; and |
| ● | decreases
in revenues and reserves due to lower gold and mineral prices. |
Any
of these risks can materially and adversely affect, among other things, the development of properties, production quantities and
rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these
risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we
would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts
spent that are not recoverable.
Our
operations are subject to permitting requirements that could require us to delay, suspend or terminate our operations
on our mining property.
Our
operations and exploration activities require permits from the local, state and federal governments. We may be unable to obtain
these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if
there is a delay in receiving these permits, our timetable and business plan for Inception will be adversely affected.
Risks
Associated with Our Common Stock in General
Trading
on the Over the Counter markets may be volatile and sporadic, which could depress the market price of our common stock and make
it difficult for our stockholders to resell their shares.
Our
common stock is quoted on the OTCQB Inter-Dealer Quotation System owned and operated by the OTC Markets Group, Inc. and the OTC
Pink Sheet service of the Financial Industry Regulatory Authority (“FINRA”) under the symbol “IMII”. Trading
in stock quoted on over the counter markets is often thin, volatile, and characterized by wide fluctuations in trading prices
due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market
price of our common stock for reasons unrelated to operating performance. Moreover, the over the counter markets are not a stock
exchange, and trading of securities on the over the counter markets is often more sporadic than the trading of securities listed
on other stock exchanges such as the NASDAQ Stock Market, New York Stock Exchange or American Stock Exchange. Accordingly, our
shareholders may have difficulty reselling any of their shares.
Our
stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the FINRA’s
sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock.
Our
stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has
a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions
with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction and monthly account statements showing the market value of each penny stock held in the customers’ account.
The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability or willingness of broker-dealers to trade our securities. We believe that the penny
stock rules discourage broker-dealer and investor interest in, and limit the marketability of, our common stock.
Our
common stock may be affected by limited trading volume and price fluctuation which could adversely impact the value of our common
stock.
There
has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will
either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price
and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance.
In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy
or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations
may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot
predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be
stable or appreciate over time.
FINRA
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In
addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA
rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that
the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high
probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and
sell our stock and have an adverse effect on the market value for our shares.
Because
the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling
to trade our securities. This means that you may have difficulty reselling your shares, which may cause the value of your investment
to decline.
Our
shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange
Act”) which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or
in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written
agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices,
it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your
shares and may cause the value of your investment to decline.
A
decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our
ability to continue operations and we may go out of business.
A
prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction
in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct
our planned operations through the sale of equity securities, or convertible debt instruments, a decline in the price of our common
stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest
in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds
from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability
to develop new products and continue our current operations. A result, our business may suffer, and not be successful and we may
go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale
of our common stock and we may be forced to go out of business.
Our
stock price may be volatile.
The
stock market in general has experienced volatility that often has been unrelated to the operating performance of any specific
public company. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response
to various factors, many of which are beyond our control, including the following:
| ● | changes
in our industry; |
| ● | competitive
pricing pressures; |
| ● | our
ability to obtain working capital financing; |
| ● | additions
or departures of key personnel; |
| ● | limited
“public float” in the hands of a small number of persons who sales or lack
of sales could result in positive or negative pricing pressure on the market prices of
our common stock; |
| ● | sales
of our common stock; |
| ● | our
ability to execute our business plan; |
| ● | operating
results that fall below expectations; |
| ● | loss
of any strategic relationship; |
| ● | regulatory
developments; |
| ● | economic
and other external factors; and |
| ● | period-to-period
fluctuations in our financial results. |
In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our common stock.
We
have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.
We
have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future.
Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from
operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may
also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and
payment of dividends will be at the discretion of our Board of Directors.
We
have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited
protections against interested director transactions, conflicts of interest and similar matters.
Recent
federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures
designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted
in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures
that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’
independence, audit committee oversight and the adoption of a code of ethics. While our Board of Directors has adopted a Code
of Ethics and Business Conduct, we have not yet adopted any of these corporate governance measures and, since our securities are
not listed on a national securities exchange or NASDAQ, we are not required to do so. It is possible that if we were to adopt
some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal
corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct.
For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors,
decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may
be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should
bear in mind our current lack of corporate governance measures in formulating their investment decisions.
Difficulties
we may encounter while managing our growth could adversely affect our results of operations.
As
our business needs expand, we may need to hire a significant number of employees. This expansion may place a significant strain
on our managerial and financial resources. To manage the potential growth of our operations and personnel, we will be required
to:
| ● | improve
existing, and implement new, operational, financial and management controls, reporting
systems and procedures; |
| ● | install
enhanced management information systems; and |
| ● | train,
motivate and manage our employees. |
We
may not be able to install adequate management information and control systems in an efficient and timely manner, and our current
or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable
to manage growth effectively, our business would be seriously harmed.
If
we lose key personnel or are unable to attract and retain additional qualified personnel, we may not be able to successfully
manage our business and achieve our objectives.
We
believe our future success will depend upon our ability to retain our key management, Mr. Ahlin, our Chief Executive Officer and
Mr. Cluff, our Chief Financial Officer. We may not be successful in attracting, assimilating and retaining our employees in the
future.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If
our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding
period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence
of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional
financing through the sale of equity or equity related securities in the future at a time and price that we deem reasonable or
appropriate.
Item
2. FINANCIAL INFORMATION
When
a public company that is not a shell company completes a merger or acquisition that requires the preparation and filing of financial
statements on the acquired company, such as our dealings that are effected by the Merger Agreement, it must file such financial
information via Form 8-K. These financial statements are filed as Exhibits hereto.
Item
3. PROPERTIES
Our
principal executive office is located at 5320 South 900 East, Suite 260, Murray, Utah 84117. Our main telephone number is 801-312-8113.
The
Company owns two mining properties: the Clavo Rico Gold/Silver Mine: El Corpus, Honduras, Central America and the Up & Burlington
Gold Mine in Salmon, Lemhi County, Idaho. Both properties are described in full elsewhere in this document.
Item
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of October 2, 2015 with respect to the beneficial ownership of the outstanding
common stock by (i) any holder of more than five (5%) percent; (ii) each of the Company’s executive officers and directors;
and (iii) the Company’s directors and executive officers as a group. Except as otherwise indicated, each of the stockholders
listed below has sole voting and investment power over the shares beneficially owned.
Name of Beneficial Owner | |
Common Stock Beneficially Owned | | |
Percentage of
Common Stock (1) | |
Mike Ahlin (2) | |
| 2,750,000 | | |
| 1.08 | % |
Reed Benson (2) | |
| 5,147,700
| (3) | |
| 2.03 | % |
Whit Cluff (2) | |
| 1,375,000 | | |
| 0.54 | % |
Kay Briggs (2) | |
| 1,715,900 | | |
| 0.68 | % |
Trent D’Ambrosio (2) | |
| 3,855,929 | | |
| 1.52 | % |
All officers and directors as a group
(5 people) | |
| 14,844,529 | | |
| 5.85 | % |
Legends Capital Group, LLC (3) | |
| 64,346,250 | | |
| 25.35 | % |
Madison, LLC (4) | |
| 13,727,200 | | |
| 5.41 | % |
|
(1) |
Applicable
percentage ownership is based on shares of common stock outstanding as of October 2, 2015. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with
respect to securities. Applicable percentage ownership is based on 253,872,437 shares of common stock issued and outstanding
as of October 2, 2015, together with securities exercisable or convertible into shares of common stock within 60 days of October
2, 2015 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently
exercisable or exercisable within 60 days of October 2, 2015 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person. |
|
|
|
|
(2) |
Executive
officer and/or director of the Company. |
|
|
|
|
(3) |
These
shares are held by Moreland Family, LLC, whose majority member is Jeanne Benson, Mr. Benson’s wife. |
|
|
|
|
(4) |
Legends
Capital Group, LLC is beneficially controlled by Reed Benson, director of the Company. |
|
|
|
|
(5) |
Madison,
LLC is beneficially controlled by Jason Briggs. |
Item
5. DIRECTORS AND EXECUTIVE OFFICERS
Executive
Officers and Directors
Below are
the names and certain information regarding Inception’s executive officers and directors.
Name |
|
Age |
|
Position |
Michael Ahlin |
|
67 |
|
Chief Executive
Officer, President, Secretary and Director |
Whit Cluff |
|
65 |
|
Chief Financial
Officer and Director |
Trent D’Ambrosio |
|
50 |
|
Director |
Reed Benson |
|
69 |
|
Director |
Kay Briggs |
|
71 |
|
Director |
Officers
are elected annually by the Board of Directors (subject to the terms of any employment agreement), at its annual meeting, to hold
such office until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or
is removed by the Board.
Background
of Executive Officers and Directors
Michael
Ahlin, Chief Executive Officer, President, Treasurer, Secretary and Director
Mr.
Ahlin is a seasoned executive with several decades of experience who has founded numerous startups and has held executive management
positions in public and private companies in various industries. From 1985 through the present, Mr. Ahlin has served as the founder
and President of WetCor, Inc., a multi-disciplined Engineering Construction Firm licensed in numerous states and performing both
bid and design/build projects including minerals processing, mining, water treatment, energy, Medical (5 MRE centers), geothermal
power, and renewable energy and commercial buildings. In addition, from 2004 through the present, Mr. Ahlin has served as a Managing
Partner of Cactus Management Services LLC. Mr. Ahlin has served as Inception Resources’ CEO since inception. Mr. Ahlin was
appointed as CEO, President, Treasurer, Secretary and Director of the Company on February 25, 2013. Mr. Ahlin received a Bachelors
of Science Degree in Mechanical Engineering and a Masters Degree in Business Administration from the University of Utah in 1971
and 1977, respectively.
Whit
Cluff, Chief Financial Officer and Director
Mr.
Cluff has over 35 years of experience in the commercial real estate industry. Mr. Cluff has been involved in all disciplines of
real estate land development, mixed-use development, retail tenant representation, developer representation, industrial property
procurement and asset management. Mr. Cluff has an extensive background in public and private businesses giving him strong analytical,
planning, and organization ability with effective negotiation skills. From 2003 through the present, Mr. Cluff has served as Vice
President and Associate Broker at Coldwell Banker Commercial, NRT in Salt Lake City, Utah. Mr. Cluff attended the University of
Utah and served in the United States Army.
Trent
D’Ambrosio, Director
Since
2003, Mr. D’Ambrosio has been Managing Member of MDL Ventures LLC (“MDL”). His professional record includes
25 years of management and financial services experience with companies ranging from Fortune 500 companies to start ups. From
February 2008 to December 2012, he was consulting to a Fund of Hedge Funds and Private Equity. Prior to this, from September 2002
to September 2007, he served as the Chief Financial Officer for the D’Ambrosio Auto Group. He has held leadership positions
with MCI, World Com, and Montana Power. He holds the following licenses or certifications: Charter Hedge Fund Professional (CHP),
A Chartered Alternative Investment Analyst 1 (CAIA), Commodities Trading Advisor (CTA) Series 3 and 65, and he previously held
the Series 7, 24, 27 and 4 licenses. Mr. D’Ambrosio has been a Director of Inception Mining Inc. since March 28, 2013.
Reed
Benson, Director
Mr.
Benson received his juris doctor from the University of Utah and has extensive experience with contracts, securities law, and
taxation. He is a certified public accountant and currently is general counsel to Legends Capital Group, a small venture capital
specialist.
Kay Briggs,
Director
Mr.
Briggs has BS degrees in economics and political science from Brigham Young University, magna cum laude. To launch his career,
he completed internships with CitiBank in New York and Argentina. He then went on to obtain an MBA with an emphasis in international
business and finance, also from Brigham Young University. He then pursued post-graduate work with IBM and Stanford University.
Mr. Briggs spent nearly ten years with EXXON (Esso International) with managerial opportunities in information systems; refinery
maintenance (with additional training in product blending chemistry); maritime contract negotiating; supply and transportation
managing in Toronto, Canada with Imperial Oil; and an executive position with Tar Sands and Heavy Oil Extraction and Refining
in Calgary, Canada. Mr. Briggs spent the next 32 years with The Church of Jesus Christ of Latter-day Saints as managing director
of materials management and international operations, and director of business affairs in Argentina, Southeast US, and 32 island
nations in the Caribbean. He has experience with numerous civic assignments, including school boards, city council, and as mayor
of North Salt Lake, Utah. Additionally, he has served in various board of directors positions with several organizations.
Employment
Agreements
On
August 1, 2015, the Company amended the previously entered into an employment agreement with Michael Ahlin pursuant to which the
eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with
the Securities and Exchange Commission (“SEC”) were removed.
Family
Relationships
There
are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
Involvement
in Certain Legal Proceedings
None
of our directors, executive officers, promoters or control persons has been involved in any of the following events during the
past ten years:
| ● | any
bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years
prior to that time; |
| ● | any
conviction in a criminal proceeding or being subject to a pending criminal proceeding,
excluding traffic violations and other minor offenses; |
| ● | being
subject to any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; or |
| ● | being
found by a court of competent jurisdiction in a civil action, the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or
vacated. |
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of
our Common Stock to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes
in ownership and annual reports concerning their ownership of our Common Stock and other equity securities, on Forms 3, 4 and
5 respectively. An examination of our filings has shown that not all of our officers and directors are compliant, but they are
taking steps to become compliant and complete their filings.
Item
6. EXECUTIVE COMPENSATION
Summary
Compensation Table
The
particulars of the compensation paid to the following persons:
| ● | our
principal executive officers; |
| ● | each
of our two most highly compensated executive officers who were serving as executive officers
at the end of the years ended July 31, 2015 and 2014; and |
| ● | up
to two additional individuals for whom disclosure would have been provided but for the
fact that the individual was not serving as our executive officer at the end of the years
ended July 31, 2015 and 2014. |
We will
collectively refer to the above as the named executive officers of our company.
SUMMARY
COMPENSATION TABLE
Name and Principal | |
| | |
Salary | | |
Bonus | | |
Stock
Awards | | |
Option
Awards | | |
Non-Equity
Incentive Plan
Compensation | | |
Non-Qualified
Deferred
Compensation Earnings
| | |
All Other
Compensation | | |
Totals | |
Position
| |
Year
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($)
| | |
($) | |
Michael Ahlin | |
| 2014 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Chief Executive Officer, President, Secretary and Director | |
| 2015 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Whit Cluff | |
| 2014 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Chief Financial Officer and Director | |
| 2015 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Brian Brewer | |
| 2014 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Chief Operating Officer and Director | |
| 2015 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
None
of our named executive officers received any compensation from us during the fiscal years ended July 31, 2015, and July 31, 2014.
Agreements
On
August 1, 2015, the Company amended the previously entered into an employment agreement with Michael Ahlin pursuant to which the
eligibility requirements of the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with
the Securities and Exchange Commission (“SEC”) were removed.
Option
Grants
As
of July 31, 2015 we had not granted any options or stock appreciation rights to our named executive officers or directors.
Compensation
of Directors
Our
directors did not receive any compensation for their services as directors from our inception to July 31, 2015. We have no formal
plan for compensating our directors for their services in the future in their capacity as directors, although such directors are
expected in the future to receive options to purchase shares of our common stock as awarded by our Board of Directors or by any
compensation committee that may be established.
Pension,
Retirement or Similar Benefit Plans
There
are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers.
We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors
or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
Item
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related
Party Transactions
There
have been no transactions since the beginning of our last fiscal year or any currently proposed transactions in which we are,
or plan to be, a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct
or indirect material interest.
Family
Relationships
There
are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
Director
Independence
Our
securities are quoted on the OTCQB, which does not have any director independence requirements. Once we engage further directors
and officers, we plan to develop a definition of independence and scrutinize our Board of Directors with regard to this definition.
Board
Committees
We
presently do not have an audit committee, compensation committee or nominating committee or committees performing similar functions,
as our management believes that until this point it has been premature at the early stage of our management and business development
to form an audit, compensation or nominating committee. However, our new management plans to form an audit, compensation and nominating
committee in the near future. The audit committee will be primarily responsible for reviewing the services performed by our independent
auditors and evaluating our accounting policies and system of internal controls. We intend that the audit committee will be comprised
solely of independent directors and will have an audit committee financial expert as required by the rules and regulations of
the SEC.
The
compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock
options) and other compensation of our executive officers. The nominating committee will be primarily responsible for nominating
directors and setting policies and procedures for the nomination of directors. The nominating committee will also be responsible
for overseeing the creation and implementation of our corporate governance policies and procedures. Until these committees are
established, these decisions will continue to be made by our board of directors. Although our board of directors has not yet established
any minimum qualifications for director candidates, when considering potential director candidates, our board of directors considers
the candidate’s character, judgment, skills and experience in the context of the needs of our Company and our board of directors.
We
do not have a charter governing the nominating process. The members of our board of directors, who perform the functions of a
nominating committee, are not independent because they are also our officers. There has not been any defined policy or procedure
requirements for shareholders to submit recommendations or nominations for directors. Our board of directors does not believe
that a defined policy with regard to the consideration of candidates recommended by shareholders is necessary at this time because,
given the early stages of our development, a specific nominating policy would be premature and of little assistance until our
business operations are at a more advanced level.
Item
8. LEGAL PROCEEDINGS
We
are not involved in any pending legal proceeding or litigations and, to the best of our knowledge, no governmental authority is
contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely
to have a material adverse effect on the Company.
None
of our directors, executive officers, promoters or control persons has been involved in any of the following events during the
past ten years:
| ● | any
bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years
prior to that time; |
| ● | any
conviction in a criminal proceeding or being subject to a pending criminal proceeding,
excluding traffic violations and other minor offenses; |
| ● | being
subject to any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; or |
| ● | being
found by a court of competent jurisdiction in a civil action, the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or
vacated. |
Item
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is not traded on any exchange. Our common stock is quoted on OTCQB, under the trading symbol “IMII.”
We cannot assure you that there will be a market in the future for our common stock.
OTCQB
securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities
transactions are conducted through a telephone and computer network connecting dealers. OTCQB issuers are traditionally smaller
companies that do not meet the financial and other listing requirements of a national or regional stock exchange.
Holders
of our Common Stock
As
of October 2, 2015 there were 1,506 holders of record of our common stock. This number does not include shares held by brokerage
clearing houses, depositories or others in unregistered form. The stock transfer agent for our securities is Island Stock Transfer.
Dividends
To
date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our
common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial
condition, and other factors deemed relevant by our Board of Directors.
Equity
Compensation Plans
As
of October 2, 2015, we have one equity compensation plan: the 2013 Incentive Stock Plan.
Item
10. RECENT SALES OF UNREGISTERED SECURITIES
As
part of the Closing of the Merger Agreement, the Company issued 240,225,901 shares of its common stock to the shareholders of
Clavo Rico on a pro rata basis and certain of its officers and directors. The Company’s transfer agent is holding those
shares in book entry for the benefit of its new shareholders.
Item
11. DESCRIPTION OF SECURITIES
The
Company’s authorized capital stock consists of 500,000,000 shares of common stock at a par value of $0.00001 per share and
10,000,000 shares of preferred stock at a par value of $0.00001 per share. As of October 2, 2015 there are 253,872,250 shares
of the Company’s common stock issued and outstanding that are held by approximately 1,506 stockholders of record and no
shares of preferred stock issued and outstanding.
Holders
of the Company’s common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders
of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for
the election of directors can elect all of the directors. Holders of the Company’s common stock representing a majority
of the voting power of the Company’s capital stock issued, outstanding and entitled to vote, represented in person or by
proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of the Company’s
outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment
to the Company’s articles of incorporation.
Holders
of the Company’s common stock are entitled to share in all dividends that the board of directors, in its discretion, declares
from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder
to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock.
The
Board of Directors may later determine to issue our preferred stock. If issued, the preferred stock may be created and issued
in one or more series and with such designations, rights, preferences and restrictions as shall be stated and expressed in the
resolution(s) providing for the creation and issuance of such preferred stock. If preferred stock is issued and we are subsequently
liquidated or dissolved, the preferred stockholders would have preferential rights to receive a liquidating distribution for their
shares prior to any distribution to common shareholders. Although we have no present intent to do so, we could issue shares of
preferred stock with such terms and privileges that a third party acquisition of our company could be difficult or impossible,
thus entrenching our existing management in control of our company indefinitely.
Item
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Company’s directors and executive officers are indemnified as provided by the Nevada Corporation law and its Bylaws. These
provisions state that the Company’s directors may cause the Company to indemnify a director or former director against all
costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred
by him as a result of him acting as a director. The indemnification of costs can include an amount paid to settle an action or
satisfy a judgment. Such indemnification is at the discretion of the Company’s board of directors and is subject to the
Securities and Exchange Commission’s policy regarding indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
Item
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
When
a public company that is not a shell company completes a merger or acquisition that requires the preparation and filing of financial
statements on the acquired company, such as our dealings that are effected by the Merger Agreement, it must file such financial
information via Form 8-K. These financial statements are filed herewith as Exhibits.
Item
3.02 Unregistered Sales of Equity Securities.
As
a result of the Closing of the Merger Agreement, a total of 240,225,901 shares of Common Stock of the Company were issued on a
pro rata basis to the then-shareholders of Clavo Rico as consideration for the Merger and to certain officers and directors.
Item
5.01 Changes in Control of Registrant.
As
a result of the Merger Agreement as described herein, a change of control of the Company has occurred.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
As
of the Closing of the Merger Agreement, two new directors of the Company have been appointed.
Reed
Benson, Director
Mr.
Benson received his juris doctor from the University of Utah and has extensive experience with contracts, securities law, and
taxation. He is a certified public accountant and currently is general counsel to Legends Capital Group, a small venture capital
specialist.
Kay
Briggs, Director
Mr.
Briggs, 71, has BS degrees in economics and political science from Brigham Young University, magna cum laude. To launch his career,
he completed internships with CitiBank in New York and Argentina. He then went on to obtain an MBA with an emphasis in international
business and finance, also from Brigham Young University. He then pursued post-graduate work with IBM and Stanford University.
Mr. Briggs spent nearly ten years with EXXON (Esso International) with managerial opportunities in information systems; refinery
maintenance (with additional training in product blending chemistry); maritime contract negotiating; supply and transportation
managing in Toronto, Canada with Imperial Oil; and an executive position with Tar Sands and Heavy Oil Extraction and Refining
in Calgary, Canada. Mr. Briggs spent the next 32 years with The Church of Jesus Christ of Latter-day Saints as managing director
of materials management and international operations, and director of business affairs in Argentina, Southeast US, and 32 island
nations in the Caribbean. He has experience with numerous civic assignments, including school boards, city council, and as mayor
of North Salt Lake, Utah. Additionally, he has served in various board of directors positions with several organizations.
Item 5.03 Amendments to Articles of
Incorporation or Bylaws; Change in Fiscal Year
In conjunction with the Closing of the
Merger Agreement, as of October 2, 2015, the Board of Directors of the Company adopted a new fiscal year of December 31. This
will match the existing fiscal year of Clavo Rico and will help streamline the financial reporting of the post-Merger Companies.
The Company’s Annual Report on Form 10-K for the new fiscal year for the period
ending December 31, 2015 will include the “transition period” not included in the Company’s Annual Report
on Form 10-K filed November 23, 2015 or the financial statements attached herewith.
Item
9.01 Financial Statements and Exhibits
|
(a) |
Financial
Statements of Business Acquired |
|
|
|
|
|
Clavo
Rico Ltd. and subsidiaries Consolidated Financial Statements for the fiscal years ended December 31, 2013 and 2014. |
|
|
|
|
|
Clavo
Rico Ltd. and subsidiaries Condensed Consolidated Financial Statements (Unaudited) for the interim periods ended September
30, 2015. |
|
|
|
|
(b) |
Pro
Forma Financial Information |
|
|
|
|
|
Pro
Forma Financial Statements (Unaudited) of Clavo Rico Ltd. and subsidiaries as of and for the nine-month period ended September
30, 2015 and for the year ended December 31, 2014 reflecting amounts as if the Merger had occurred previously. |
|
|
|
|
(c) |
Exhibits |
|
|
|
|
|
The
Exhibit Index is incorporated herein by reference. |
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 |
|
Agreement
and Plan of Merger, effective October 2, 2015(5) |
|
|
|
3.5 |
|
Bylaws(1) |
|
|
|
10.1 |
|
Employment
Agreement with Michael Ahlin dated August 1, 2015(5) |
|
|
|
10.2 |
|
Agreement
and Plan of Merger dated August 4, 2015(4) |
|
|
|
10.3 |
|
Addendum
to Agreement and Plan of Merger(5) |
|
|
|
99.1
|
|
Clavo
Rico Ltd. and subsidiaries Consolidated Financial Statements for the fiscal years ended
December 31, 2013 and 2014*
|
|
|
|
99.2
|
|
Clavo
Rico Ltd. and subsidiaries Condensed Consolidated Financial Statements (Unaudited) for
the interim periods ended September 30, 2015*
|
|
|
|
99.3
|
|
Pro
Forma Financial Statements (Unaudited) of Clavo Rico Ltd. and subsidiaries as of and
for the nine-month period ended September 30, 2015 and for the year ended December 31,
2014 reflecting amounts as if the Merger had occurred previously*
|
|
|
|
* |
|
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 8-K filed with the SEC on August 6, 2015. |
|
|
|
(5) |
|
Incorporated
by reference from Form 8-K filed with the SEC on October 7, 2015.
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
|
INCEPTION
MINING INC. |
|
|
|
Date:
December 15, 2015 |
By: |
/s/
Michael Ahlin |
|
Name: |
Michael Ahlin |
|
Title: |
President and
Chief Executive Officer |
|
|
(Principal Executive
Officer) |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
COMBINED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED 31 DECEMBER. 2014 AND 2013
CONTENTS
INDEPENDENT
AUDITOR’S REPORT
To
the Board of Directors of
Compañía
Minera Cerros del Sur, S.A. De C.V
and
Affiliates.
We
have audited the accompanying combined statement of financial position of Compañía Minera Cerros del Sur, S.A. de C.V. and Affiliates
as of December 31, 2014 and 2013, and the related combined statement of comprehensive income, and combined cash flows for the
years then ended. These combined financial statements are the responsibility of the Company’s management Our responsibility
is to express an opinion on these financial statements based on our audit.
Management’s
Responsibility for the Financial Statements
Management
is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting
principles generally accepted in the United States of America. Management is also responsible for the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s
Responsibility
Our
responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
PBX
(504) 2270 - 7364 al 7368
E-mail
tovarlopez@pkfhonduras.com | pkfhonduras@yahoo.com
|
www.pkfhonduras.com. P.O. Box 302091 Edificio Metropolis, Torre II,
Nivel 24
Con oficinas en: Tegucigalpa, San Pedro Sula, La Ceiba | Honduras, C.A.
PKF-Tovar
López is a member firm of PKF International Limited. PKF International Limited
is a network of legally independent member firms
with representation in 125 countries.
We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In
our opinion, except for the effects of such adjustments, the combined financial statements referred to above, present fairly,
in all material respects, the combined financial position of Compañía Minera Cerros del Sur, S.A. de C.V. and Affiliates as of
December 31, 2014 and 2013, and the combined results of its operations and its combined cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
We
draw attention to Note 13 d) to the combined financial statements which describes the uncertainty related to the outcome of the
lawsuit filed against the company. Our opinion is not qualified in respect of this matter.
Without
qualifying our opinion, we draw attention to Note 13 e) in the combined financial statements which indicates that the Company
incurred a net loss obtained during the current and prior years, as of that date, the Company’s working capital is insufficient.
These conditions requires additional capital contribution; the management of the company plans to obtain these contributions from
its headquarter Clavo Rico, Ltd. until its operations reach its break-even point and keep stable. These contributions were made
by capitalizing supplement contributions made by stockholders in previous years.
Without
qualifying our opinion, the company is member of Clavo Rico, Ltd located in Turks and Caicos Island. As expressed in the explanatory
Note 2 to the financial statements, the company has important transactions with Clavo Rico, Ltd. Due to this relationship, it
is possible that the terms of these transactions are not the same that would result from relationships with non-related companies.
Tegucigalpa,
Honduras
April
30, 2015
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
COMBINED
STATEMENT OF FINANCIAL POSITION
For
the Years Ended December 31, 2014 and 2013
(All
amounts in US$ unless otherwise stated)
| |
Note | | |
2014 | | |
2013 | |
ASSETS | |
| | | |
| | | |
| | |
Current assets: | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
| 3 | | |
| 157,718 | | |
| 39,833 | |
Inventories | |
| 4 | | |
| 1,703,883 | | |
| 1,726,117 | |
Accounts receivable | |
| | | |
| 22,284 | | |
| 12,612 | |
Accounts receivable- related companies | |
| | | |
| 18,983 | | |
| 18,409 | |
| |
| | | |
| | | |
| | |
Total current assets | |
| | | |
| 1,902,868 | | |
| 1,796,971 | |
| |
| | | |
| | | |
| | |
Non-current assets: | |
| | | |
| | | |
| | |
Property, plant and equipment-net | |
| 5 | | |
| 2,719,650 | | |
| 2,491,383 | |
Intangible assets-mining rights an concession | |
| 6 | | |
| 112,455 | | |
| 157,319 | |
Others assets | |
| | | |
| 95,591 | | |
| 140,686 | |
| |
| | | |
| | | |
| | |
Total non-current assets | |
| | | |
| 2,927,696 | | |
| 2,789,388 | |
| |
| | | |
| | | |
| | |
Total assets | |
| | | |
| 4,830,564 | | |
| 4,586,359 | |
| |
| | | |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | | |
| | |
Current liabilities: | |
| | | |
| | | |
| | |
Account payables | |
| | | |
| 367,321 | | |
| 292,084 | |
Employee withholdings and payroll taxes | |
| | | |
| 98,115 | | |
| 146,011 | |
Employee benefit obligations | |
| 8 | | |
| 28,180 | | |
| 28,180 | |
Mine reclamation | |
| | | |
| 33,508 | | |
| 33,508 | |
Taxes other than income taxes | |
| | | |
| 16,366 | | |
| 17,791 | |
| |
| | | |
| | | |
| | |
Total current liabilities | |
| | | |
| 543,490 | | |
| 517,574 | |
Non current liabilities: | |
| | | |
| | | |
| | |
Related companies-Loan | |
| 7 | | |
| 5,850,644 | | |
| 5,472,350 | |
| |
| | | |
| | | |
| | |
Total non-current liabilities | |
| | | |
| 5,850,644 | | |
| 5,472,350 | |
| |
| | | |
| | | |
| | |
Total Liabilities | |
| | | |
| 6,394,134 | | |
| 5,989,924 | |
| |
| | | |
| | | |
| | |
Shareholders’ equity: | |
| | | |
| | | |
| | |
Share capital | |
| 1 | | |
| 1,051,116 | | |
| 1,051,116 | |
Supplementary equity contributions | |
| 9 | | |
| 582,639 | | |
| 582,639 | |
Retained earnings (loss) | |
| | | |
| (3,197,325 | ) | |
| (3,037,320 | ) |
Total shareholders’ equity | |
| | | |
| (1,563,570 | ) | |
| (1,403,565 | ) |
Total liabilities and shareholders’ equity | |
| | | |
| 4,830,564 | | |
| 4,586,359 | |
The
accompanying notes are an integral part of these financial statements.
COMPAÑÍA
MINERA CERROS DEL SUR. S.A. DE C.V. AND AFFILIATES
COMBINED
STATEMENT OF COMPREHENSIVE INCOME
For
the Years Ended December 31, 2014 and 2013
(All
amounts in US$ unless otherwise stated)
| |
Note | | |
2014 | | |
2013 | |
| |
| | |
| | |
| |
REVENUE: | |
| | | |
| | | |
| | |
Sales of precious metal | |
| 10 | | |
| 3,120,825 | | |
| 2,502,945 | |
Other income | |
| | | |
| 27,965 | | |
| 3,628 | |
| |
| | | |
| 3,148,790 | | |
| 2,506,574 | |
| |
| | | |
| | | |
| | |
Cost of sales | |
| 11 | | |
| 1,984,684 | | |
| 1,179,567 | |
| |
| | | |
| | | |
| | |
Gross profit | |
| | | |
| 1,164,106 | | |
| 1,327,007 | |
| |
| | | |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
General and administrative expenses | |
| 12 | | |
| (845,267 | ) | |
| (835,428 | ) |
Depreciation and amortisation expense | |
| | | |
| (405,287 | ) | |
| (425,260 | ) |
Interest expenses | |
| | | |
| (58,118 | ) | |
| (5,151 | ) |
| |
| | | |
| | | |
| | |
Total expense | |
| | | |
| (1,308,672 | ) | |
| (1,265,839 | ) |
| |
| | | |
| | | |
| | |
Profit before tax | |
| | | |
| (144,566 | ) | |
| 61,168 | |
| |
| | | |
| | | |
| | |
Income tax expense | |
| | | |
| (15,439 | ) | |
| (17,791 | ) |
| |
| | | |
| | | |
| | |
PROFIT (LOSS) FOR THE YEAR | |
| | | |
| (160,005 | ) | |
| 43,377 | |
The
accompanying notes are an integral part of these financial statements.
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
COMBINED
STATEMENT OF CHANGES IN EQUITY
For
the Years Ended December 31, 2014 and 2013
(All
amounts in US$ unless otherwise stated)
|
|
Note |
|
|
Share
capital |
|
|
Supplementary
equity contributions |
|
|
Retained
earnings (loss) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31, December
2012 |
|
|
|
|
|
|
1,051,116 |
|
|
|
582,639 |
|
|
|
(3,080,697 |
) |
|
|
(1,446,942 |
) |
Net
income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,377 |
|
|
|
43,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at 31, December 2013 |
|
|
|
|
|
|
1,051,116 |
|
|
|
582,639 |
|
|
|
(3,037,320 |
) |
|
|
(1,403,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31, December
2013 |
|
|
|
|
|
|
1,051,116 |
|
|
|
582,639 |
|
|
|
(3,037,320 |
) |
|
|
(1,403,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160,005 |
) |
|
|
(160,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at 31, December 2014 |
|
|
|
|
|
|
1,051,116 |
|
|
|
582,639 |
|
|
|
(3,197,325 |
) |
|
|
(1,563,570 |
) |
The
accompanying notes are an integral part of these financial statements.
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
COMBINED
STATEMENT OF CASH FLOWS
For
the Years Ended December 31, 2014 and 2013
(All
amounts in US$ unless otherwise stated)
| |
2014 | | |
2013 | |
| |
| | |
| |
OPERATING ACTIVITIES: | |
| | | |
| | |
| |
| | | |
| | |
Profit of the year | |
| (160,005 | ) | |
| 43,377 | |
| |
| | | |
| | |
Adjustments for non-cash expenses: | |
| | | |
| | |
Depreciation and amortisation | |
| 405,288 | | |
| 425,260 | |
| |
| | | |
| | |
Changes in operating assets and liabilities: | |
| | | |
| | |
(Increase) on assets: | |
| | | |
| | |
Inventories | |
| 22,234 | | |
| (544,980 | ) |
decrease Accounts receivable | |
| (9,672 | ) | |
| (12,612 | ) |
decrease Accounts receivable- related companies | |
| (574 | ) | |
| (18,409 | ) |
| |
| | | |
| | |
Increase (decrease) on liabilities: | |
| | | |
| | |
Account payables | |
| 75,237 | | |
| 165,743 | |
Increase Employee withholdings and payroll taxes | |
| (47,896 | ) | |
| 146,011 | |
Increase Taxes other than income taxes | |
| (1,425 | ) | |
| 17,791 | |
Current (decrease) portion of employee benefit obligations | |
| - | | |
| (32,717 | ) |
| |
| | | |
| | |
Cash flows (used in) operating activities | |
| 283,187 | | |
| 189,464 | |
| |
| | | |
| | |
INVESTING ACTIVITIES: | |
| | | |
| | |
Purchases of equipment | |
| (582,802 | ) | |
| (430,133 | ) |
Purchases of Intangible | |
| (5,889 | ) | |
| - | |
Increase in other assets | |
| 45,095 | | |
| (117,637 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| (543,596 | ) | |
| (547,770 | ) |
| |
| | | |
| | |
FINANCING ACTIVITIES: | |
| | | |
| | |
Employee benefit obligations paid | |
| - | | |
| (104,485 | ) |
Increase related companies-Loan | |
| 378,294 | | |
| 470,391 | |
| |
| | | |
| | |
Cash flows from financing activities | |
| 378,294 | | |
| 365,906 | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| 117,885 | | |
| 7,600 | |
Cash and cash equivalents at beginning of year | |
| 39,833 | | |
| 32,233 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS AT END OF YEAR | |
| 157,718 | | |
| 39,833 | |
The
accompanying notes are an integral part of these financial statements.
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2014 AND 2013
(All
amounts in US$ unless otherwise stated)
History
- Compañía Minera Cerros del Sur, S.A. de
C.V. is a company incorporated in Honduras, Central America The address of its registered office and principal place of business
is El Corpus, Choluteca. Compañía Minera Cerros del Sur, S.A. de C.V. Group consists of the Company and its parent Clavo Rico
Ltd. (Turks and Caicos Island), Compañía Minera Clavo Rico, S.A.; and Cerros del Rio, S.A.. Their principal activities are the
exploration and extraction of precious metal gold.
The
company was organized on October 2, 1975 and recorded in the Honduran commerce register under number 1091-275, as a variable equity
- Limited Liability company for an undefined period of time, in accordance with Honduran law.
On
August 12, 2004, the company became into a variable equity- Joint-Stock company and registered in the Honduran commerce register
under number 98-566. The company is based in Tegucigalpa and its major activity is the mining prospecting, exploiting, exploding
and commercialization and other related commercial activities. The maximum legal equity as of December 31, 2014 and 2013 is US$1,051,116,
which is totally subscribed and paid and divided in common shares of L100.
In
April 2009, the board of directors approved a capital increase up to a maximum of US$1,500,000. This increase had already been
contributed as supplement capital by Mayan Gold Inc. As of December 31, 2014, this supplement capital contribution has not yet
been legally formalized.
2. |
SUMMARY
OF PREPARATION AND ACCOUNTING POLICIES |
The
main accounting policies adopted by the entity regarding the preparation of the financial statements are described below:
Basis
for the preparation of financial statements –
The accompanying combined financial statements have been prepared in accordance with the generally accepted
accounting principles (U.S. GAAP). The accounting principles comprising the framework are appropriate for the preparation
and presentation of entity financial statements, based on the needs of the financial statement users and cost and
benefit considerations.
|
a)
|
Revenue
and cost recognition. Incomes from sales
of mineral products are recognized when they are billed and delivered to clients. Sales are presented at their net value from
discounts and returned sales. Costs and expenses are recognized when they are incurred. |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2014 AND 2013
(All
amounts in US$ unless otherwise stated)
|
b)
|
Inventories.
The inventories of supplies are valued
to the average price less than from the average market value. Inventory in-progress and completed products are valued based
on the average production cost plus indirect expenses. |
|
|
|
|
c)
|
Property,
Plant, and Equipment. These assets are
valued at their acquisition or construction cost less accumulated depreciation and amortisation. Depreciation and amortisation
is charged so as to allocate the cost of assets less their residual values over their estimated useful lives as follow: |
| |
Years | |
Mining machinery and equipment | |
| 10 | |
Vehicles | |
| 5 | |
Office equipment and furniture | |
| 10 | |
Buildings | |
| 20 | |
If
there is an indication that there has been a significant change in depreciation rate, useful life or residual value of an asset,
the depreciation of that asset is revised prospectively to reflect the new expectations. Gains and losses arising from the retirement
or sale of assets are recognized in profit or loss, as well as repair and maintenance costs when they do not exceed the useful
life of the assets.
|
d)
|
Intangible
assets. Intangible assets-Mining rights
and concession that is stated at cost less accumulated amortisation and any accumulated impairment losses. It is amortised
over its estimated life of five years using the straight-line method. If there is an indication that there has been a significant
change in amortization rate, useful life or residual value of an intangible asset, the amortization is revised prospectively
to reflect the new expectations. |
|
|
|
|
e)
|
Impairment
of assets. At each reporting date, property,
plant and equipment and intangible assets, are reviewed to determine whether there is any indication that those assets have
suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset
(or group of related assets) is estimated and compared with its carrying amount. If estimated recoverable amount is lower,
the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognized immediately in profit
or loss. Similarly, at each reporting date, inventories are assessed for impairment by comparing the carrying amount of each
item of inventory (or group of similar items) with its selling price less costs to complete and sell. If an item of inventory
(or group of similar items) is impaired, its carrying amount is reduced to selling price less costs to complete and sell,
and an impairment loss is recognized immediately in profit or loss. If an impairment loss subsequently reverses, the carrying
amount of the asset (or group of related assets) is increased to the revised estimate of its recoverable amount (selling price
less costs to complete and sell, in the case of inventories), but not in excess of the amount that would have been determined
had no impairment loss been recognized for the asset (group of related assets) in prior years. A reversal of an impairment
loss is recognized immediately in profit or loss. |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2014 AND 2013
(All
amounts in US$ unless otherwise stated)
|
e)
|
Leases.
Rentals payable under operating leases
are charged to profit or loss on a straight-line basis over the term of the relevant lease. |
|
|
|
|
f)
|
Use
of Estimates. The preparation of financial
statements in conformity with U.S GAAP requires the company management to make some estimates and assumptions that affect
the balance of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and
the income and expenses for the reported years as well. Assets and liabilities are recognized in the financial statements
when financial benefits are likely to flow to or from the company and that the different entries have cost or value, which
can be fairly measured. If in the future these estimates and assumptions, which are based on the best knowledge of the management
at the date of the financial statements, were modified with respect to the current circumstances, the original estimates and
assumptions will be adequately adjusted in the period that such changes happen. |
|
|
|
|
g)
|
Legal
Reserve. Represents 5% of the net income
of each year up to a minimum of 20% of the paid equity. |
|
|
|
|
h)
|
Registration
of foreign currency transactions –
Foreign currency transactions are recorded at the exchange rate prevailing at the transaction date, with related balances
adjusted to the prevailing exchange rate at the closing date. Gains or losses arising from these adjustments are
recognized in profit or loss of the current year. |
|
|
|
|
i) |
Employee
benefits – According to the
Honduran Labor Code, Compañía Minera Cerros del Sur, S.A. de C.V. is obliged to pay compensation to employees dismissed
under certain circumstances. As of December 31, 2014 and 2013, the employee benefit obligations is about US$ 28,180 in
2014 (US$ 28,180 in 2013); disbursements in excess to this amount are considered by the company as expenses of the year
they are incurred. |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2014 AND 2013
(All
amounts in US$ unless otherwise stated)
The
Honduran Labor Code was amended by Decree 150-2008, issued by Congress and published in the Official Gazette on November 5, 2008.
Such decree establishes an employee’s right to receive a severance payment when, after 15 years or more of continuous work,
he or she decides to voluntarily terminate the employment contract and is entitled to receive 35% of the amount that would correspond
to the years of service. The entity does not maintain specific reserves to cope with this type of any work obligations.
|
j)
|
Exchange
Rate. The accounting records of the company
are maintained in Lempiras, official currency of Honduras. In June 1994, the Central Bank board liberalized the US$ exchange
rate and it is ruled by the offer and demand through the Public Currency Bids (PCB) mechanism. As of December 31, 2014 and
2013, the exchange rate US$/Lempiras in the Honduran banking system was L 21.6630: US$1 and L20.7417: US$1 in 2013 |
|
|
|
|
k)
|
Related
party transaction - Shareholders, directors
and other entities with whom the entity has shareholders in common are considered as related parties. |
|
|
|
|
I)
|
Financial
instruments - Financial instruments recognized
in the financial statements include cash, accounts receivable and accounts payable. |
|
|
|
|
|
Credit
risk. Financial assets that expose the
entity to credit risk consist primarily of cash and bank deposits. All cash and bank deposits are held by banks with high
credit quality. |
|
|
|
|
|
Fluctuation
risk. Bank deposits are subject to foreign
currency exchange risks since a portion of such bank deposits are maintained in US dollars. The Lempira (official currency
of Honduras) has experienced steady devaluations against the US dollar since 1990 and cash flows have been affected by fluctuations
in the exchange rate. |
|
|
|
|
|
Fair
value. The fair value of bank deposits,
temporary investments and accounts receivable approximate their fair values due to their short term nature. |
|
|
|
|
m)
|
Reclassifications
- At the end of the period, some reclassifications
of balances were made, which were considered necessary for a more reasonable presentation of the financial statements. |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2014 AND 2013
(All
amounts in US$ unless otherwise stated)
3. |
CASH
AND CASH EQUIVALENTS |
Cash
at December 31, was as follows:
| |
2014 | | |
2013 | |
| |
| | |
| |
Petty cash | |
| 462 | | |
| 485 | |
Cash in Banks | |
| 129,462 | | |
| 10,153 | |
Other Deposits | |
| 27,794 | | |
| 29,195 | |
| |
| | | |
| | |
Total | |
| 157,718 | | |
| 39,833 | |
Inventories
at December 31, were as follows:
| |
2014 | | |
2013 | |
| |
| | |
| |
Metals in progress | |
| 1,518,496 | | |
| 1,683,148 | |
Mining supplies | |
| 185,387 | | |
| 42,969 | |
| |
| | | |
| | |
Total | |
| 1,703,883 | | |
| 1,726,117 | |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2014 AND 2013
(All
amounts in US$ unless otherwise stated)
5. |
PROPERTY,
PLANT AND EQUIPMENT. |
Fixed
assets, changes to, and their depreciation at December 31, are as follows:
| |
Land | | |
Construction in progress | | |
Mining - machinery and equipment | | |
Vehicles | | |
Office equipment and furniture | | |
Buildings | | |
Total | |
Cost | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2012 | |
| 13,687 | | |
| 2,001,335 | | |
| 504,379 | | |
| 55,615 | | |
| 280 | | |
| 387,522 | | |
| 2,962,818 | |
Additions | |
| - | | |
| 253,485 | | |
| 18,063 | | |
| 7,600 | | |
| 10,818 | | |
| 140,167 | | |
| 430,133 | |
Disposals | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Transfers | |
| - | | |
| (2,254,820 | ) | |
| 258,138 | | |
| - | | |
| - | | |
| 1,996,682 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 13,687 | | |
| - | | |
| 780,579 | | |
| 63,215 | | |
| 11,098 | | |
| 2,524,371 | | |
| 3,392,951 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 13,687 | | |
| - | | |
| 780,579 | | |
| 63,215 | | |
| 11,098 | | |
| 2,524,371 | | |
| 3,392,951 | |
Additions | |
| - | | |
| - | | |
| 53,809 | | |
| 27,872 | | |
| 14,987 | | |
| 487,683 | | |
| 584,350 | |
Disposals | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,548 | ) | |
| - | | |
| (1,548 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2014 | |
| 13,687 | | |
| - | | |
| 834,388 | | |
| 91,087 | | |
| 24,536 | | |
| 3,012,055 | | |
| 3,975,753 | |
Accumulated depreciation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2012 | |
| - | | |
| - | | |
| 375,187 | | |
| 25,880 | | |
| - | | |
| 127,582 | | |
| 528,649 | |
Annual depreciation | |
| - | | |
| - | | |
| 120,094 | | |
| 11,425 | | |
| 1,033 | | |
| 240,067 | | |
| 372,919 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| - | | |
| - | | |
| 495,281 | | |
| 37,305 | | |
| 1,033 | | |
| 367,649 | | |
| 901,568 | |
31 December 2013 | |
| - | | |
| - | | |
| 495,281 | | |
| 37,305 | | |
| 1,033 | | |
| 367,649 | | |
| 901,568 | |
Annual depreciation | |
| - | | |
| - | | |
| 53,476 | | |
| 15,554 | | |
| 4,772 | | |
| 280,732 | | |
| 354,534 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2014 | |
| - | | |
| - | | |
| 548,757 | | |
| 52,859 | | |
| 6,106 | | |
| 648,381 | | |
| 1,256,103 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Carrying amount | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2014 | |
| 13,687 | | |
| - | | |
| 285,631 | | |
| 38,228 | | |
| 18,431 | | |
| 2,363,674 | | |
| 2,719,650 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 13,687 | | |
| - | | |
| 285,298 | | |
| 25,909 | | |
| 9,764 | | |
| 2,156,723 | | |
| 2,491,383 | |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V.
NOTES
TO COMBINED THE FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2013 AND 2012
(All
amounts in US$ unless otherwise stated)
| |
Concessions | | |
Leases | | |
Softwares | | |
Total | |
Cost | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2012 | |
| 443,686 | | |
| 122,024 | | |
| - | | |
| 565,710 | |
Additions | |
| - | | |
| - | | |
| - | | |
| - | |
Disposals | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 443,686 | | |
| 122,024 | | |
| - | | |
| 565,710 | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 443,686 | | |
| 122,024 | | |
| - | | |
| 565,710 | |
Additions | |
| - | | |
| - | | |
| 5,889 | | |
| 5,889 | |
Disposals | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2014 | |
| 443,686 | | |
| 122,024 | | |
| 5,889 | | |
| 571,599 | |
| |
| | | |
| | | |
| | | |
| | |
Accumulated amortisation | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2012 | |
| 305,940 | | |
| 50,110 | | |
| - | | |
| 356,050 | |
Annual amortisation | |
| 41,051 | | |
| 11,290 | | |
| - | | |
| 52,340 | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 346,991 | | |
| 61,400 | | |
| - | | |
| 408,390 | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 346,991 | | |
| 61,400 | | |
| - | | |
| 408,391 | |
Annual amortisation | |
| 39,806 | | |
| 10,948 | | |
| - | | |
| 50,753 | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2014 | |
| 386,796 | | |
| 72,347 | | |
| - | | |
| 459,144 | |
| |
| | | |
| | | |
| | | |
| | |
Carrying amount | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2014 | |
| 56,890 | | |
| 49,677 | | |
| 5,889 | | |
| 112,455 | |
| |
| | | |
| | | |
| | | |
| | |
31 December 2013 | |
| 96,695 | | |
| 60,624 | | |
| - | | |
| 157,319 | |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V.
NOTES
TO COMBINED THE FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2013 AND 2012
(All
amounts in US$ unless otherwise stated)
7. |
RELATED PARTIES TRANSACTIONS |
The
transactions and balance for accounts receivable and accounts payable related parties of corresponds to Clavo Rico, Ltd. (Mayan
Gold, Inc. in 2012) and others affiliated companies. The most important transactions during the year are detailed below:
| |
2014 | | |
2013 | |
Accounts receivable | |
| | | |
| | |
| |
| | | |
| | |
Compañía Minera Potosi, S.A. | |
| 18,409 | | |
| 18,409 | |
Compañía Minera Clavo Rico, inc | |
| 3,960 | | |
| - | |
| |
| | | |
| | |
Total accounts receivable | |
| 22,369 | | |
| 18,409 | |
| |
| | | |
| | |
Accounts payable | |
| | | |
| | |
| |
| | | |
| | |
Compañía.Minera Cerros del Rio, S.A | |
| 7,431 | | |
| 2,843 | |
Inversiones Mustang Honduras | |
| 1,166 | | |
| 32,018 | |
Clavo Rico Inc. (USA) | |
| 823,648 | | |
| 516,209 | |
| |
| | | |
| | |
Total accounts payable | |
| 832,245 | | |
| 551,070 | |
| |
| | | |
| | |
Loan payable | |
| | | |
| | |
| |
| | | |
| | |
Clavo Rico, Ltd | |
| | | |
| | |
Transfers received of supplementary equity contributions | |
| 1,500,000 | | |
| 1,500,000 | |
Loan at 0% interest. | |
| 3,518,399 | | |
| 3,421,280 | |
Total loan payable | |
| 5,018,399 | | |
| 4,921,280 | |
| |
| | | |
| | |
Total accounts and loan payable | |
| 5,850,644 | | |
| 5,472,350 | |
| |
| | | |
| | |
Revenues | |
| | | |
| | |
Clavo Rico, Inc | |
| 3,120,825 | | |
| 2,502,945 | |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V.
NOTES
TO COMBINED THE FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2013 AND 2012
(All
amounts in US$ unless otherwise stated)
8. |
EMPLOYEE BENEFIT OBLIGATIONS |
The
Company’s employee benefit obligations for long-service payments under a government mandated plan is based on a comprehensive
valuation as of December 31, 2014 and 2013 and is as follows:
| |
2014 | | |
2013 | |
| |
| | | |
| | |
January 1 | |
| 28,180 | | |
| 165,382 | |
Additional accrual during the year | |
| - | | |
| - | |
Payment | |
| - | | |
| (137,202 | ) |
| |
| | | |
| | |
December 31 | |
| 28,180 | | |
| 28,180 | |
9. |
SUPPLEMENTARY EQUITY CONTRIBUTIONS. |
Contributed
as supplement capital by Clavo Rico, Ltd. As of December 31, 2014. This supplement capital contribution has not yet been legally
formalized.
| |
2014 | | |
2013 | |
| |
| | | |
| | |
Sales of precious metal | |
| | | |
| | |
Gold | |
| 3,054,722 | | |
| 2,472,669 | |
Silver | |
| 66,104 | | |
| 30,277 | |
| |
| | | |
| | |
| |
| 3,120,825 | | |
| 2,502,945 | |
Other income | |
| 27,965 | | |
| 3,628 | |
| |
| | | |
| | |
| |
| 3,148,790 | | |
| 2,506,574 | |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V.
NOTES
TO COMBINED THE FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2013 AND 2012
(All
amounts in US$ unless otherwise stated)
Mining
operation and geologists cost during the year ended December 31, are detailed as follows:
| |
2014 | | |
2013 | |
| |
| | |
| |
Payroll employees | |
| 308,622 | | |
| 368,012 | |
Employees Benefits | |
| 121,717 | | |
| 93,985 | |
Lixiviation-Materials | |
| 306,123 | | |
| 663,659 | |
Energy | |
| 120,295 | | |
| 156,674 | |
Transport | |
| 70,828 | | |
| 57,347 | |
Maintenance and y Repairs | |
| 112,806 | | |
| 64,693 | |
Rent and service | |
| 709,289 | | |
| 257,694 | |
Other Materials | |
| 38,658 | | |
| 56,353 | |
Diesel and lubricants | |
| 63,696 | | |
| 44,513 | |
Other | |
| 37,917 | | |
| 34,421 | |
| |
| | | |
| | |
Total | |
| 1,889,950 | | |
| 1,797,352 | |
| |
| | | |
| | |
(Transfer) to inventories in process | |
| 94,734 | | |
| (617,785 | ) |
| |
| | | |
| | |
Cost of sales | |
| 1,984,684 | | |
| 1,179,567 | |
12. |
GENERAL AND ADMINISTRATIVE EXPENSES |
General
and administrative expenses during the year ended December 31, are detailed as follows:
| |
2014 | | |
2013 | |
| |
| | |
| |
Payroll employees | |
| 277,367 | | |
| 242,515 | |
Employees benefits | |
| 110,498 | | |
| 88,098 | |
Legal Fees | |
| 165,435 | | |
| 137,617 | |
Materials | |
| 2,288 | | |
| 1,033 | |
Rent and services | |
| 34,827 | | |
| 47,406 | |
Office Supplies | |
| 4,670 | | |
| 5,857 | |
Energy | |
| 3,226 | | |
| 3,902 | |
Transport | |
| 47,196 | | |
| 42,480 | |
External Services (exploitation) | |
| 103,723 | | |
| 165,634 | |
Internal Tax | |
| 23,879 | | |
| 29,118 | |
Other | |
| 72,160 | | |
| 71,768 | |
| |
| | | |
| | |
Total | |
| 845,267 | | |
| 835,428 | |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V.
NOTES
TO COMBINED THE FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2013 AND 2012
(All
amounts in US$ unless otherwise stated)
13. |
COMPROMISES. PROVISIONS AND CONTINGENCIES. |
Compromises:
|
a. |
The company has signed leasing contracts for Employee housing. These contracts do not have termination date; future payments under them will be of US$25,490 per year. |
|
|
|
|
b. |
Income Tax – Article 136 of
the Honduran Tax Code establishes the responsibilities of taxpayers and withholding tax agents, as well as
Treasury’s powers to conduct reviews and investigations, report adjustments, determine and require the payment of
relevant obligations, and to implement the measures provided for in the Code within the following terms: |
|
|
|
|
|
Two (2) years in the case of taxpayers or responsible agents which have imported, exported or engaged in any other customs transaction; and five (5) years for all other taxpayers. |
|
|
|
|
|
The income tax and net assets statements, as well as sales tax and withholding income tax statements made by the entity for the years ended December 31, 2005 until December 31, 2010, are pending review by the tax authorities. However, management is certain that in due case the financial statements will remain unaffected. |
Provisions:
|
c. |
The costs of dismantling and cleaning-up and restoring of the site obtained in concession are accounted as liabilities in the attached financial statements. |
Going
Concern Assumption:
|
d. |
The attached financial statements have been prepared taking into consideration that it will be operating as an On-Going concern. The company has a negative working capital due to the loses obtained in the current and prior years; the management’s plan regarding this condition is as follows: |
|
|
1. |
Capitalization of additional contributions of equity in 2014, through its holding company Clavo Rico, Ltd. |
COMPAÑÍA
MINERA CERROS DEL SUR, S.A. DE C.V.
NOTES
TO COMBINED THE FINANCIAL STATEMENTS
YEAR
ENDED AT DECEMBER 2013 AND 2012
(All
amounts in US$ unless otherwise stated)
|
2. |
Maximize the production of minerals to be sold through the acquisition of additional equipment to generate positive net incomes. |
|
|
|
|
3. |
Mayan Gold Inc. would be willing to keep subsidizing operating expenditures of its subsidiary company in Honduras as along as needed. |
|
|
|
|
4. |
Prepare budget to avoid unnecessary expenses in subsequent years. |
The management
of the company expects cash flows through 2014, which includes positive net income starting in the first quarter of 2015. The financial
statements do not include any accounting adjustment, which could result from this uncertainty.
COMPANIA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
CONDENSED
COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2015
CONTENTS
|
Page |
|
|
Condensed
Combined Statements of Financial Position |
2 |
|
|
Condensed
Combined Statement of Comprehensive Income |
3 |
|
|
Condensed
Combined Statement of Cash Flows |
4 |
|
|
Notes
to the Condensed Combined Financial Statements |
5-8 |
COMPANIA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
COMBINED
STATEMENTS OF FINANCIAL POSITION
| |
| 9/30/2015 | | |
| 12/31/2014 | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 154,169 | | |
$ | 157,718 | |
Inventories | |
| 1,117,653 | | |
| 1,703,883 | |
Accounts receivable | |
| 26,783 | | |
| 22,284 | |
Accounts receivable - related companies | |
| 24,094 | | |
| 18,983 | |
Total current assets | |
| 1,322,699 | | |
| 1,902,868 | |
| |
| | | |
| | |
Non-current assets | |
| | | |
| | |
Property, plant and equipment - net | |
| 2,631,947 | | |
| 2,719,650 | |
Intangible assets-mining rights and concessions | |
| 71,290 | | |
| 112,455 | |
Other assets | |
| 569,705 | | |
| 95,591 | |
Total non-current assets | |
| 3,272,942 | | |
| 2,927,696 | |
Total assets | |
$ | 4,595,641 | | |
$ | 4,830,564 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ DEFICIT | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payables | |
$ | 197,002 | | |
$ | 367,321 | |
Employee withholdings and payroll taxes | |
| 96,194 | | |
| 98,115 | |
Employee benefit obligations | |
| 97,791 | | |
| 28,180 | |
Mine reclamation | |
| 29,003 | | |
| 33,508 | |
Taxes other than income taxes | |
| 15,153 | | |
| 16,366 | |
Total current liabilities | |
| 435,143 | | |
| 543,490 | |
| |
| | | |
| | |
Non-current liabilities | |
| | | |
| | |
Notes payable | |
| 5,488,980 | | |
| 5,850,644 | |
Total non-current liabilities | |
| 5,488,980 | | |
| 5,850,644 | |
Total liabilities | |
| 5,924,123 | | |
| 6,394,134 | |
| |
| | | |
| | |
Shareholders’ deficit | |
| | | |
| | |
Share capital | |
| 1,051,116 | | |
| 1,051,116 | |
Supplementary equity contributions | |
| 582,639 | | |
| 582,639 | |
Accumulated deficit | |
| (2,962,237 | ) | |
| (3,197,325 | ) |
Total shareholders’ deficit | |
| (1,328,482 | ) | |
| (1,563,570 | ) |
Total liabilities and shareholders’ deficit | |
$ | 4,595,641 | | |
$ | 4,830,564 | |
The
accompanying notes are an integral part of these financial statements.
COMPANIA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
COMBINED
STATEMENT OF COMPREHENSIVE INCOME
For
the Nine Months Ended September 30, 2015
| |
| 9/30/2015 | |
Revenue | |
| | |
Sales of precious metal | |
$ | 3,402,179 | |
Other income | |
| 12,490 | |
Total revenue | |
| 3,414,669 | |
| |
| | |
Cost of sales | |
| 2,689,825 | |
Gross profit | |
| 724,844 | |
| |
| | |
Operating expenses | |
| | |
General and administrative expenses | |
| 142,921 | |
Depreciation and amortization expenses | |
| 340,619 | |
Interest expenses | |
| 6,216 | |
Total operating expenses | |
| 489,756 | |
| |
| | |
Profit before tax | |
| 235,088 | |
Income tax expense | |
| - | |
Net income | |
$ | 235,088 | |
The
accompanying notes are an integral part of these financial statements.
COMPANIA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
COMBINED
STATEMENT OF CASH FLOWS
For
the Nine Months Ended September 30, 2015
| |
| 9/30/2015 | |
Operating Activities | |
| | |
Net income for the year | |
$ | 235,088 | |
Adjustments for non-cash expenses | |
| | |
Depreciation and amortization | |
| 340,619 | |
Changes in operating assets and liabilities | |
| | |
(Increase) decrease on assets | |
| | |
Inventories | |
| 586,230 | |
Accounts receivable | |
| (4,499 | ) |
Accounts receivable - related companies | |
| (5,111 | ) |
Increase (decrease) on liabilities | |
| | |
Accounts payable | |
| (170,319 | ) |
Employee withholdings and payroll taxes | |
| (1,921 | ) |
Taxes other than income taxes | |
| (1,213 | ) |
Mine reclamation obligation | |
| (4,505 | ) |
Employee benefit obligation | |
| 69,611 | |
Cash flows provided by operating activities | |
| 1,043,980 | |
| |
| | |
Investing Activities | |
| | |
Purchases of equipment | |
| (211,751 | ) |
Increase in other assets | |
| (474,114 | ) |
Cash flows used in investing activities | |
| (685,865 | ) |
| |
| | |
Financing Activities | |
| | |
Employee benefit obligations paid | |
| - | |
Repayments on notes payable | |
| (361,664 | ) |
Cash flows used in financing activities | |
| (361,664 | ) |
| |
| | |
Net change in cash and cash equivalents | |
| (3,549 | ) |
Cash and cash equivalents at beginning of year | |
| 157,718 | |
Cash and cash equivalents at end of year | |
$ | 154,169 | |
The
accompanying notes are an integral part of these financial statements.
COMPANIA
MINERA CERROS DEL SUR, S.A. DE C.V. AND AFFILIATES
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2015
History
– Compania Minera Cerros del Sur, S.A. de C.V. is a company incorporated in Honduras, Central America. The address of
its registered office and principal place of business is El Corpus, Choluteca. Compania Minera Cerros del Sur, S.A. de C.V. Group
consists of the Company and its parent Clavo Rico Ltd. (Turks and Caicos Island), Compania Minera Clavo Rico, S.A.; and Cerros
del Rio, S.A.. Their principal activities are the exploration and extraction of precious metal gold and silver.
The
Company was organized on October 2, 1975 and recorded in the Honduran commerce register under the number 1091-275, as a variable
equity – Limited Liability company for an undefined period of time, in accordance with Honduran law.
On
August 12, 2004, the Company became a variable equity – Joint-Stock company registered in the Honduran commerce register
under the number 98-566. The Company is based in Tegucigalpa and its major activity is the mining, prospecting, exploiting, exploding
and commercialization and other related commercial activities. The maximum legal equity as of September 30, 2015 and December
31, 2014 is $1,051,116, which is totally subscribed and paid and divided in common shares of L100.
In
April 2009, the board of directors approved a capital increase up to a maximum of $1,500,000. This increase had already been contributed
as supplement capital by Mayan Gold, Inc. As of September 30, 2015, this supplement capital contribution has not yet been legally
formalized.
| 2. | SUMMARY
OF PREPARATION AND ACCOUNTING POLICIES |
The
main accounting policies adopted by the entity regarding the preparation of the financial statements are described below:
Basis
for the preparation of financial statements – The accompanying combined financial statements have been prepared in accordance
with the generally accepted accounting principles (U.S. GAAP). The accounting principles comprising the framework are appropriate
for the preparation and presentation of entity financial statements, based on the needs of the financial statement users and cost
and benefit considerations.
| a) | Revenue
and cost recognition – Incomes from sales of mineral products are recognized
when they are billed and delivered to clients. Sales are presented at their net value
from discounts and returned sales. Costs and expenses are recognized when they are incurred. |
| b) | Inventories
– The inventories of supplies are valued to the average price less than from
the average market value. Inventory in-progress and completed products are valued based
on the average production cost plus indirect expenses. |
| c) | Property,
Plant and Equipment – These assets are valued at their acquisition or construction
cost less accumulated depreciation and amortization. Depreciation and amortization is
charged so as to allocate the cost of assets less their residual values over the estimated
useful lives as follows: |
|
| |
| Years | |
Mining Machinery and Equipment | |
| 10 | |
Vehicles | |
| 5 | |
Office Equipment and Furniture | |
| 10 | |
Buildings | |
| 20 | |
If
there is an indication that there has been a significant change in depreciation rate, useful life or residual value of an asset,
the depreciation of that asset is revised prospectively to reflect the new expectations. Gains and losses arising from the retirement
or sale of assets are recognized in profit or loss, as well as repair and maintenance costs when they do not exceed the useful
life of the assets.
| d) | Intangible
Assets – Intangible assets – mining rights and concession that is stated
at cost less accumulated amortization and any accumulated impairment losses. It is amortized
over its estimated life of five years using the straight-line method. If there is an
indication that there has been a significant change in amortization rate, useful life
or residual value of an intangible asset, the amortization is revised prospectively to
reflect the new expectations. |
| e) | Impairment
of Assets – At each reporting date, property, plant and equipment of intangible
assets, are reviewed to determine whether there is any indication that those assets have
suffered an impairment loss. If there is an indication of possible impairment, the recoverable
amount of any affected asset (or group of related assets) is estimated and compared with
its carrying amount. If estimated recoverable amount is lower, the carrying amount is
reduced to its estimated recoverable amount, and an impairment loss is recognized immediately
in profit and loss. Similarly, at each reporting date, inventories are assessed for impairment
by comparing the carrying amount of each item of inventory (or group of similar items)
with its selling price less costs to complete and sell. If an item of inventory (or group
of similar items) is impaired, its carrying amount is reduced to selling price less costs
to complete and sell, and an impairment loss is recognized immediately in profit and
loss. If an impairment loss subsequently reverses, the carrying amount of the asset (of
group of related assets) is increased to the revised estimate of its recoverable amount
(selling price less costs to complete and sell, in the case of inventories), but not
in excess of the amount that would have been determined had no impairment loss been recognized
for the asset (or group of related assets) in prior years. A reversal of an impairment
loss is recognized immediately in profit and loss. |
| f) | Leases
– Rentals payable under operating leases are charged to profit or loss on a
straight-line basis over the term of the relevant lease. |
| g) | Use
of Estimates – The preparation of financial statements in conformity with U.S.
GAAP requires the Company management to make some estimates and assumptions that affect
the balance of assets and liabilities, the disclosure of contingent liabilities at the
date of the financial statements and the income and expenses for the reported years as
well. Assets and liabilities are recognized in the financial statements when financial
benefits are likely to flow to or from the Company and that the different entries have
cost or value, which can be fairly measured. If in the future these estimates and assumptions,
which are based on the best knowledge of the management at the date of the financial
statements, were modified with respect to the current circumstances, the original estimates
and assumptions will be adequately adjusted in the period that such changes happen. |
| h) | Legal
Reserve – Represents 5% of the net income of each year up to a maximum of 20%
of the paid equity. |
| i) | Registration
of Foreign Currency Transactions – Foreign currency transactions are recorded
at the exchange rate prevailing at the transaction date, with related balances adjusted
to the prevailing exchange rate at the closing date. Gains or losses arising from these
adjustments are recognized in profit or loss of the current year. |
| j) | Employee
Benefits – According to the Honduran Labor Code, Compania Minera Cerros del
Sur, S.A. de C.V. is obliged to pay compensation to employees dismissed under certain
circumstances. As of September 30, 2015 and December 31, 2014, the employee benefit obligations
is $97,791 and $28,180, respectively; disbursements in excess to this amount are considered
by the Company as expenses in the period they are incurred. |
The
Honduran Labor Code was amended by Decree 150-2008, issued by Congress and published in the Official Gazette on November 5, 2008.
Such decree establishes an employee’s right to receive a severance payment when, after 15 years or more of continuous work,
he or she decides to voluntarily terminate the employment contract and is entitled to receive 35% of the amount that would correspond
to the years of service. The entity does not maintain specific reserves to cope with this type of work obligations.
| k) | Exchange
Rate – The accounting records of the Company are maintained in Lempiras, official
currency of Honduras. In June 1994, the Cental Bank board liberalized the US$ exchange
rate and it is ruled by the offer and demand through the Public Currency Bids (PCB) mechanism.
As of September 30, 2015 and December 31, 2014, the exchange rate US$/Lempiras in the
Honduran banking system was L 21.983:US$ 1 and L 21.6630:US$ 1, respectively. For
the nine months ending September 30, 2015, the average exchange rate US$/Lempiras in
the Honduran banking system was L 21.8743:US$1. |
| l) | Related
Party Transactions – Shareholders, directors and other entities with whom the
entity has shareholders in common are considered as related parties. |
| m) | Financial
Instruments – Financial instruments recognized in the financial statements
include cash, accounts receivable and accounts payable. |
Credit
Risk – Financial assets that expose the entity to credit risk consist primarily of cash and bank deposits. All cash
and bank despoists are held by banks with high credit quality.
Fluctuation
Risk – Bank deposits are subject to foreign currency exchange risks since a portion of such bank deposits are maintained
in US Dollars. The Lempira (official currency of Honduras) has experienced steady devaluations against the US dollar since 1990
and cash flows have been affected by fluctuations in the exchange rate.
Fair
Value – The fair value of bank deposits, temporary investments and accounts receivable approximate their fair values
due to their short term nature.
| n) | Reclassifications
– At the end of the period, some reclassifications of balances were made, which
were considered necessary for a more reasonable presentation of the financial statements. |
| 3. | CASH
AND CASH EQUIVALENTS |
Cash
and cash equivalents at September 30, 2015 and December 31, 2014 were as follows:
| |
| 9/30/2015 | | |
| 12/31/2014 | |
Petty Cash | |
$ | 682 | | |
$ | 462 | |
Cash in Banks | |
| 153,487 | | |
| 129,462 | |
Other Deposits | |
| - | | |
| 27,794 | |
| |
$ | 154,169 | | |
$ | 157,718 | |
Inventories
at September 30, 2015 and December 30, 2014 were as follows:
| |
| 9/30/2015 | | |
| 12/31/2014 | |
Metals in Progress | |
$ | 1,019,095 | | |
$ | 1,518,496 | |
Mining Supplies | |
| 98,558 | | |
| 185,387 | |
| |
$ | 1,117,653 | | |
$ | 1,703,883 | |
| |
| 9/30/2015 | | |
| 12/31/2014 | |
Sales of Precious Metal | |
| | | |
| | |
Gold | |
$ | 3,331,396 | | |
$ | 3,054,721 | |
Silver | |
| 70,783 | | |
| 66,104 | |
| |
| 3,402,179 | | |
| 3,120,825 | |
Other Income | |
| 12,490 | | |
| 27,965 | |
| |
$ | 3,414,669 | | |
$ | 3,148,790 | |
Mining
operation and geologist cost during the nine months ended September 30, 2015 and year ended December 31, 2014 are detailed as
follows:
| |
9/30/2015 | | |
12/31/2014 | |
Payroll Employees | |
$ | 695,137 | | |
$ | 308,622 | |
Employee Benefits | |
| 82,980 | | |
| 121,717 | |
Lixiviation - Materials | |
| 310,456 | | |
| 306,123 | |
Energy | |
| 91,288 | | |
| 120,295 | |
Transport | |
| 100,971 | | |
| 70,828 | |
Maintenance and y Repairs | |
| 103,789 | | |
| 112,806 | |
Rent and Service | |
| 620,577 | | |
| 709,289 | |
Other Materials | |
| 75,578 | | |
| 38,658 | |
Diesel and Lubricants | |
| 74,756 | | |
| 63,696 | |
Other | |
| 65,079 | | |
| 37,916 | |
Total | |
| 2,220,611 | | |
| 1,889,950 | |
Transfer to Inventories in Process | |
| 469,214 | | |
| 94,734 | |
Cost of Sales | |
$ | 2,689,825 | | |
$ | 1,984,684 | |
| 7. | GENERAL
AND ADMINISTRATIVE EXPENSES |
General
and administrative expenses during the nine months ended September 30, 2015 and the year ended December 31, 2014 are detailed
as follows:
| |
9/30/2015 | | |
12/31/2014 | |
Payroll employees | |
$ | 137,473 | | |
$ | 277,367 | |
Employee benefits | |
| 55,272 | | |
| 110,498 | |
Legal Fees | |
| 21,813 | | |
| 165,435 | |
Materials | |
| 4,636 | | |
| 2,288 | |
Rent and services | |
| 46,356 | | |
| 34,827 | |
Office supplies | |
| - | | |
| 4,670 | |
Energy | |
| 13,116 | | |
| 3,226 | |
Transport | |
| 15,697 | | |
| 47,196 | |
External services (exploitation) | |
| 9,289 | | |
| 103,723 | |
Internal tax | |
| - | | |
| 23,879 | |
Other | |
| (160,731 | ) | |
| 72,158 | |
Total | |
$ | 142,921 | | |
$ | 845,267 | |
Clavo
Rico, Ltd. and Subsidiaries
Combined
Pro Forma Statements of Financial Position
As
of September 30, 2015
| |
Clavo Rico | | |
IMII | | |
| |
Adjustments | | |
Total | |
ASSETS | |
| | | |
| | | |
| |
| | | |
| | |
Current assets | |
| | | |
| | | |
| |
| | | |
| | |
Cash and cash equivalents | |
$ | 154,169 | | |
$ | 29,490 | | |
| |
$ | - | | |
$ | 183,659 | |
Inventories | |
| 1,117,653 | | |
| - | | |
| |
| - | | |
| 1,117,653 | |
Accounts receivable | |
| 26,783 | | |
| - | | |
| |
| - | | |
| 26,783 | |
Accounts receivable - related companies | |
| 24,094 | | |
| - | | |
| |
| - | | |
| 24,094 | |
Other current assets | |
| - | | |
| 71,213 | | |
| |
| - | | |
| 71,213 | |
Total current assets | |
| 1,322,699 | | |
| 100,703 | | |
| |
| - | | |
| 1,423,402 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Non-current assets | |
| | | |
| | | |
| |
| | | |
| | |
Property, plant and equipment - net | |
| 2,631,947 | | |
| - | | |
| |
| - | | |
| 2,631,947 | |
Intangible assets-mining rights and concessions | |
| 71,290 | | |
| - | | |
| |
| - | | |
| 71,290 | |
Other assets | |
| 569,705 | | |
| - | | |
1 | |
| (151,724 | ) | |
| 417,981 | |
Total non-current assets | |
| 3,272,942 | | |
| - | | |
| |
| (151,724 | ) | |
| 3,121,218 | |
Total assets | |
$ | 4,595,641 | | |
$ | 100,703 | | |
| |
$ | (151,724 | ) | |
$ | 4,544,620 | |
| |
| | | |
| | | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | | |
| |
| | | |
| | |
Accounts payables | |
$ | 197,002 | | |
$ | 72,148 | | |
| |
$ | - | | |
$ | 269,150 | |
Employee withholdings and payroll taxes | |
| 96,194 | | |
| - | | |
| |
| - | | |
| 96,194 | |
Employee benefit obligations | |
| 97,791 | | |
| - | | |
| |
| - | | |
| 97,791 | |
Accrued liabilities | |
| - | | |
| 529,723 | | |
1 | |
| (151,724 | ) | |
| 377,999 | |
Accrued interst payable | |
| - | | |
| 55,336 | | |
1 | |
| 3,394,326 | | |
| 3,449,662 | |
Mine reclamation | |
| 29,003 | | |
| - | | |
| |
| - | | |
| 29,003 | |
Taxes other than income taxes | |
| 15,153 | | |
| - | | |
| |
| - | | |
| 15,153 | |
Convertible notes payable, net of debt discount of $75,755 | |
| - | | |
| 186,195 | | |
| |
| - | | |
| 186,195 | |
Convertible note payable - related party, net of debt discount of $982 | |
| - | | |
| 731,562 | | |
| |
| - | | |
| 731,562 | |
Derivative liabilities | |
| - | | |
| 729,781 | | |
| |
| - | | |
| 729,781 | |
Warrant liabilities | |
| - | | |
| 107,018 | | |
| |
| - | | |
| 107,018 | |
Total current liabilities | |
| 435,143 | | |
| 2,411,763 | | |
| |
| 3,242,602 | | |
| 6,089,508 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Non-current liabilities | |
| | | |
| | | |
| |
| | | |
| | |
Notes payable | |
| 5,488,980 | | |
| - | | |
| |
| - | | |
| 5,488,980 | |
Total non-current liabilities | |
| 5,488,980 | | |
| - | | |
| |
| - | | |
| 5,488,980 | |
Total liabilities | |
| 5,924,123 | | |
| 2,411,763 | | |
| |
| 3,242,602 | | |
| 11,578,488 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Shareholders’ equity | |
| | | |
| | | |
| |
| | | |
| | |
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, 20,557,683 | |
| - | | |
| 206 | | |
| |
| 2,423 | | |
| 2,629 | |
Additional paid-in capital | |
| - | | |
| 9,095,099 | | |
| |
| | | |
| 9,095,099 | |
Share capital | |
| 1,051,116 | | |
| - | | |
2 | |
| (1,051,116 | ) | |
| - | |
Supplementary equity contributions | |
| 582,639 | | |
| - | | |
2 | |
| (582,639 | ) | |
| - | |
Retained earnings (loss) | |
| (2,962,237 | ) | |
| (11,406,365 | ) | |
1 | |
| (3,394,326 | ) | |
| (16,131,596 | ) |
| |
| | | |
| | | |
2 | |
| 1,631,332 | | |
| | |
Total shareholders’ equity | |
| (1,328,482 | ) | |
| (2,311,060 | ) | |
| |
| (3,394,326 | ) | |
| (7,033,868 | ) |
Total liabilities and shareholders’ equity | |
$ | 4,595,641 | | |
$ | 100,703 | | |
| |
$ | (151,724 | ) | |
$ | 4,544,620 | |
Clavo
Rico, Ltd. and Subsidiaries
Combined
Pro Forma Statements of Comprehensive Income
For
the Nine Months ended September 30, 2015
| |
Clavo Rico | | |
IMII | | |
Adjustments | | |
Total | |
Revenue | |
| | | |
| | | |
| | | |
| | |
Sales of precious metal | |
$ | 3,402,179 | | |
$ | - | | |
$ | - | | |
$ | 3,402,179 | |
Other income | |
| 12,490 | | |
| - | | |
| - | | |
| 12,490 | |
Total revenue | |
| 3,414,669 | | |
| - | | |
| - | | |
| 3,414,669 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| 2,689,825 | | |
| 2,109 | | |
| - | | |
| 2,691,934 | |
Gross profit | |
| 724,844 | | |
| (2,109 | ) | |
| - | | |
| 722,735 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Exploration costs | |
| - | | |
| 118,339 | | |
| - | | |
| 118,339 | |
General and administrative expenses | |
| 423,011 | | |
| 1,654,400 | | |
| - | | |
| 2,077,411 | |
Depreciation and amortization expenses | |
| 340,619 | | |
| - | | |
| - | | |
| 340,619 | |
Interest expenses | |
| 6,216 | | |
| 1,360,718 | | |
| 3,394,326 | | |
| 4,761,260 | |
Total operating expenses | |
| 769,846 | | |
| 3,133,457 | | |
| 3,394,326 | | |
| 7,297,629 | |
| |
| | | |
| | | |
| | | |
| | |
Change in derivative liabilities | |
| - | | |
| (722,647 | ) | |
| | | |
| (722,647 | ) |
Loss on extinguishment of debt | |
| - | | |
| 15,843 | | |
| | | |
| 15,843 | |
Impairment charge - mining claim | |
| - | | |
| 950,160 | | |
| | | |
| 950,160 | |
Change in foreign currency translation | |
| (280,090 | ) | |
| - | | |
| | | |
| (280,090 | ) |
Profit before tax | |
| 235,088 | | |
| (3,378,922 | ) | |
| (3,394,326 | ) | |
| (6,538,160 | ) |
Income tax expense | |
| - | | |
| - | | |
| - | | |
| - | |
Profit (loss) for the year | |
$ | 235,088 | | |
$ | (3,378,922 | ) | |
$ | (3,394,326 | ) | |
$ | (6,538,160 | ) |
Clavo
Rico, Ltd. and Subsidiaries
Combined
Pro Forma Statements of Comprehensive Income
For
the Year ended December 31, 2014
| |
Clavo Rico | | |
IMII | | |
| |
Adjustments | | |
Total | |
Revenue | |
| | | |
| | | |
| |
| | | |
| | |
Sales of precious metal | |
$ | 3,120,825 | | |
$ | - | | |
| |
$ | - | | |
$ | 3,120,825 | |
Other income | |
| 27,965 | | |
| - | | |
| |
| - | | |
| 27,965 | |
Total revenue | |
| 3,148,790 | | |
| - | | |
| |
| - | | |
| 3,148,790 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Cost of sales | |
| 1,984,684 | | |
| - | | |
| |
| - | | |
| 1,984,684 | |
Gross profit | |
| 1,164,106 | | |
| - | | |
| |
| - | | |
| 1,164,106 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| |
| | | |
| | |
Exploration costs | |
| - | | |
| 163,953 | | |
| |
| - | | |
| 163,953 | |
General and administrative expenses | |
| 845,267 | | |
| 2,030,744 | | |
| |
| - | | |
| 2,876,011 | |
Depreciation and amortization expenses | |
| 405,287 | | |
| - | | |
| |
| - | | |
| 405,287 | |
Interest expenses | |
| 58,118 | | |
| 1,428,718 | | |
2 | |
| 3,394,326 | | |
| 4,881,162 | |
Total operating expenses | |
| 1,308,672 | | |
| 3,623,415 | | |
| |
| 3,394,326 | | |
| 8,326,413 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Change in derivative liabilities | |
| - | | |
| (195,945 | ) | |
| |
| | | |
| (195,945 | ) |
Gain on forgiveness of debt | |
| - | | |
| (161,750 | ) | |
| |
| | | |
| (161,750 | ) |
Change in foreign currency translation | |
| - | | |
| - | | |
| |
| | | |
| - | |
Profit before tax | |
| (144,566 | ) | |
| (3,265,720 | ) | |
| |
| (3,394,326 | ) | |
| (6,804,612 | ) |
Income tax expense | |
| (15,439 | ) | |
| - | | |
| |
| - | | |
| (15,439 | ) |
Profit (loss) for the year | |
$ | (160,005 | ) | |
$ | (3,265,720 | ) | |
| |
$ | (3,394,326 | ) | |
$ | (6,820,051 | ) |
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