Notes
to Consolidated Financial Statements
As
of September 30, 2017
1.
Nature of Business
Inception
Mining, Inc. (formerly known as Gold American Mining Corp.) was incorporated under the name of Golf Alliance Corporation and under
the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. is a precious metal mineral acquisition, exploration and
development company. Inception Development, Inc., its wholly owned subsidiary, was incorporated under the laws of the State of
Idaho on January 28, 2013.
Golf
Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally
closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided
to redirect its business focus toward precious metal mineral acquisition and exploration.
On
March 5, 2010, the Company amended its articles of incorporation to (1) to change its name to Silver America, Inc. and (2) increased
its authorized common stock from 100,000,000 to 500,000,000.
On
June 23, 2010 the Company amended its articles of incorporation to change its name to Gold American Mining Corp.
On
November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder
canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was
effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse
stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock
split as if it occurred on the first day of the first period presented.
On
February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly-owned
subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset
Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to
which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception,
the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an
entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under
common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell
company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior
to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the
Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently,
the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.
On
May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception”
or the “Company”).
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 subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico,
S.A. de C.V. and holds other mining concessions. Pursuant to the agreement, the Company issued of 240,225,901 shares of common
stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger
agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo
Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early
Mayan and Spanish occupation.
On
January 11, 2016, the Company implemented a 5.5 to 1 reverse stock split. This reverse stock split was effective on May 26, 2016.
All share and per share references have been retroactively adjusted to reflect this 5.5 to 1 reverse stock split in the financial
statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on
the first day of the first period presented. Immediately before the Reverse Split, the Company had 266,669,980 shares of common
stock outstanding. Immediately after the Reverse Split, the Company had 48,485,451 shares of common stock outstanding, pending
fractional-share rounding-up calculations to adjust for the Reverse Split.
The
Company’s primary mine is located on the 200 hectare Clavo Rico Concession, located in southern Honduras. This mine was
originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compa
ñí
a
Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest
and later increased its ownership to 99.9%.
2.
Summary of Significant Accounting Policies
Going
Concern -
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated
financial statements, the Company incurred a net loss of $2,470,972 during the period ended September 30, 2017, and had a working
capital deficit of $12,666,147 as of September 30, 2017. These factors among others indicate that the Company may be unable to
continue as a going concern for a reasonable period of time.
The
Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional
funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or
the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
Management
is currently working to make changes that will result in profitable operations and to obtain additional funding sources to meet
the Company’s need for cash during the next twelve months and beyond.
Principles
of Consolidation -
The accompanying consolidated financial statements include the accounts of Inception Mining, Inc. and its
wholly owned subsidiaries, Inception Development, Corp., Clavo Rico Development Corp., Clavo Rico, Ltd. and Compa
ñí
a
Minera Cerros del R
í
o, S.A. de C.V., and its controlling interest subsidiaries,
Compa
ñí
a Minera Cerros del Sur, S.A. de C.V. and Compa
ñía
Minera Clavo Rico, S.A. de C.V. (collectively, the “Company”). All intercompany accounts have been eliminated
upon consolidation.
Basis
of Presentation -
The Company prepares its consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America.
Cash
and Cash Equivalents -
The Company considers all highly liquid temporary cash investments with an original maturity of three
months or less to be cash equivalents. At September 30, 2017 and December 31, 2016, the Company had no cash equivalents. The aggregate
cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company
has never experienced any losses in such accounts.
Inventories,
Stockpiles and Mineralized Material on Leach Pads -
Inventories, including stockpiles and mineralized material on leach pads
are carried at the lower of cost or net realizable value. Net realizable value represents the estimated future sales price of
the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product
to sale. Write-downs of stockpiles, mineralized material on leach pads and inventories to net realizable value are reported as
a component of costs applicable to mining revenue. Cost is comprised of production costs for mineralized material produced and
processed. Production costs include the costs of materials, costs of processing, direct labor, mine site and processing facility
overhead costs and depreciation, amortization and depletion.
Stockpiles
-
Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing.
Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified
by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current
mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion
relating to mining operations, and removed at each stockpile’s average cost per ton.
Mineralized
Material on Leach Pads
-
The Company utilizes a heap leaching process to recover gold from its mineralized material.
Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution that dissolves
the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered.
Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation
relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages
of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material
on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad.
The
estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured
tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage.
Although
the quantities of recoverable gold placed on the leach pads are reconciled by comparing the quantities and grades of material
placed on leach pads to the quantities and grades quantities of gold actually recovered (metallurgical balancing), the nature
of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing
process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated
quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted
for on a prospective basis.
In-process
Inventories
-
In-process inventories represent mineralized materials that are currently in the process of being converted
to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured
based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued
at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles
and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred
to that point in the process.
Finished
Goods Inventories
-
Finished goods inventories include gold that has been processed through the Company’s ADR
facility and are valued at the average cost of their production.
Exploration
and Development Costs -
Costs of acquiring mining properties and any exploration and development costs are expensed as incurred
unless proven and probable reserves exist and the property is a commercially mineable property in accordance with FASB ASC 930,
Extractive Activities- Mining
. Mine development costs incurred either to develop new gold and silver deposits, expand the
capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred
to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects
are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining
costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable
value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any
related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.
The
Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the
prospects for economic productions are reasonably certain.
Capitalized
costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.
Mineral
Rights and Properties -
We defer acquisition costs until we determine the viability of the property. Since we do not have
proven and probable reserves as defined by Securities and Exchange Commission (“SEC”) Industry Guide 7, exploration
expenditures are expensed as incurred. We expense care and maintenance costs as incurred.
We
review the carrying value of our mineral rights and properties for impairment whenever there are negative indicators of impairment.
Our estimate of the gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties
affecting the recoverability of our investment in the mineral claims and properties. Although we have made our best, most current
estimate of these factors, it is possible that near term changes could adversely affect estimated net cash flows from our mineral
claims and properties and possibly require future asset impairment write-downs.
Where
estimates of future net operating cash flows are not available and where other conditions suggest impairment, we assess recoverability
of carrying value from other means, including net cash flows generated by the sale of the asset. We use the units-of-production
method to deplete the mineral rights and properties.
Fair
Value Measurements -
The fair value of a financial instrument is the amount that could be received upon the sale of an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets
are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions
that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition,
the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.
Fair
value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability
of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level
of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level
3: Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The
carrying value of the Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and
other current assets and liabilities approximate fair value because of their short-term maturity.
The
Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the
Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that
the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values
using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.
Long-Lived
Assets -
We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment.
An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event
the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally
determined based on discounted future cash flows.
Properties,
Plant and Equipment -
We record properties, plant and equipment at historical cost. We provide depreciation and amortization
in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value.
We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for
maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful
lives as follows:
Building
|
|
7
to 15 years
|
Vehicles
and equipment
|
|
3
to 7 years
|
Processing
and laboratory
|
|
5
to 15 years
|
Furniture
and fixtures
|
|
2
to 3 years
|
Reclamation
Liabilities and Asset Retirement Obligations -
Minimum standards for site reclamation and closure have been established for
us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair
value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized
and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated
present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation
and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation
at each mine site.
Revenue
Recognition -
Revenue is recognized from sales when persuasive evidence of an arrangement exists, the price is determinable,
the product has been delivered, the title has been transferred to the customer and collection of the sales price is reasonably
assured. Gold revenue is recorded at an agreed upon spot price and gold ounce measurement resulting in revenue and a receivable
at the time of sale. Gold revenue is recorded net of refining charges and discounts. Sales of by-products (such as silver) are
credited to costs applicable to mining revenue.
All
accounts receivable amounts are due from a single customer. Substantially all mining revenues recorded in the current period also
related to the same customer. As gold can be sold through numerous gold market traders worldwide, the Company is not economically
dependent on a limited number of customers for the sale of its product.
Stock
Issued For Goods and Services -
Common and preferred shares issued for goods and services are valued based upon the fair market
value of our common stock or the goods and services received, whichever is the most reliably measurable on the date of issue.
Stock-Based
Compensation -
For stock-based transactions, compensation expense is recognized over the requisite service period, which is
generally the vesting period, based on the estimated fair value on the grant date of the award.
Income
(Loss) per Common Share -
Basic net income (loss) per common share is computed by dividing net income (loss), less the preferred
stock dividends, by the weighted average number of common shares outstanding. Dilutive income (loss) per share includes any additional
dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not
antidilutive. 4,039,011 common share equivalents have been excluded from the diluted loss per share calculation for the period
ended September 30, 2017 because it would be anti-dilutive.
Comprehensive
Loss -
Comprehensive loss is made up of the exchange differences arising on translating foreign operations and the net loss
for the six months ending September 30, 2017 and the year ended December 31, 2016.
Derivative
Liabilities -
Derivatives liabilities are recorded at fair value when issued and the subsequent change in fair value each
period is recorded in other income (expense) in the consolidated statements of operations. We do not hold or issue any derivative
financial instruments for speculative trading purposes.
Income
Taxes -
The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment
of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income
tax expense.
Deferred
income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating
the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent
financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state
and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent
with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance
for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than
not.
Changes
in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of
any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
Business
Segments
– The Company operates in one segment and therefore segment information is not presented.
Use
of Estimates –
In preparing financial statements in conformity with generally accepted accounting principles, we are
required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and expenditures during the reported periods. Actual
results could differ materially from those estimates. Estimates may include those pertaining to valuation of inventories and mineralized
material on leach pads, the estimated useful lives and valuation of properties, plant and equipment, mineral rights and properties,
deferred tax assets, convertible preferred stock, derivative assets and liabilities, reclamation liabilities, stock-based compensation
and payments, and contingent liabilities.
Non-Controlling
Interest Policy
– Non-controlling interest (NCI) is the portion of equity ownership in a subsidiary not attributable
to the parent company, who has a controlling interest and consolidates the subsidiary’s financial results with its own.
The amount of equity relating to the non-controlling interest is separately identified in the equity section of the balance sheet
and the amount of the net income (loss) relating to the non-controlling interest is separately identified on the statement of
operations.
Reclassifications
-
Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current
period presentation.
Recently
Issued Accounting Pronouncements –
In May 2017, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update (“ASU”) 2017-09,
Compensation – Stock Compensation (Topic 718): Scope of Modification
Accounting
(“ASU 2017-09”). ASU 2017-09 provides clarity about which changes to terms or conditions of a share-based
payment award require modification accounting. Specifically, an entity would not apply modification accounting if the fair value,
vesting conditions, and classification of the awards are the same immediately before and after the modification. The amendments
in ASU 2017-09 are effective for annual periods, and interim periods within those annual periods, beginning after December 15,
2017. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.
In
March 2017, the FASB issued ASU 2017-08,
Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization
on Purchased Callable Debt Securities
(“ASU 2017-08”). ASU 2017-08 amends the amortization period for certain
purchased callable debt securities held at a premium to the earliest call date in order to reduce diversity in practice and provide
more decision-useful information. The amendments in ASU 2017-08 are effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years with early adoption permitted, and is required to be applied on a modified
retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of
adoption. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.
3.
Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories,
stockpiles and mineralized materials on leach pads at September 30, 2017 and December 31, 2016 consisted of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Supplies
|
|
$
|
120,576
|
|
|
$
|
95,860
|
|
Mineralized Material on Leach Pads
|
|
|
1,512,452
|
|
|
|
891,198
|
|
ADR Plant
|
|
|
18,365
|
|
|
|
330,592
|
|
Finished Ore
|
|
|
249,257
|
|
|
|
166,180
|
|
Total Inventories
|
|
$
|
1,900,650
|
|
|
$
|
1,483,830
|
|
There
were no stockpiles at September 30, 2017 and December 31, 2016.
4.
Derivative Financial Instruments
The
Company adopted the provisions of ASC subtopic 825-10,
Financial Instruments
(“ASC 825-10”) on January 1, 2008.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets
and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market
in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such
as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September
30, 2017 and December 31, 2016:
|
|
Debt Derivative Liabilities
|
|
Balance, December 31, 2016
|
|
$
|
-
|
|
Transfers in upon initial fair value of derivative liabilities
|
|
|
475,040
|
|
Change in fair value of derivative liabilities and warrant liability
|
|
|
193,583
|
|
Change attributed to loss on extinguishment of debt
|
|
|
-
|
|
Transfers to permanent equity upon exercise of warrants
|
|
|
-
|
|
Balance, September 30, 2017
|
|
$
|
668,623
|
|
Net loss for the period included in earnings relating to the liabilities held at September 30, 2017
|
|
$
|
193,583
|
|
Debt
derivatives –
The Company issued convertible promissory notes which are convertible into common stock, at holders’
option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives
related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion
features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives
as of the inception date of debenture and to fair value as of each subsequent reporting date.
At
September 30, 2017, the Company marked to market the fair value of the debt derivatives and determined a fair value of $668,623.
The Company recorded a loss from change in fair value of debt derivatives of $193,583 for the period ended September 30, 2017.
The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions:
(1) dividend yield of 0%, (2) expected volatility of 121.33% through 157.63%, (3) weighted average risk-free interest rate of
1.31% (4) expected life of 0.25 through .94 years, and (5) the quoted market price of the Company’s common stock at each
valuation date.
Based
upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of
ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based
upon earliest issuance date.
5.
Properties, Plant and Equipment, Net
Properties,
plant and equipment at September 30, 2017 and December 31, 2016 consisted of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Land
|
|
$
|
271,598
|
|
|
$
|
253,313
|
|
Buildings
|
|
|
2,189,454
|
|
|
|
2,179,254
|
|
Machinery and Equipment
|
|
|
991,948
|
|
|
|
985,535
|
|
Office Equipment and Furniture
|
|
|
43,954
|
|
|
|
43,757
|
|
Vehicles
|
|
|
86,431
|
|
|
|
83,901
|
|
Construction in Process
|
|
|
265,035
|
|
|
|
-
|
|
Total Property, Plant and Equipment
|
|
|
3,848,420
|
|
|
|
3,545,760
|
|
Less Accumulated Depreciation
|
|
|
(2,938,488
|
)
|
|
|
(2,309,226
|
)
|
Property, Plant and Equipment, net
|
|
$
|
909,932
|
|
|
$
|
1,236,534
|
|
In
December 2016, the Company determined that the leach pad at the Clavo Rico mine was reaching its capacity. It was determined that
the depreciation of the leach pad should be accelerated to fully depreciate the leach pad by March 31, 2017. This constitutes
a change in management estimates. During the nine months ended September 30, 2017 and 2016, the Company recognized depreciation
expense of $616,398 and $472,404, respectively. The following table summarizes the allocation of depreciation expense between
cost of goods sold and general and administrative expenses.
Depreciation Allocation
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Cost of Goods Sold
|
|
$
|
505,166
|
|
|
$
|
390,663
|
|
General and Administrative
|
|
|
111,232
|
|
|
|
81,741
|
|
Total
|
|
$
|
616,398
|
|
|
$
|
472,404
|
|
6.
Mine Reclamation Liability
The
Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and re-vegetating various
portions of our site after mining and mineral processing operations are completed. These reclamation efforts are conducted in
accordance with plans reviewed and approved by the appropriate regulatory agencies.
The
fair value of the long-term liability of $283,969 and $256,070 as of September 30, 2017 and December 31, 2016, respectively, for
our obligation to reclaim our mine facility is based on our most recent reclamation plan, as revised, submitted and approved by
the Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA). Such costs
are based on management’s current estimate of then expected amounts for the remediation work, assuming the work is performed
in accordance with current laws and regulations and using a credit adjusted risk free rate of 18.00% and an inflation rate of
5.3%. It is reasonably possible that, due to uncertainties associated with the application of laws and regulations by regulatory
authorities and changes in reclamation or remediation technology, the ultimate cost of reclamation and remediation could change
in the future. We periodically review the accrued reclamation liability for information indicating that our assumptions should
change.
The
increases in the reclamation liability in 2017 and 2016 were related to the expansion of the heap leach facility and related infrastructure.
Changes
to the asset retirement obligation were as follows:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Balance, Beginning of Year
|
|
$
|
256,070
|
|
|
$
|
77,716
|
|
Liabilities incurred
|
|
|
27,899
|
|
|
|
178,354
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
Balance, End of Year
|
|
$
|
283,969
|
|
|
$
|
256,070
|
|
7.
Accounts Payable and Accrued Liabilities
Accounts
Payable and accrued liabilities at September 30, 2017 and December 31, 2016 consisted of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Accounts Payable
|
|
$
|
783,396
|
|
|
$
|
428,751
|
|
Accrued Liabilities
|
|
|
341,785
|
|
|
|
296,069
|
|
Accrued Salaries and Benefits
|
|
|
261,886
|
|
|
|
175,811
|
|
Advances Payable
|
|
|
173,391
|
|
|
|
175,864
|
|
Smelter Royalties Payable
|
|
|
-
|
|
|
|
1,220
|
|
Total Accrued Liabilities
|
|
$
|
1,560,458
|
|
|
$
|
1,077,715
|
|
8.
Secured Borrowings
During
the year ended December 31, 2016, the Company entered into five financing arrangements with third parties for a combined principal
amount of $251,980. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed
return of no less than 10 percent, or $25,198, for a total expected remittance of $277,178. The maturity dates of the notes range
between June 22, 2017 and June 23, 2017. The terms of repayment allow the Company to remit to the lender a certain quantity of
gold to satisfy the liability though the Company expects to liquidate gold held and satisfy the liability in cash. As of December
31, 2016, the Company held 101 ounces of gold, valued at cost of $116,241, to satisfy the liabilities upon maturity leaving a
net obligation of $135,739, which is recorded on the Company’s balance sheet as secured borrowings. The Company reached
agreements with the third parties to settle the financing arrangements as of June 12, 2017. The Company liquidated the gold held
to satisfy the debt obligations. Four of the five debt holders agreed to rollover their funds into new financing agreements. The
remaining debt obligation of $122,107 was paid in full on July 10, 2017.
On
June 20, 2017, the Company entered into four new financing arrangements with third parties for a combined principal amount of
$195,720. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of
no less than 10 percent, or $19,572, for a total expected remittance of $215,292. The maturity date of the notes is June 21, 2018.
The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the
Company expects to liquidate gold held and satisfy the liability in cash. As of September 30, 2017, the Company held 53 ounces
of gold, valued at a cost of $68,104, to satisfy the liabilities upon maturity leaving a net obligation of $133,071, which is
recorded on the Company’s balance sheet as secured borrowings.
Secured Borrowings
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Secured obligations
|
|
$
|
195,720
|
|
|
$
|
251,980
|
|
Guaranteed interest
|
|
|
19,572
|
|
|
|
-
|
|
Deferred interest
|
|
|
(14,117
|
)
|
|
|
-
|
|
|
|
|
201,175
|
|
|
|
251,980
|
|
Gold held as security
|
|
|
(68,104
|
)
|
|
|
(116,241
|
)
|
Secured Borrowings, net
|
|
$
|
133,071
|
|
|
$
|
135,739
|
|
9.
Notes Payable
Notes
payable were comprised of the following as of September 30, 2017 and December 31, 2016:
Notes Payable
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
3-2-1 Partners, Inc.
|
|
$
|
-
|
|
|
$
|
100,000
|
|
GS Capital Partners
|
|
|
80,000
|
|
|
|
-
|
|
Phil Zobrist
|
|
|
60,000
|
|
|
|
60,000
|
|
Total Notes Payable
|
|
|
140,000
|
|
|
|
160,000
|
|
Less Unamortized Discount
|
|
|
(2,837
|
)
|
|
|
-
|
|
Total Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
137,163
|
|
|
$
|
160,000
|
|
3-2-1
Partners, LLC –
On December 30, 2016, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners,
LLC in the principal amount of $100,000 (the “Note”) due on January 20, 2017 and bears a 5% interest rate. The Company
made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on January 18, 2017. As of September 30,
2017, the outstanding balance of the Note was $0.
3-2-1
Partners, LLC –
On February 28, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners,
LLC in the principal amount of $50,000 (the “Note”) due on March 21, 2017 and bears a 5% interest rate. The Company
made a payment of $52,500 towards the principal balance and accrued interest of $2,500 on March 17, 2017. As of September 30,
2017, the outstanding balance of the Note was $0.
3-2-1
Partners, LLC –
On March 24, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC
in the principal amount of $75,000 (the “Note”) due on April 14, 2017 and bears a 7% interest rate. The Company made
a payment of $80,250 towards the principal balance and accrued interest of $5,250 on April 28, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0.
3-2-1
Partners, LLC –
On April 12, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC
in the principal amount of $30,000 (the “Note”) due on May 3, 2017 and bears a 7% interest rate. The Company made
a payment of $32,100 towards the principal balance and accrued interest of $2,100 on April 28, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0.
3-2-1
Partners, LLC –
On May 2, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC in
the principal amount of $50,000 (the “Note”) due on May 23, 2017 and bears a 7% interest rate. The Company made a
payment of $53,500 towards the principal balance and accrued interest of $3,500 on May 19, 2017. As of September 30, 2017, the
outstanding balance of the Note was $0.
3-2-1
Partners, LLC –
On May 23, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC in
the principal amount of $75,000 (the “Note”) due on June 14, 2017 and bears a 4% interest rate. The Company made a
payment of $78,000 towards the principal balance and accrued interest of $3,000 on July 3, 2017. As of September 30, 2017, the
outstanding balance of the Note was $0 and accrued interest was $0.
3-2-1
Partners, LLC –
On July 6, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC in
the principal amount of $50,000 (the “Note”) due on July 30, 2017 and bears a 5% interest rate. The Company made a
payment of $52,500 towards the principal balance and accrued interest of $2,500 on August 8, 2017. As of September 30, 2017, the
outstanding balance of the Note was $0 and accrued interest was $0.
3-2-1
Partners, LLC –
On July 13, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC
in the principal amount of $25,000 (the “Note”) due on July 24, 2017 and bears a 5% interest rate. The Company made
a payment of $26,250 towards the principal balance and accrued interest of $1,250 on July 21, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0 and accrued interest was $0.
3-2-1
Partners, LLC –
On July 31, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC
in the principal amount of $25,000 (the “Note”) due on August 21, 2017 and bears a 5% interest rate. The Company made
a payment of $26,250 towards the principal balance and accrued interest of $1,250 on August 11, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0 and accrued interest was $0.
3-2-1
Partners, LLC –
On August 14, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC
in the principal amount of $26,000 (the “Note”) due on August 31, 2017 and bears a 5% interest rate. The Company made
a payment of $27,300 towards the principal balance and accrued interest of $1,300 on August 25, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0 and accrued interest was $0.
3-2-1
Partners, LLC –
On August 25, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC
in the principal amount of $50,000 (the “Note”) due on September 22, 2017 and bears a 5% interest rate. The Company
made a payment of $52,500 towards the principal balance and accrued interest of $2,500 on September 25, 2017. As of September
30, 2017, the outstanding balance of the Note was $0 and accrued interest was $0.
GS
Capital Partners –
On August 11, 2017, the Company issued an unsecured Promissory Note (“Note”) to GS Capital
Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on April 11, 2018 and bears
8% per annum interest, due at maturity. The total net proceeds the Company received was $76,000 (less an original issue discount
(“OID”) of $4,000). For the nine months ended September 30, 2017, the Company amortized $1,163 of debt discount to
current period operations as interest expense. As of September 30, 2017, the gross balance of the note was $80,000 and accrued
interest was $877.
Phil
Zobrist
– On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount
of $60,000 (the “Note”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received
was $60,000. On October 2, 2015, the Company entered into a new convertible note with Phil Zobrist that matures on December 31,
2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $29,412
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment
of debt of $121,337 for the remaining derivative liability and of $11,842 for the remaining debt discount. As of September 30,
2017, the gross balance of the note was $60,000 and accrued interest was $50,892.
10.
Notes Payable – Related Parties
Notes
payable – related parties were comprised of the following as of September 30, 2017 and December 31, 2016:
Notes Payable - Related Parties
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Claymore Management
|
|
$
|
185,000
|
|
|
$
|
185,000
|
|
Diamond 80, LLC
|
|
|
49,000
|
|
|
|
-
|
|
GAIA Ltd
|
|
|
1,150,000
|
|
|
|
1,150,000
|
|
Legends Capital
|
|
|
815,000
|
|
|
|
765,000
|
|
LVD Investments
|
|
|
-
|
|
|
|
75,000
|
|
LWB Irrev Trust
|
|
|
1,101,000
|
|
|
|
1,101,000
|
|
MDL Ventures
|
|
|
1,105,700
|
|
|
|
1,049,888
|
|
Silverbrook Corporation
|
|
|
2,227,980
|
|
|
|
2,227,980
|
|
WOC Energy LLC
|
|
|
50,000
|
|
|
|
50,000
|
|
Total Notes Payable - Related Parties
|
|
$
|
6,683,680
|
|
|
$
|
6,603,868
|
|
Claymore
Management
– On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management in the principal
amount of $185,000 (the “Note”) due on demand and bore 0% per annum interest. The total net proceeds the Company received
was $185,000. On October 2, 2015, the Company entered into a new convertible note with Claymore Management that matures on December
31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from March 18, 2011 in the amount of $151,355
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment
of debt of $448,369 for the remaining derivative liability and of $36,513 for the remaining debt discount. As of September 30,
2017, the gross balance of the note was $185,000 and accrued interest was $217,684.
Diamond
80, LLC –
On January 6, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal
amount of $50,000 (the “Note”) due on January 28, 2017 and bears a 7.0% interest rate. The Company made a payment
of $53,500 towards the principal balance and accrued interest of $3,500 on January 27, 2017. As of September 30, 2017, the outstanding
balance of the Note was $0.
Diamond
80, LLC –
On January 19, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the
principal amount of $34,000 (the “Note”) due on February 9, 2017 and bears a 7.5% interest rate. The Company made
a payment of $36,550 towards the principal balance and accrued interest of $2,550 on March 17, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0.
Diamond
80, LLC –
On January 20, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the
principal amount of $9,000 (the “Note”) due on February 10, 2017 and bears a 7.5% interest rate. The Company made
a payment of $9,675 towards the principal balance and accrued interest of $675 on March 17, 2017. As of September 30, 2017, the
outstanding balance of the Note was $0.
Diamond
80, LLC –
On January 31, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the
principal amount of $50,000 (the “Note”) due on February 21, 2017 and bears a 7.5% interest rate. The Company made
a payment of $53,750 towards the principal balance and accrued interest of $3,750 on February 28, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0.
Diamond
80, LLC –
On March 6, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal
amount of $50,000 (the “Note”) due on March 27, 2017 and bears a 7.0% interest rate. The Company made a payment of
$53,500 towards the principal balance and accrued interest of $3,500 on March 30, 2017. As of September 30, 2017, the outstanding
balance of the Note was $0.
Diamond
80, LLC –
On March 24, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal
amount of $40,000 (the “Note”) due on April 14, 2017 and bears a 7.0% interest rate. The Company made a payment of
$43,000 towards the principal balance and accrued interest of $3,000 on May 2, 2017. As of September 30, 2017, the outstanding
balance of the Note was $0.
Diamond
80, LLC –
On April 3, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal
amount of $50,000 (the “Note”) due on May 3, 2017 and bears a 7.0% interest rate. The Company made a payment of $1,075
towards the principal balance of $1,000 and accrued interest of $75 on June 30, 2017. As of September 30, 2017, the outstanding
balance of the Note was $49,000 and accrued interest was $2,925.
Diamond
80, LLC –
On May 4, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal
amount of $40,000 (the “Note”) due on July 4, 2017 and bears a 7.0% interest rate. The Company made a payment of $42,800
towards the principal balance and accrued interest of $2,800 on September 27, 2017. As of September 30, 2017, the outstanding
balance of the Note was $0 and accrued interest was $0.
GAIA
Ltd.
– Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to GAIA Ltd. for
a total principal amount of $1,150,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net
proceeds the Company received was $1,150,000. On October 2, 2015, the Company entered into a new convertible note with GAIA Ltd.
that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these
Notes in the amount of $724,463 and charged this amount to interest expense during the year ended December 31, 2015. The Note
is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average
of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company
renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company
recognized a gain on the extinguishment of debt of $2,524,747 for the remaining derivative liability and of $226,974 for the remaining
debt discount. As of September 30, 2017, the gross balance of the note was $1,150,000 and accrued interest was $1,137,896.
Legends
Capital Group
– Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends
Capital Group for a total principal amount of $765,000 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $765,000. On October 2, 2015, the Company entered into a new convertible note
with Legends Capital Group that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest
from inception of these Notes in the amount of $504,806 and charged this amount to interest expense during the year ended December
31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount
to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2,
2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December
31, 2017. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and
of $150,987 for the remaining debt discount. As of September 30, 2017, the gross balance of the note was $765,000 and accrued
interest was $779,829.
Legends
Capital Group –
On May 16, 2017, the Company issued an unsecured Short-Term Promissory Note to Legends Capital Group
in the principal amount of $100,000 (the “Note”) due on September 15, 2017 and bears a 7.0% interest rate. The Company
made a payment of $50,000 towards the principal balance and accrued interest of $0 on June 27, 2017. As of September 30, 2017,
the outstanding balance of the Note was $50,000 and accrued interest was $7,000.
LVD
Investments –
On November 29, 2016, the Company issued an unsecured Short-Term Promissory Note to LVD Investments in
the principal amount of $75,000 (the “Note”) due on January 13, 2017 and bears a 7.5% interest rate. The Company made
a payment of $80,250 towards the principal balance and accrued interest of $5,250 on February 10, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0 and accrued interest was $0.
LVD
Investments –
On May 1, 2017, the Company issued an unsecured Short-Term Promissory Note to LVD Investments in the principal
amount of $75,000 (the “Note”) due on June 1, 2017 and bears a 7.5% interest rate. The Company made a payment of $78,750
towards the principal balance and accrued interest of $3,750 on July 21, 2017.As of September 30, 2017, the outstanding balance
of the Note was $0 and accrued interest was $0.
LW
Briggs Irrevocable Trust
– Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes
to LW Briggs Irrevocable Trust for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing
0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into
a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The
Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest
expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price
of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading
day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed
and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $2,564,130 for
the remaining derivative liability and of $217,303 for the remaining debt discount. As of September 30, 2017, the gross balance
of the note was $1,101,000 and accrued interest was $1,210,601.
MDL
Ventures
– The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is
100% owned by a Company officer, effective October 1, 2014, due on December 31, 2016 and bears 18% per annum interest, due at
maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of the lower
of $0.99 (0.18 pre-split) or 50% of the lowest three daily volume weighted average prices of the Company’s common stock
during the 20 consecutive days prior to the date of conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment
of debt of $1,487,158 for the remaining derivative liability. As of September 30, 2017, the gross balance of the note was $1,105,700
and accrued interest was $0.
Silverbrook
Corporation
– Between March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook
Corporation for a total principal amount of $2,227,980 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $2,227,980. On October 2, 2015, the Company entered into a new convertible note
with Silverbrook Corporation that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue
interest from inception of these Notes in the amount of $1,209,606 and charged this amount to interest expense during the year
ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split)
or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion.
On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until
December 31, 2017. The Company recognized a gain on the extinguishment of debt of $4,656,189 for the remaining derivative liability
and of $439,733 for the remaining debt discount. As of September 30, 2017, the gross balance of the note was $2,227,980 and accrued
interest was $2,010,580.
WOC
Energy, LLC –
On December 20, 2016, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $50,000 (the “Note”) due on January 12, 2017 and bears a 5.0% interest rate. The Company made
a payment of $52,500 towards the principal balance and accrued interest of $2,500 on January 12, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0.
WOC
Energy, LLC –
On January 27, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $70,000 (the “Note”) due on February 17, 2017 and bears a 5.0% interest rate. The Company
made a payment of $73,500 towards the principal balance and accrued interest of $3,500 on March 1, 2017. As of September 30, 2017,
the outstanding balance of the Note was $0.
WOC
Energy, LLC –
On March 13, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $50,000 (the “Note”) due on April 3, 2017 and bears a 5.0% interest rate. The Company made a payment
of $52,000 towards the principal balance and accrued interest of $2,000 on September 13, 2017. As of September 30, 2017, the outstanding
balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC –
On July 13, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $12,000 (the “Note”) due on August 3, 2017 and bears a 2.0% interest rate. The Company made a
payment of $12,200 towards the principal balance and accrued interest of $200 on July 20, 2017. As of September 30, 2017, the
outstanding balance of the Note was $0.
WOC
Energy, LLC –
On September 22, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $50,000 (the “Note”) due on October 31, 2017 and bears a 4.0% interest rate. As of September
30, 2017, the outstanding balance of the Note was $50,000 and accrued interest was $2,000.
11.
Convertible Notes Payable
Convertible
notes payable were comprised of the following as of September 30, 2017 and December 31, 2016:
Convertible Notes Payable
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Auctus Fund
|
|
$
|
110,000
|
|
|
$
|
-
|
|
Crown Bridge Partners
|
|
|
50,000
|
|
|
|
-
|
|
JSJ Investments
|
|
|
55,000
|
|
|
|
-
|
|
Labrys Fund LP
|
|
|
-
|
|
|
|
-
|
|
LG Capital Funding
|
|
|
52,500
|
|
|
|
-
|
|
Power Up Lending
|
|
|
103,000
|
|
|
|
-
|
|
Silo Equity Partners
|
|
|
53,000
|
|
|
|
-
|
|
Typenex
|
|
|
-
|
|
|
|
-
|
|
UP and Burlington
|
|
$
|
-
|
|
|
$
|
10,000
|
|
Total Convertible Notes Payable
|
|
|
423,500
|
|
|
|
10,000
|
|
Less Unamortized Discount
|
|
|
(281,382
|
)
|
|
|
-
|
|
Total Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
142,118
|
|
|
$
|
10,000
|
|
Auctus
Fund
– On August 17, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Auctus
Fund (“Auctus”), in the principal amount of $110,000 (the “Note”) due on May 17, 2018 and bears 12% per
annum interest, due at maturity. The total net proceeds the Company received was $99,750 (less an original issue discount (“OID”)
of $10,250). The Note is convertible into common stock, at holder’s option, at the lesser of: (i) the lowest trading price
during the previous fifteen trading day prior to the date of this Note, and (ii) a 40% discount of the lowest trading price of
the common stock during the 15 trading day period prior to conversion. For the nine months ended September 30, 2017, the Company
amortized $17,729 of debt discount to current period operations as interest expense. As of September 30, 2017, the gross balance
of the note was $110,000 and accrued interest was $1,591.
Crown
Bridge Partners
– On August 10, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $50,000 (the “Note”) due on August
10, 2018 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $43,000 (less an original
issue discount (“OID”) of $7,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended
September 30, 2017, the Company amortized $6,986 of debt discount to current period operations as interest expense. As of September
30, 2017, the gross balance of the note was $50,000 and accrued interest was $699.
JSJ
Investments
– On August 15, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to
JSJ Investments (“JSJ”), in the principal amount of $55,000 (the “Note”) due on May 15, 2018 and bears
12% per annum interest, due at maturity. The total net proceeds the Company received was $53,000 (less an original issue discount
(“OID”) of $2,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the
lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September
30, 2017, the Company amortized $9,267 of debt discount to current period operations as interest expense. As of September 30,
2017, the gross balance of the note was $55,000 and accrued interest was $832.
Labrys
Fund LP –
On March 8, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase
Agreement”) with LABRYS FUND, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser a
Convertible Promissory Note (the “Note”) in the aggregate principal amount of $110,000. The Note has a maturity date
of September 8, 2017 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note,
provided it makes a payment to the Purchaser as set forth in the Note within 180 days of its Issue Date. The transactions described
above closed on March 8, 2017. In connection with the issuance of the Note, the Company issued to the Purchaser 127,910 shares
of its common stock (the “Returnable Shares”) that shall be returned to the Company’s treasury if the Note is
fully repaid and satisfied.
The
outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser
during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock,
par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.30 as set forth in the Note, subject
to adjustment as set forth in the Note if the Note is in Default. Subject to limited exceptions, the Purchaser will not have the
right to convert any portion of the Note if the Purchaser, together with its affiliates, would beneficially own in excess of 4.99%
of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion. The
Company issued 100,000 warrants to purchase shares of common stock.in connection with this note. The warrants have a two year
life and an exercise price of $0.75 per share. On August 15, 2017, the Company paid $115,931 to pay off the principal balance
of $110,000 and $5,931 in accrued interest. The Company recognized a debt discount on this note of $37,253 which will be amortized
over the life of the note. For the nine months ended September 30, 2017, the Company amortized $37,253 of debt discount to current
period operations as interest expense. As of September 30, 2017 the gross balance of the note was $0 and accrued interest was
$0.
LG
Capital Funding
– On September 9, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”)
to LG Capital Funding (“LG Cap”), in the principal amount of $52,500 (the “Note”) due on September 7,
2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less an original
issue discount (“OID”) of $2,500). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended
September 30, 2017, the Company amortized $3,308 of debt discount to current period operations as interest expense. As of September
30, 2017, the gross balance of the note was $52,500 and accrued interest was $265.
Power
Up Lending Group
– On April 21, 2017, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $68,000. The Note has a maturity
date of January 30, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of
twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes
due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole
provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of
the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning
on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share
(the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion
price as set forth in the Note. The Purchaser will not have the right to convert any portion of the Note if the Purchaser, together
with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding
immediately after giving effect to its conversion. The company recognized a debt discount on this note of $3,000 which will be
amortized over the life of the note. For the nine months ended September 30, 2017, the Company amortized $1,711.27 of debt discount
to current period operations as interest expense. As of September 30, 2017 the gross balance of the note was $68,000 and accrued
interest was $3,622.
On
August 18, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with
POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible
Promissory Note (the “Note”) in the aggregate amount of $35,000. The Note has a maturity date of May 30, 2018 and
the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum
from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity
or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given
written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any
time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following
the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at
a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The
Purchaser will not have the right to convert any portion of the Note if the Purchaser, together with its affiliates, would beneficially
own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect
to its conversion. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the
note. For the nine months ended September 30, 2017, the Company amortized $453 of debt discount to current period operations as
interest expense. As of September 30, 2017 the gross balance of the note was $35,000 and accrued interest was $495.
Silo
Equity Partners
– On August 22, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Silo Equity Partners (“Silo”), in the principal amount of $53,000 (the “Note”) due on August 22, 2018
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less an original issue
discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion, provided however, if the
Company’s common stock at any time trades below $0.05 per share then the conversion price shall equal 50% of the lowest
trading price for the common stock during the 20 trading days immediately preceding the conversion date. For the nine months ended
September 30, 2017, the Company amortized $5,663 of debt discount to current period operations as interest expense. As of September
30, 2017, the gross balance of the note was $53,000 and accrued interest was $453.
Typenex
Co-Investment, LLC
– On February 27, 2017, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with Typenex Co-Investment, LLC (the “Purchaser”), pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $130,000. The Note has a maturity
date of September 1, 2017. The total net proceeds the Company received was $100,000 The Note accrues no interest, but does include
an original issue discount of $25,000 and transaction expenses of $5,000. The Company has the right to prepay the Note prior to
the Maturity Date without penalty.
The
outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser
during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock,
par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.30 as set forth in the Note, subject
to adjustment as set forth in the Note if the Note is in Default. Subject to limited exceptions, the Purchaser will not have the
right to convert any portion of the Note if the Purchaser, together with its affiliates, would beneficially own in excess of 4.99%
of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion. On
August 23, 2017, the Company paid $130,000 to pay the note in full. The Company recognized a debt discount on this note of $30,000
which will be amortized over the life of the note. For the nine months ended September 30, 2017, the Company amortized $30,000
of debt discount to current period operations as interest expense. As of September 30, 2017 the gross balance of the note was
$0 and accrued interest was $0.
UP
and Burlington Development
– On February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary,
Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement with Inception Resources,
LLC, a Utah corporation, pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000
shares of common stock valued at $160 (valued at par value of $0.00001 because of the entities being under common control), the
assumption of promissory notes in the amount of $800,000 and $150,000 and the assignment of a 3% net royalty. The Asset Purchase
Agreement closed on February 25, 2013. On November 1, 2013, one of the notes was renegotiated with the note holder. The original
note was restructured and treated as an extinguishment and as such is now convertible into shares of the Company’s common
stock at $2.48 (0.45 pre-split) per share. All the other points of the note remained the same. A beneficial conversion feature
on the new note was recorded for $630,000. On February 11, 2014, the Company converted $130,000 of principal into 288,889 shares
of common stock. On December 10, 2014, the note holder elected to convert $41,250 of the principle balance of the note into 91,666
shares of common stock at $2.48 (0.45 pre-split) per share. On December 17, 2014, the note holder elected to convert $300,000
of the principle balance of the note into 666,666 shares of common stock at $2.48 (0.45 pre-split) per share. On December 17,
2014, the note holder elected to forgive $148,750 of the principle balance of the note. The Company made a payment of $10,000
towards the principal balance on May 18, 2017. As of September 30, 2017, the outstanding balance on this note was $0.
12.
Stockholders’ Deficit
Preferred
Stock – Series A
On
August 30, 2016, the board of directors designated 51 shares of preferred stock as Series A. The shares have voting rights
shall
equal to: (x) 0.019607 multiplied by the total issued and outstanding shares of common stock eligible to vote at the time of the
respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.
These shares have preferential
voting rights, no conversion rights and no liquidation preferences.
Common
Stock
On
January 20, 2017, 15,000 shares of common stock were issued to Brunson Chandler & Jones PLLC as payment for legal services
performed for the Company. These shares were valued at $0.555 per share for a value of $8,325.The Company recognized a loss on
settlement of debt of $3,325.
On
March 8, 2017, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 127,910
shares of its common stock that shall be returned to the Company’s treasury if the Note is fully repaid and satisfied. The
Company recognized an expense of $51,816 for these shares of stock. These shares were returned to the Company and immediately
canceled in August 2017.
On
March 29, 2017, a shareholder returned 3,120 shares of common stock to the Company for cancellation. There was no cost to the
Company for these shares.
On
April 6, 2017, a shareholder returned 15,600 shares of common stock to the Company for cancellation. There was no cost to the
Company for these shares.
From
April through July 2017, the Company issued 57,891 shares of common stock to Red Cloud Klondike Strike, Inc. for investor relations
per a consulting agreement. These shares were payment for $20,000 in services and were valued at the stock price on the last day
of each month.
On
July 21, 2017, 600,000 shares of common stock were issued to Trent D’ambrosio for the conversion of $150,000 of the MDL
Ventures note payable. These shares were valued at $0.25 per share.
On
August 13, 2017, the Company issued 20,000 shares of common stock to Sandeep Sull for website design per a consulting agreement.
These shares were payment for $7,000 in services and were valued at $0.35 per share.
On
August 23, 2017, the Company issued 200,000 shares of common stock to John Bushnell for $35,000 in cash. These shares were valued
at $0.175 per share.
On
August 31, 2017, the Company issued 80,000 shares of common stock to John Bushnell for $14,000 in cash. These shares were valued
at $0.175 per share.
Warrants
On
March 8, 2017, the Company issued 100,000 warrants associated with the issuance of a convertible note payable to Labrys Fund LP.
The warrants have a two year life and are exercisable at $0.75 per share.
On
July 1, 2017, the Company issued 400,000 warrants associated with an investor relations agreement to Red Cloud Klondike Strike,
Inc. The warrants have a two year life and are exercisable at 100,000 warrants at $0.55 per share, 100,000 warrants at $0.65 per
share and 200,000 warrants at $0.75 per share.
During
the nine months ended September 30, 2017, 34,048 three year warrants expired without being exercised. These warrants had an exercise
price of $4.95.
The
following tables summarize the warrant activity during the six months ended September 30, 2017 and the year ended December 31,
2016:
Stock Warrants
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
Balance at December 31, 2015
|
|
|
118,096
|
|
|
$
|
5.72
|
|
Granted
|
|
|
180,000
|
|
|
|
1.50
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(20,411
|
)
|
|
|
-
|
|
Balance at December 31, 2016
|
|
|
277,685
|
|
|
|
3.08
|
|
Granted
|
|
|
500,000
|
|
|
|
0.69
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(34,048
|
)
|
|
|
-
|
|
Balance at September 30, 2017
|
|
|
743,637
|
|
|
$
|
1.28
|
|
2017 Outstanding Warrants
|
|
|
Warrants Exercisable
|
|
Range of Exercise Price
|
|
|
Number Outstanding at September 30, 2016
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable at September 30, 2016
|
|
|
Weighted Average Exercise Price
|
|
$
|
0.50 - 6.88
|
|
|
|
743,637
|
|
|
|
1.80
|
|
|
$
|
1.28
|
|
|
|
743,637
|
|
|
$
|
1.28
|
|
13.
Related Party Transactions
Consulting
Agreement
– In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company
agreed to pay $18,000 per month for twelve months. As of September 30, 2017, the Company owed $756,000 to the stockholder/director
in accrued consulting fees.
14.
Commitments and Contingencies
Litigation
The
Company at times is subject to other legal proceedings that arise in the ordinary course of business.
On
January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami
(“Bertolami”) in the Western District of North Carolina, Statesville Division District Court. The complaint alleges
fraud, breach of contract, state securities fraud, federal securities fraud, breach of fiduciary duty, unjust enrichment, and
negligent misrepresentation against the Company, and its current CEO/CFO and director, Trent D’Ambrosio, and current director
and former officer, Michael Ahlin. The allegations arise from the change of control transaction in February 2013 and other documents
related to that transaction. The Company has retained counsel to vigorously defend the allegations. The Company has filed a motion
to dismiss the lawsuit, which has been fully briefed and is awaiting a ruling.
On
June 11, 2017, Danzig Ltd (whose principal is Elliott Foxcroft), filed an arbitration in Boston, Massachusetts, with the American
Arbitration Association (AAA) against the Company and Messrs. Trent D’Ambrosio and Michael Ahlin. The Boston arbitration
asserts claims that largely mirror those in the pending lawsuit in North Carolina, and seeks an unspecified amount of damages.
The Respondents filed a motion to stay the arbitration against Messrs. D’Ambrosio and Ahlin, which was granted pending a
decision by a court as to whether Messrs. D’Ambrosio and Ahlin are subject to the arbitration. The Boston arbitration is
currently in discovery.
On
July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and Messrs. D’Ambrosio
and Ahlin. The Salt Lake City arbitration alleges federal securities fraud, state securities fraud, breach of contract, unjust
enrichment, fraud, breach of fiduciary duty, negligent misrepresentation, and breach of the implied covenant of good faith and
fair dealing, relating to a consulting agreement between the Company and Elliott Foxcroft, dated March 27, 2014. Mr. Foxcroft
seeks an unspecified amount of damages. The Company has retained counsel to vigorously defend the allegations in both arbitrations.
The Company has also alleged a counterclaim for breach of the consulting agreement with Mr. Foxcroft in the Salt Lake City arbitration,
seeking damages in the initial amount of $150,000. The parties have fully briefed and are awaiting a ruling on a motion to determine
whether the arbitrator has authority to determine whether Messrs. D’Ambrosio and Ahlin are proper parties to the arbitration.
On
August 22, 2017, the Company and Messrs. D’Ambrosio and Ahlin filed a complaint against Danzig Ltd., Elliott Foxcroft, and
Brett Bertolami in the United States District Court, District of Utah, Central Division. The complaint primarily seeks declaratory
and injunctive relief to resolve issues of arbitrability in the pending Boston and Salt Lake City arbitrations discussed in the
paragraph above. Plaintiffs have filed a motion for an injunction seeking to stay the Boston and Salt Lake City arbitrations,
and Defendants have filed a motion to strike Plaintiffs’ motion for injunctive relief and a motion to dismiss plaintiffs’
complaint. The motions are have been fully briefed. The parties are currently waiting for the motions to be decided.
One
of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., has been served with notice of a
labor dispute brought in Honduras by one of the Company’s former employees. The complaint alleges that the former employee
was terminated from his position with the Company’s subsidiary and is entitled to certain statutory compensation. The Company
has responded with its assertion that the employee voluntarily resigned and was not involuntarily terminated. The case will be
heard in a labor court in Honduras and a labor judge will make the final decision regarding the case.
In
the opinion of management, as of September 30, 2017, the amount of ultimate liability with respect to such matters, if any, is
not likely to have a material impact on the Company’s business, financial position, results of operations or liquidity.
However, as the outcome of litigation and other claims is difficult to predict significant changes in the estimated exposures
could exist.
15.
Concentrations
We
generally sell a significant portion of our mineral production to a relatively small number of customers. For the nine months
ended September 30, 2017, 100 percent of our consolidated product revenues were attributable to A-Mark Precious Metals and to
Asahi Refining, Inc., our current and only two customers as of September 30, 2017. We are not dependent upon any one purchaser
and have alternative purchasers readily available at competitive market prices if there is a disruption in services or other events
that cause us to search for other ways to sell our production.
The
Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s
fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine
was disrupted or closed.
16.
Subsequent Events
On
October 16, 2017, Inception Mining, Inc. (“Inception”), a Nevada corporation, entered into a joint venture agreement
(the “Agreement”) and subsequent amendment with Corpus Mining and Exploration, LTD., (“Corpus”) a Turks
and Caicos Islands company that is effective as of October 1, 2017.
Corpus
is a mineral exploration company that desires to locate and quantify precious metals in Honduras and is willing to provide the
necessary funds to carry out this objective. Inception’s various mineral concessions located in Honduras and desire to locate
the capital necessary to explore and determine the precious metals content on such concession prove the ideal opportunity for
the Parties to form a joint venture.
The
Parties shall form a jointly owned joint venture company to facilitate the exploration, drilling, and evaluation of the mineral
resources in the Concessions. Under the Agreement, Inception will provide management services to direct the exploration and drilling
of the mineral resources and will introduce and negotiate with drilling companies to complete the investigations and evaluations
of the Concessions, among other things. Corpus will provide the capital necessary to complete the exploration and drilling of
the Concessions.