Notes
to Consolidated Financial Statements
As
of March 31, 2019
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
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.
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 $3,786,821 during the period ended March 31, 2019, and had a working
capital deficit of $21,659,235 as of March 31, 2019. These factors among others indicate that the Company may be unable to continue
as a going concern for a period of one year from the issuance of these financial statements.
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 March 31, 2019 and December 31, 2018, 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 -
Effective January 1, 2018 we adopted the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Subtopic 606-10, Revenue from Contracts with Customers (“ASC 606-10”).
The adoption of ASC 606-10 had no impact on prior year or previously disclosed amounts. In accordance with ASC 606-10, revenue
is measured based on a consideration specified in a contract with a customer and recognized when we satisfy the performance obligation
specified in each contract.
The
Company generates revenue by selling gold and silver produced from its mining operations. The majority of the Company’s
sales come from the sale of refined gold; however, the end product at the Company’s gold operations is generally doré
bars. Doré is an alloy consisting primarily of gold but also containing silver and other metals. Doré is sent to
refiners to produce bullion that meets the required market standard of 99.95% gold. Under the terms of the Company’s refining
agreements, the doré bars are refined for a fee, and the Company’s share of the refined gold and silver is credited
to its bullion account.
The
Company recognizes revenue for gold and silver from doré production when it satisfies the performance obligation of transferring
gold and silver inventory to the customer, which generally occurs upon transfer of gold and silver bullion credits as this is
the point at which the customer obtains the ability to direct the use and obtain substantially all of the remaining benefits of
ownership of the asset.
The
Company generally recognizes the sale of gold bullion credits at the prevailing market price when gold bullion credits are delivered
to the customer. The transaction price is determined based on the agreed upon market price and the number of ounces delivered.
Payment is due upon delivery of gold bullion credits to the customer’s account.
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. 21,750,771 common share equivalents have been excluded from the diluted loss per share calculation for the period
ended March 31, 2019 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 three months ending March 31, 2019 and the year ended December 31, 2018.
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.
Recently
Issued Accounting Pronouncements –
From time to time, new accounting pronouncements are issued by FASB that are adopted
by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards,
which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In March 2019, FASB issued
Accounting Standards Update 2019-01, Topic 842 – Leases. The Company has adopted this standard and determined that it does
not have a material impact on the Company’s financial statements.
3.
Joint Venture – Corpus Gold, LLC
On
October 1, 2017, the Company entered into a joint venture agreement with Corpus Mining and Exploration, Ltd. (Corpus) and formed
a new entity, Corpus Gold, LLC (Corpus Gold). Corpus Gold is to provide a framework within which the Company will provide management
services in directing and managing an exploration, drilling and evaluation of the mineral resources in concessions owned by the
Company and Corpus will provide the capital necessary to complete such purpose. All revenues will be shared based on the revenue
sharing agreement of 80% to Corpus and 20% to the Company. The Company pays the monthly expenses of Corpus Gold and is reimbursed
by Corpus. As of March 31, 2019, the Company had a receivable of $0 for expenses spent in the three months ended March 31, 2019.
4.
Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories,
stockpiles and mineralized materials on leach pads at March 31, 2019 and December 31, 2018 consisted of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Supplies
|
|
$
|
39,544
|
|
|
$
|
87,230
|
|
Mineralized Material on Leach Pads
|
|
|
151,300
|
|
|
|
247,213
|
|
ADR Plant
|
|
|
49,922
|
|
|
|
40,642
|
|
Finished Ore
|
|
|
172,038
|
|
|
|
195,528
|
|
Total Inventories
|
|
$
|
412,804
|
|
|
$
|
570,613
|
|
There
were no stockpiles at March 31, 2019 and December 31, 2018.
5.
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 March 31,
2019 and December 31, 2018:
|
|
Debt
Derivative Liabilities
|
|
Balance, December 31, 2017
|
|
$
|
647,807
|
|
Transfers in upon initial fair value
of derivative liabilities
|
|
|
2,879,560
|
|
Change in fair
value of derivative liabilities and warrant liability
|
|
|
(979,561
|
)
|
Balance, December 31, 2018
|
|
$
|
2,547,806
|
|
Transfers in upon initial fair value
of derivative liabilities
|
|
|
571,021
|
|
Change in fair
value of derivative liabilities and warrant liability
|
|
|
1,494,989
|
|
Balance, March 31, 2019
|
|
$
|
4,613,816
|
|
Net loss for
the period included in earnings relating to the liabilities held at March 31, 2019
|
|
$
|
1,494,989
|
|
Net gain for
the period included in earnings relating to the liabilities held at December 31, 2018
|
|
$
|
979,561
|
|
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
March 31, 2019, the Company marked to market the fair value of the debt derivatives and determined a fair value of $4,505,045.
The Company recorded a loss from change in fair value of debt derivatives of $1,422,798 for the period ended March 31, 2019. 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 196.96% through 286.36%, (3) weighted average risk-free interest rate of
2.21% through 2.44% (4) expected life of 0.22 through 2.79 years, and (5) the quoted market price of the Company’s common
stock at each valuation date.
At
December 31, 2018, the Company marked to market the fair value of the debt derivatives and determined a fair value of $2,511,226.
The Company recorded a gain from change in fair value of debt derivatives of $953,390 for the year ended December 31, 2018. 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 203.03% to 306.25%, (3) weighted average risk-free interest rate of 2.45%
to 2.63% (4) expected life of 0.27 to 1.59 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.
Warrant
liabilities –
During the year ended December 31, 2018, the Company issued warrants in conjunction with the issuance
of three Crown Bridge Convertible Notes. These warrants contained certain reset provisions. The accounting treatment of derivative
financial instruments required that the Company record fair value of the derivatives as of the inception date (issuance date)
and to fair value as of each subsequent reporting date.
At
March 31, 2019, the Company had a warrant liability of $108,771. The Company recorded a loss from change in fair value of warrant
liability of $72,191 for the three months ended March 31, 2019. 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 216.71%
to 223.22%, (3) weighted average risk-free interest rate of 2.21% to 2.23% (4) expected life of 3.37 to 4.58 years, and (5) the
quoted market price of the Company’s common stock at each valuation date.
At
December 31, 2018, the Company had a warrant liability of $36,580. The Company recorded a gain from change in fair value of warrant
liability of $26,171 for the year ended December 31, 2018.
6.
Properties, Plant and Equipment, Net
Properties,
plant and equipment at March 31, 2019 and December 31, 2018 consisted of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Land
|
|
$
|
269,697
|
|
|
$
|
270,736
|
|
Buildings
|
|
|
2,357,238
|
|
|
|
2,366,323
|
|
Machinery and Equipment
|
|
|
953,093
|
|
|
|
956,669
|
|
Office Equipment and Furniture
|
|
|
42,155
|
|
|
|
42,311
|
|
Vehicles
|
|
|
84,805
|
|
|
|
85,132
|
|
Construction
in Process
|
|
|
115,474
|
|
|
|
11,277
|
|
|
|
|
3,822,462
|
|
|
|
3,732,448
|
|
Less Accumulated
Depreciation
|
|
|
(3,111,495
|
)
|
|
|
(3,068,407
|
)
|
Total Property,
Plant and Equipment, net
|
|
$
|
710,967
|
|
|
$
|
664,041
|
|
During
the three months ended March 31, 2019 and 2018, the Company recognized depreciation expense of $54,938 and $57,693, respectively.
The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative
expenses.
Depreciation
Allocation
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
Cost of Goods Sold
|
|
$
|
45,850
|
|
|
$
|
47,418
|
|
General and Administrative
|
|
|
9,088
|
|
|
|
10,275
|
|
Total
|
|
$
|
54,938
|
|
|
$
|
57,693
|
|
7.
Mine Reclamation Obligation
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 $340,533 and $341,845 as of March 31, 2019 and December 31, 2018, 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 obligation for information indicating that our assumptions should
change.
Changes
to the asset retirement obligation were as follows:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Balance, Beginning of Year
|
|
$
|
341,845
|
|
|
$
|
352,713
|
|
Liabilities incurred
|
|
|
(1,312
|
)
|
|
|
(10,868
|
)
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
Balance, End
of Year
|
|
$
|
340,533
|
|
|
$
|
341,845
|
|
8.
Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities at March 31, 2019 and December 31, 2018 consisted of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Accounts Payable
|
|
$
|
781,125
|
|
|
$
|
558,749
|
|
Accrued Liabilities
|
|
|
671,660
|
|
|
|
394,017
|
|
Accrued Salaries and Benefits
|
|
|
212,653
|
|
|
|
410,930
|
|
Advances Payable
|
|
|
163,904
|
|
|
|
268,301
|
|
Total Accrued
Liabilities
|
|
$
|
1,829,342
|
|
|
$
|
1,631,997
|
|
9.
Secured Borrowings
On
June 20, 2018, 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, 2019.
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 March 31, 2019, the Company held 62 ounces of
gold, valued at a cost of $75,460, to satisfy the liabilities upon maturity leaving a net obligation of $166,697, which is recorded
on the Company’s balance sheet as secured borrowings.
Secured Borrowings
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Secured obligations
|
|
$
|
225,005
|
|
|
$
|
225,005
|
|
Guaranteed interest
|
|
|
22,500
|
|
|
|
22,500
|
|
Deferred interest
|
|
|
(5,348
|
)
|
|
|
(10,881
|
)
|
|
|
|
242,157
|
|
|
|
236,624
|
|
Gold held as
security
|
|
|
(75,460
|
)
|
|
|
(19,401
|
)
|
Secured Borrowings,
net
|
|
$
|
166,697
|
|
|
$
|
217,223
|
|
10.
Notes Payable
Notes
payable were comprised of the following as of March 31, 2019 and December 31, 2018:
Notes Payable
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Phil
Zobrist
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Total Notes Payable
|
|
|
60,000
|
|
|
|
60,000
|
|
Less Unamortized
Discount
|
|
|
-
|
|
|
|
-
|
|
Total Notes Payable,
Net of Unamortized Debt Discount
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
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, 2018. 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 March 31, 2019,
the gross balance of the note was $60,000 and accrued interest was $67,167.
11.
Notes Payable – Related Parties
Notes
payable – related parties were comprised of the following as of March 31, 2019 and December 31, 2018:
Notes Payable
- Related Parties
|
|
Relationship
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Claymore Management
|
|
Affiliate - Controlled by
Director
|
|
$
|
185,000
|
|
|
$
|
185,000
|
|
Debra D’Ambrosio
|
|
Immediate Family Member
|
|
|
100,000
|
|
|
|
-
|
|
Diamond 80, LLC
|
|
Immediate Family Member
|
|
|
49,000
|
|
|
|
49,000
|
|
Francis E. Rich IRA
|
|
Immediate Family Member
|
|
|
100,000
|
|
|
|
100,000
|
|
GAIA Ltd
|
|
Affiliate - Controlled by Director
|
|
|
1,150,000
|
|
|
|
1,150,000
|
|
Legends Capital
|
|
Affiliate - Controlled by Director
|
|
|
765,000
|
|
|
|
765,000
|
|
LWB Irrev Trust
|
|
Affiliate - Controlled by Director
|
|
|
1,101,000
|
|
|
|
1,101,000
|
|
MDL Ventures
|
|
Affiliate - Controlled by Director
|
|
|
1,219,198
|
|
|
|
1,204,677
|
|
Silverbrook Corporation
|
|
Affiliate - Controlled by Director
|
|
|
2,227,980
|
|
|
|
2,227,980
|
|
WOC Energy LLC
|
|
Affiliate - Controlled
by Director
|
|
|
40,000
|
|
|
|
40,000
|
|
Total Notes Payable
- Related Parties
|
|
|
|
$
|
6,937,178
|
|
|
$
|
6,822,657
|
|
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, 2018. 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 March 31, 2019,
the gross balance of the note was $185,000 and accrued interest was $267,768.
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 June 30, 2019 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, 2018. As of March 31, 2019, the outstanding
balance of the Note was $49,000 and accrued interest was $52,700.
Francis
E. Rich IRA –
On February 14, 2013, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA
in the principal amount of 100,000 (the “Note”) due on June 15, 2019 and bears a 15.0% interest rate. As of March
31, 2019, the outstanding balance of the Note was $100,000 and accrued interest was $18,699.
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, 2018. 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 March 31, 2019, the gross balance of the note was $1,150,000 and accrued interest was $1,448,112.
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, 2018. 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 March 31, 2019, the gross balance of the note was $765,000 and accrued interest
was $986,190.
Legends
Capital Group –
On May 16, 2018, 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, 2018 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, 2018. The Company made a payment
of $40,000 towards the principal balance on February 28, 2019. As of March 31, 2019, the outstanding balance of the Note was $0
and accrued interest was $7,000.
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, 2018. 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 March 31, 2019, the gross balance of
the note was $1,101,000 and accrued interest was $1,507,600.
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, 2018. The Company recognized a gain on the extinguishment
of debt of $1,487,158 for the remaining derivative liability. As of March 31, 2019, the gross balance of the note was $1,219,198
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, 2018. 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 March 31, 2019, the gross balance of the note was $2,227,980 and accrued
interest was $2,611,585.
WOC
Energy, LLC –
On November 6, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $40,000 (the “Note”) due on January 6, 2019 and bears a 4.0% interest rate. As of March 31,
2019, the outstanding balance of the Note was $40,000 and accrued interest was $2,000.
WOC
Energy, LLC –
On January 8, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $75,000 (the “Note”) due on January 116, 2019 and bears a 5.0% interest rate. The Company made
a payment of $78,750 towards the principal balance and accrued interest of $3,750 on February 19, 2019. As of March 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC –
On February 21, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $50,000 (the “Note”) due on March 21, 2019 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 March 26, 2019. As of March 31, 2019, the
outstanding balance of the Note was $0 and accrued interest was $0.
12.
Convertible Notes Payable
Convertible
notes payable were comprised of the following as of March 31, 2019 and December 31, 2018:
Convertible
Notes Payable
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Adar Alef LLC
|
|
$
|
105,000
|
|
|
$
|
105,000
|
|
Antczak Polich Law LLC
|
|
|
430,000
|
|
|
|
430,000
|
|
Auctus Fund
|
|
|
125,000
|
|
|
|
125,000
|
|
Coolidge Capital
|
|
|
75,000
|
|
|
|
75,000
|
|
Coventry Enterprises
|
|
|
50,000
|
|
|
|
-
|
|
Crossover Capital
|
|
|
-
|
|
|
|
82,894
|
|
Crown Bridge Partners
|
|
|
55,000
|
|
|
|
55,000
|
|
Selling Shareholder
|
|
|
-
|
|
|
|
150,000
|
|
Eagle Equities
|
|
|
103,000
|
|
|
|
103,000
|
|
Ema Financial
|
|
|
75,000
|
|
|
|
75,000
|
|
GS Capital Partners
|
|
|
300,000
|
|
|
|
300,000
|
|
JS Investments
|
|
|
200,000
|
|
|
|
100,000
|
|
Labrys Funding
|
|
|
582,000
|
|
|
|
300,000
|
|
LG Capital Funding
|
|
|
100,000
|
|
|
|
100,000
|
|
Morningview Financial
|
|
|
55,000
|
|
|
|
55,000
|
|
One 44 Capital
|
|
|
100,000
|
|
|
|
-
|
|
Power Up Lending
|
|
|
116,000
|
|
|
|
116,000
|
|
SBI Investments
|
|
|
110,000
|
|
|
|
110,000
|
|
Scotia International
|
|
|
400,000
|
|
|
|
-
|
|
Total Convertible Notes Payable
|
|
|
2,981,000
|
|
|
|
2,281,894
|
|
Less Unamortized
Discount
|
|
|
(1,028,583
|
)
|
|
|
(1,112,499
|
)
|
Total Convertible Notes Payable, Net
of Unamortized Debt Discount
|
|
|
1,952,417
|
|
|
|
1,169,395
|
|
Less Short-Term
Convertible Notes Payable
|
|
|
(1,636,365
|
)
|
|
|
(1,169,395
|
)
|
Total Long-Term
Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
316,052
|
|
|
$
|
-
|
|
Adar
Alef, LLC
– On November 19, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Adar Alef, LLC (“Adar Alef”), in the principal amount of $105,000 (the “Note”) due on November 19, 2019
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue
discount (“OID”) of $5,000). 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. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $25,890 of debt discount
to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $105,000 and accrued
interest was $3,038.
Antczak
Polich Law, LLC
– On July 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $300,000 (the “Note”) due on August
1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $300,000 in legal fees due to Antczak for its
services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s
option, at a fixed conversion price of $0.75 per share. As of March 31, 2019, the gross balance of the note was $300,000 and accrued
interest was $17,951.
Antczak
Polich Law, LLC
– On December 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $130,000 (the “Note”) due on December
1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $1300,000 in legal fees due to Antczak for
its services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s
option, at a fixed conversion price of $0.75 per share. As of March 31, 2019, the gross balance of the note was $130,000 and accrued
interest was $3,419.
Auctus
Fund
– On December 4, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Auctus
Fund (“Auctus”), in the principal amount of $125,000 (the “Note”) due on September 4, 2019 and bears 12%
per annum interest, due at maturity. The total net proceeds the Company received was $112,250 (less an original issue discount
(“OID”) of $12,750). The Note is convertible into common stock, at holder’s option, at a 50% discount of the
lowest trading price of the common stock during the 25 trading day period prior to conversion. At any time after the closing date,
if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions
on this note. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased
an additional 15% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company
amortized $41,058 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of
the note was $125,000 and accrued interest was $4,808.
Coolidge
Capital, LLC
– On November 7, 2018, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to
the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $75,000. The total net proceeds
the Company received was $70,500 (less an original issue discount (“OID”) of $4,500). The Note has a maturity date
of August 7, 2019 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 variable conversion price is 61% (39% discount) of the market price. Market
price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount
on this note of $4,500 which will be amortized over the life of the note. For the three months ended March 31, 2019, the Company
amortized $1,484 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of
the note was $75,000 and accrued interest was $3,551.
Coventry
Enterprises, LLC
– On February 12, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Coventry Enterprises, LLC (“Coventry”), in the principal amount of $50,000 (the “Note”) due on February
12, 2020 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $47,500 (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. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $6,438 of debt discount
to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $50,000 and accrued
interest was $644.
Crossover
Capital Fund II, LLC
– On July 10, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $82,894 (the “Note”)
due on April 10, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $75,000
(less an original issue discount (“OID”) of $7,894). 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.
In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional
10% discount while the “Chill” is in effect. On January 4, 2019, the Company paid $118,750 to pay off the principal
balance of $82,894 and $35,856 in accrued interest and prepayment penalty. For the three months ended March 31, 2019, the Company
amortized $30,253 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of
the note was $0 and accrued interest was $0.
Crown
Bridge Partners
– On October 25, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $55,000 (the “Note”) due on May
11, 2019 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $47,000 (less an original
issue discount (“OID”) of $8,000). 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. If the conversion price
drops below $0.15 per share, then the conversion price will be 50% of the trading price. The Company issued 100,000 warrants to
purchase shares of common stock.in connection with this note. The warrants have a five year life and an exercise price of $0.75
per share. For the three months ended March 31, 2019, the Company amortized $13,562 of debt discount to current period operations
as interest expense. As of March 31, 2019, the gross balance of the note was $55,000 and accrued interest was $1,183.
Selling Shareholder
–
On August 2, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to the Selling Shareholder,
in the principal amount of $150,000 (the “Note”) due on August 2, 2020 and bears 10% (24% default) per annum interest,
due at maturity. The total net proceeds the Company received was $150,000. 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.
If at any time while the note is outstanding, an event of default occurs, then an additional discount of 10% shall be factored
into the variable conversion price until the note is no longer outstanding. On January 23, 2019, the Company paid $210,000 to
pay off the principal balance of $150,000 and $60,000 in accrued interest and prepayment penalty. For the three months ended March
31, 2019, the Company amortized $119,015 of debt discount to current period operations as interest expense. As of March 31, 2019,
the gross balance of the note was $0 and accrued interest was $0.
Eagle
Equities, LLC
– On December 12, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $103,000 (the “Note”) due on December
12, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (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. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $25,397 of debt discount
to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $103,000 and accrued
interest was $2,461.
EMA
Financial
– On October 23, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
EMA Financial, in the principal amount of $75,000 (the “Note”) due on July 23, 2019 and bears 12% per annum interest,
due at maturity. The total net proceeds the Company received was $67,500 (less an original issue discount (“OID”)
of $7,500). 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. However, if the Company’s share price at any time
loses the bid, then the conversion price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion
price of $0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the conversion
shares to the Holder, or any date thereafter while conversion shares are held by the Holder, the closing bid price per share of
common stock on the principal market on the trading day on which the common shares are traded is less than the sale price used
to calculate the conversion price, then such conversion price shall be automatically reduced using the new low closing bid price
and additional shares issued to the Holder. In the event the Company experiences a DTC “Chill” on its shares, or if
the closing sale price at any time falls below $0.047, then the conversion price shall be decreased an additional 15% discount.
At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 15% discount
will apply to all future conversions on this note. For the three months ended March 31, 2019, the Company amortized $24,725 of
debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $75,000
and accrued interest was $3,921.
GS
Capital Partners
– On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on August
1, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original
issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount
of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. On January 22, 2019, the Company paid $133,814 to pay off the principal balance of $100,000
and $33,814 in accrued interest and prepayment penalty. For the three months ended March 31, 2019, the Company amortized $57,515
of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $0
and accrued interest was $0.
GS
Capital Partners
– On November 28, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $200,000 (the “Note”) due on November
28, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $190,000 (less an original
issue discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 42%
discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the
Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount
while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $49,315 of debt discount
to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $200,000 and accrued
interest was $5,392.
GS
Capital Partners
– On January 23, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on February
23, 2020 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original
issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount
of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $16,919 of debt discount
to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $100,000 and accrued
interest was $1,468.
JSJ
Investments
– On November 9, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to JSJ Investments (“JSJ”), in the principal amount of $100,000 (the “Note”) due on November 9, 2019 and
bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $98,000 (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 three months ended
March 31, 2019, the Company amortized $24,658 of debt discount to current period operations as interest expense. As of March 31,
2019, the gross balance of the note was $100,000 and accrued interest was $4,668.
JSJ
Investments
– On February 5, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to JSJ Investments (“JSJ”), in the principal amount of $100,000 (the “Note”) due on February 5, 2020 and
bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $98,000 (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 three months ended
March 31, 2019, the Company amortized $14,795 of debt discount to current period operations as interest expense. As of March 31,
2019, the gross balance of the note was $100,000 and accrued interest was $1,775.
Labrys
Fund LP –
On October 26, 2018, 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 $300,000. The Note has a maturity date
of April 26, 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 total net proceeds the Company received was
$270,000 (less an original issue discount (“OID”) of $30,000). 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 October 26, 2018. In connection with the issuance of the Note, the Company issued to the Purchaser 1,362,398 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 Issue Date into shares of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.11 as set forth in the Note, subject
to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest
trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a
DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions.
The Company issued 235,000 shares of common stock in connection with this note, which were valued at $28,200 and recorded as part
of the debt discount. The Company recognized a debt discount on this note of $85,473 which will be amortized over the life of
the note. For the three months ended March 31, 2019, the Company amortized $42,267 of debt discount to current period operations
as interest expense. As of March 31, 2019, the gross balance of the note was $300,000 and accrued interest was $15,386.
Labrys
Fund LP –
On January 14, 2019, 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 $282,000. The Note has a maturity date
of July 14, 2019 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 total net proceeds the Company received was
$250,000 (less an original issue discount (“OID”) of $32,000). 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 January 14, 2019. In connection with the issuance of the Note, the Company issued to the Purchaser 1,000,000 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 Issue Date into shares of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.11 as set forth in the Note, subject
to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest
trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a
DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions.
The Company issued 130,000 shares of common stock in connection with this note, which were valued at $17,550 and recorded as part
of the debt discount. The Company recognized a debt discount on this note of $113,641 which will be amortized over the life of
the note. For the three months ended March 31, 2019, the Company amortized $41,717of debt discount to current period operations
as interest expense. As of March 31, 2019, the gross balance of the note was $282,000 and accrued interest was $7,046.
LG
Capital Funding
– On December 7, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to LG Capital Funding (“LG Cap”), in the principal amount of $100,000 (the “Note”) due on December 7,
2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $85,000 (less an original
issue discount (“OID”) of $15,000). The Note is convertible into common stock, at holder’s option, for the first
6 months at a fixed price of $0.18 per share and after that date at a 40% discount of the lowest trading price of the common stock
during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares,
the conversion price shall be decreased an additional 10% discount on all future conversions. The Company issued 39,473 shares
of common stock in connection with this note, which were valued at $7,500 and recorded as part of the debt discount. The Company
recognized a debt discount on this note of $22,500 which will be amortized over the life of the note. For the three months ended
March 31, 2019, the Company amortized $5,548 of debt discount to current period operations as interest expense. As of March 31,
2019, the gross balance of the note was $100,000 and accrued interest was $3,123.
Morningview
Financial
– On November 26, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Morningview Financial (“Morningview”), in the principal amount of $55,000 (the “Note”) due on November
26, 2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $47,500 (less an original
issue discount (“OID”) of $7,500). 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 three months ended
March 31, 2019, the Company amortized $13,562 of debt discount to current period operations as interest expense. As of March 31,
2019, the gross balance of the note was $55,000 and accrued interest was $1,884.
One
44 Capital, LLC
– On January 28, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to One 44 Capital, LLC (“One 44”), in the principal amount of $100,000 (the “Note”) due on December 12,
2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original
issue discount (“OID”) of $5,000). 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. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $16,986 of debt discount
to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $100,000 and accrued
interest was $1,699.
Power
Up Lending Group
– On July 12, 2018, 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 $53,000. The total net proceeds
the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date
of April 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12% - 22% default interest per annum) 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 fixed conversion price is $0.00009. The variable conversion price
is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look
back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note.
On January 14, 2019, the Company paid $75,855 to pay off the principal balance of $53,000 and $22,855 in accrued interest and
prepayment penalty. For the three months ended March 31, 2019, the Company amortized $1,233 of debt discount to current period
operations as interest expense. As of March 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
Power
Up Lending Group
– On October 22, 2018, 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 $63,000. The total net proceeds
the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date
of July 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12% - 22% default interest per annum) 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 fixed conversion price is $0.00009. The variable conversion price
is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look
back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note.
For the three months ended March 31, 2019, the Company amortized $961 of debt discount to current period operations as interest
expense. As of March 31, 2019, the gross balance of the note was $63,000 and accrued interest was $3,314.
Power
Up Lending Group
– On January 11, 2019, 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 $53,000. The total net proceeds
the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date
of October 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12% - 22% default interest per annum) 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 fixed conversion price is $0.00009. The variable conversion price
is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look
back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note.
For the three months ended March 31, 2019, the Company amortized $812 of debt discount to current period operations as interest
expense. As of March 31, 2019, the gross balance of the note was $53,000 and accrued interest was $1,377.
SBI
Investments
– On December 17, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to SBI Investments, LLC (“SBI”), in the principal amount of $110,000 (the “Note”) due on June 17, 2019
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue
discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 50% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. At any time after the closing
date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future
conversions on this note. If at any time while the note is outstanding, an event of default occurs, then an additional discount
of 15% shall be factored into the variable conversion price until the note is no longer outstanding. For the three months ended
March 31, 2019, the Company amortized $54,396 of debt discount to current period operations as interest expense. As of March 31,
2019, the gross balance of the note was $110,000 and accrued interest was $2,507.
Scotia
International of Nevada, Inc.
– On January 10, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Scotia International of Nevada, Inc. (“Scotia”), in the principal amount of $400,000 (the “Note”) due
on January 10, 2022 and bears 6% per annum interest, due at maturity. The Note was issued as part of a buyout agreement on the
net smelter royalty due Scotia on the precious metals mined from the Company’s mining operation in Honduras. The Note is
convertible into common stock, at holder’s option, at $0.50 per share as long as the Company’s common stock’s
bid price is less than $0.75 per share. If the bid price is more than $0.75 per share, then Scotia may elect to convert at the
average bid price of the common stock during the 10 trading day period prior to conversion. For the three months ended March 31,
2019, the Company amortized $6,610 of debt discount to current period operations as interest expense. As of March 31, 2019, the
gross balance of the note was $400,000 and accrued interest was $5,261.
13.
Stockholders’ Deficit
Common
Stock
On
January 14, 2019, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 130,000
shares of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.135 per share for
a total value of $17,550.
On
February 5, 2019, 100,000 shares of common stock were issued to a member of the board of directors of the Company as part of a
conversion agreement for consulting services. These shares were valued at $0.12 per share for a value of $12,000. The Company
recognized a loss on this settlement of $5,000 and reduced payables by $7,000.
On
March 12, 2019, 650,000 shares of common stock were issued to officers, former officers and members of the board of directors
of the Company as payment for consulting services performed. These shares were valued at $0.189 per share for a value of $122,850.
On
March 28, 2019, the Company issued 375,000 shares of common stock to Richard Bass Jr. for $48,750 in cash. These shares were valued
at $0.13 per share.
Warrants
The
following tables summarize the warrant activity during the three months ended March 31, 2019 and the year ended December 31, 2018:
Stock
Warrants
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Balance at December 31, 2017
|
|
|
743,637
|
|
|
$
|
1.28
|
|
Granted
|
|
|
300,000
|
|
|
|
0.75
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2018
|
|
|
1,043,637
|
|
|
|
1.12
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(100,000
|
)
|
|
|
0.75
|
|
Balance at March 31, 2019
|
|
|
943,637
|
|
|
$
|
1.16
|
|
2019
Outstanding Warrants
|
|
|
Warrants
Exercisable
|
|
Range
of Exercise Price
|
|
|
Number
Outstanding at March 31, 2019
|
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable at March 31, 2019
|
|
|
Weighted
Average Exercise Price
|
|
$
|
0.50
- 6.88
|
|
|
|
943,637
|
|
|
1.52 years
|
|
$
|
1.16
|
|
|
|
943,637
|
|
|
$
|
1.16
|
|
14.
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. This agreement was renegotiated in October 2017 and the Company agreed to pay
the stockholder/director $25,000 per month starting in October 2017. This agreement was superseded by an Employment Agreement
as of July 1, 2018 (see Employment Agreements below). As of March 31, 2019, the Company owed $1,035,000 to the stockholder/director
in accrued consulting fees.
Mr.
Cluff currently serves as a director of the Company and has a separate agreement as a consultant of the Company effective as of
October 2, 2015.
Employment
Agreements
– The Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The employment
agreement was effective as of July 1, 2018 and provides for compensation of $450,000 annually. Additionally, the employment agreement
provides for equity compensation to be issued valued at $5,000 per month and an optional annual bonus of up to $4,500,000 to be
determined by the Board of Directors.
Notes
Payable –
The Company took several short-term notes payable from related parties during the three months ended March
31, 2019. The Company received $450,000 in cash from related parties and paid out $350,000 in cash to related parties on notes
payable.
15.
Commitments and Contingencies
Litigation
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to
time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal
proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On
January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami
(“Bertolami”) in the United States District Court for the Western District of North Carolina, Statesville Division.
This matter was dismissed for lack of personal jurisdiction in an Order and Judgment dated March 28, 2018.
On
June 12, 2017, Danzig Ltd, filed an arbitration in Boston, Massachusetts, with the American Arbitration Association (AAA) against
the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). Messrs. D’Ambrosio and Ahlin
were dismissed on the ground that they were not proper parties to the Arbitration. A hearing occurred the week of April 9, 2018.
On October 24, 2018, a Final Award was issued dismissing all claims asserted by Danzig against Inception and awarding Inception
$361,710.74 in fees and costs.
On
July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and two if its officers
and directors (Trent D’Ambrosio and Michael Ahlin). On November 16, 2018, Order No. 7 Dismissing Claims of Claimant [Foxcroft]
with Prejudice Under AAA Rule 57, and Granting Motion to Dismiss [Inception’s] Counterclaims without Prejudice was entered.
This concluded this arbitration as the claims asserted by Foxcroft against Inception were dismissed with prejudice, and Inception’s
claims were dismissed without prejudice.
On
August 22, 2017, the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin) filed a complaint
against Danzig Ltd., Elliott Foxcroft, and Brett Bertolami in the United States District Court, District of Utah, Central Division.
On November 29, 2018 the United States District Court for the District of Utah entered an order denying Inception’s motion
to dismiss Defendants’ Counterclaim but required the Defendants (Danzig, ltd, Bertalomi, and Foxcroft) to file a more definite
statement of their claims by December 14, 2018. The ordered filing was not made and Inception filed another motion to dismiss.
The dismissal of the counterclaim with prejudice was entered on January 15, 2019. A final Amended Judgment in a Civil Case was
entered in the case on February 13, 2019 which also included confirmation of the order and award entered in the Boston and Salt
Lake arbitrations, respectively.
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 was heard
in Honduras by a labor judge and the Company has appealed the ruling in this case.
16.
Concentrations
We
generally sell a significant portion of our mineral production to a relatively small number of customers. For the three months
ended March 31, 2019, 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 March 31, 2019. 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.
17.
Subsequent Events
Management
has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through May 20, 2019,
the date which the financial statements were available to be issued and there are no material subsequent events, except as detailed
below:
On
April 3, 2019, the Company issued a secured promissory note with WOC Energy, LLC for $60,000 with an interest rate of 5.00 % and
matures on May 10, 2019. The Company received $60,000 in cash. This note was collateralized by a specific lot of precious metals
being shipped from the mining operation in Honduras to the US for refining.
On
April 9, 2019, the Company issued a secured promissory note with Debra D’Ambrosio for $100,000 with an interest rate of
5.00 % and matures on May 15, 2019. The Company received $100,000 in cash. This note was collateralized by all open lots of precious
metals being shipped from the mining operation in Honduras to the US for refining.
On
April 16, 2019, the Company issued a secured promissory note with WOC Energy, LLC for $57,750 with an interest rate of 5.00 %
and matures on May 23, 2019. The Company received $57,750 in cash. This note was collateralized by a specific lot of precious
metals being shipped from the mining operation in Honduras to the US for refining.
On
April 16, 2019, 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 $63,000. The total net proceeds the Company received was $60,000
(less an original issue discount (“OID”) of $3,000). The Note has a maturity date of February 20, 2020 and the Company
has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest
per annum) 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 accounting for this note is still being determined
by the Company.
On
April 18, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown
Bridge”), in the principal amount of $55,000 (the “Note”) due on April 18, 2020 and bears 5% per annum interest,
due at maturity. The total net proceeds the Company received was $47,000 (less an original issue discount (“OID”)
of $8,000). 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. If the conversion price drops below $0.15 per share,
then the conversion price will be 50% of the trading price. The accounting for this note is still being determined by the Company.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of Inception Mining, Inc.:
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Inception Mining, Inc. (“the Company”) as of December
31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and
cash flows for each of the years in the two-year period ended December 31, 2018 and the related notes (collectively referred to
as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and
its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles
generally accepted in the United States of America.
Explanatory
Paragraph Regarding Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Sadler, Gibb & Associates, LLC
We have
served as the Company’s auditor since 2015
Salt Lake
City, UT
April
1, 2019
Inception
Mining, Inc.
Consolidated
Balance Sheets
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
ASSETS
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
50,857
|
|
|
$
|
51,802
|
|
Accounts
receivable
|
|
|
5,548
|
|
|
|
170
|
|
Inventories
|
|
|
570,614
|
|
|
|
1,430,182
|
|
Prepaid
expenses and other current assets
|
|
|
26,376
|
|
|
|
46,437
|
|
Total
Current Assets
|
|
|
653,395
|
|
|
|
1,528,591
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
664,041
|
|
|
|
882,060
|
|
Other
assets
|
|
|
36,859
|
|
|
|
25,586
|
|
Total
Assets
|
|
$
|
1,354,295
|
|
|
$
|
2,436,237
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,631,997
|
|
|
$
|
1,540,317
|
|
Accrued
interest - related parties
|
|
|
6,647,300
|
|
|
|
5,611,682
|
|
Secured
borrowings, net
|
|
|
217,223
|
|
|
|
86,733
|
|
Notes
payable, net of debt discounts
|
|
|
60,000
|
|
|
|
179,302
|
|
Notes
payable - related parties
|
|
|
6,822,657
|
|
|
|
6,739,773
|
|
Convertible
notes payable, net of debt discounts
|
|
|
1,169,395
|
|
|
|
231,767
|
|
Derivative
liabilities
|
|
|
2,547,806
|
|
|
|
647,807
|
|
Total
Current Liabilities
|
|
|
19,096,378
|
|
|
|
15,037,381
|
|
|
|
|
|
|
|
|
|
|
Mine
reclamation obligation
|
|
|
341,845
|
|
|
|
352,713
|
|
Total
Liabilities
|
|
|
19,438,223
|
|
|
|
15,390,094
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.00001 par value; 10,000,000 shares authorized, 51 shares issued and outstanding as of December 31, 2018 and 2017
|
|
|
1
|
|
|
|
1
|
|
Common
stock, $0.00001 par value; 500,000,000 shares authorized, 54,093,505 and 52,183,761 shares issued and outstanding as of December
31, 2018 and December 31, 2017, respectively
|
|
|
541
|
|
|
|
522
|
|
Additional
paid-in capital
|
|
|
4,490,866
|
|
|
|
3,992,407
|
|
Accumulated
Deficit
|
|
|
(22,009,285
|
)
|
|
|
(16,383,271
|
)
|
Accumulated
other comprehensive income
|
|
|
(557,134
|
)
|
|
|
(555,635
|
)
|
Total
Controlling Interest
|
|
|
(18,075,011
|
)
|
|
|
(12,945,976
|
)
|
Non-Controlling
Interest
|
|
|
(8,917
|
)
|
|
|
(7,881
|
)
|
Total
Stockholders’ Deficit
|
|
|
(18,083,928
|
)
|
|
|
(12,953,857
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
$
|
1,354,295
|
|
|
$
|
2,436,237
|
|
See
accompanying notes to the consolidated financial statements.
Inception
Mining, Inc.
Consolidated
Statements of Operations and Comprehensive Loss
|
|
For
the Year Ended
|
|
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Precious Metals Income
|
|
$
|
3,967,869
|
|
|
$
|
3,631,759
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,740,708
|
|
|
|
3,754,072
|
|
General and administrative
|
|
|
2,035,203
|
|
|
|
1,449,735
|
|
Depreciation
and amortization
|
|
|
38,237
|
|
|
|
115,929
|
|
Total Operating
Expenses
|
|
|
5,814,148
|
|
|
|
5,319,736
|
|
Loss from Operations
|
|
|
(1,846,279
|
)
|
|
|
(1,687,977
|
)
|
|
|
|
|
|
|
|
|
|
Other Income/(Expenses)
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
4,942
|
|
|
|
12,567
|
|
Change in derivative
liability
|
|
|
979,561
|
|
|
|
421,726
|
|
Loss on extinguishment
of debt
|
|
|
(8,510
|
)
|
|
|
(3,325
|
)
|
Interest
expense
|
|
|
(4,756,764
|
)
|
|
|
(2,127,518
|
)
|
Total Other Income/(Expenses)
|
|
|
(3,780,771
|
)
|
|
|
(1,696,550
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss from Operations before Income
Taxes
|
|
|
(5,627,050
|
)
|
|
|
(3,384,527
|
)
|
Provision for
Income Taxes
|
|
|
-
|
|
|
|
-
|
|
NET LOSS
|
|
|
(5,627,050
|
)
|
|
|
(3,384,527
|
)
|
NET LOSS - Non-Controlling
Interest
|
|
|
1,036
|
|
|
|
369
|
|
NET LOSS - Controlling
Interest
|
|
$
|
(5,626,014
|
)
|
|
$
|
(3,384,158
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - Basic
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
Net loss per share - Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
Weighted average number of shares
outstanding during the period - Basic
|
|
|
53,501,213
|
|
|
|
51,635,405
|
|
Weighted average number of shares
outstanding during the period - Diluted
|
|
|
53,501,213
|
|
|
|
51,635,405
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Exchange
differences arising on translating foreign operations
|
|
|
1,499
|
|
|
|
(5,960
|
)
|
Total Comprehensive Loss
|
|
|
(5,625,551
|
)
|
|
|
(3,390,487
|
)
|
Total Comprehensive
Income (Loss) - Non-Controlling Interest
|
|
|
(378
|
)
|
|
|
357
|
|
Total Comprehensive
Loss - Controlling Interest
|
|
$
|
(5,625,929
|
)
|
|
$
|
(3,390,130
|
)
|
See
accompanying notes to the consolidated financial statements.
Inception
Mining, Inc.
Consolidated
Statement of Changes in Stockholders’ Deficit
|
|
Preferred
stock
|
|
|
Common
stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated
Other
|
|
|
Non-
|
|
|
Total
|
|
|
|
($0.00001
Par)
|
|
|
($0.00001
Par)
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Controlling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Interest
|
|
|
Deficiency
|
|
Balance,
December 31, 2016
|
|
|
51
|
|
|
$
|
1
|
|
|
|
51,229,590
|
|
|
$
|
512
|
|
|
$
|
3,607,391
|
|
|
$
|
(12,999,113
|
)
|
|
$
|
(549,675
|
)
|
|
$
|
(7,512
|
)
|
|
$
|
(9,948,396
|
)
|
Shares
issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
77,891
|
|
|
|
1
|
|
|
|
26,999
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,000
|
|
Warrants
issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,448
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,448
|
|
Warrants
issued with note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,253
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,253
|
|
Shares
issued for debt settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
615,000
|
|
|
|
6
|
|
|
|
158,319
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,325
|
|
Share
cancellation
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,720
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
280,000
|
|
|
|
3
|
|
|
|
48,997
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,000
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,960
|
)
|
|
|
-
|
|
|
|
(5,960
|
)
|
Net
loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,384,158
|
)
|
|
|
-
|
|
|
|
(369
|
)
|
|
|
(3,384,527
|
)
|
Balance,
December 31, 2017
|
|
|
51
|
|
|
|
1
|
|
|
|
52,183,761
|
|
|
|
522
|
|
|
|
3,992,407
|
|
|
|
(16,383,271
|
)
|
|
|
(555,635
|
)
|
|
|
(7,881
|
)
|
|
|
(12,953,857
|
)
|
Shares
issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
1,516,385
|
|
|
|
16
|
|
|
|
351,442
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
351,458
|
|
Shares
issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
450,000
|
|
|
|
4
|
|
|
|
41,996
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,000
|
|
Shares
issued with note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
329,723
|
|
|
|
3
|
|
|
|
46,194
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,197
|
|
Beneficial
conversion feature on note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,813
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,813
|
|
Shares
issued with settlement of Accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
1
|
|
|
|
16,009
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,010
|
|
Share
cancellation
|
|
|
-
|
|
|
|
-
|
|
|
|
(486,364
|
)
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,499
|
)
|
|
|
-
|
|
|
|
(1,499
|
)
|
Net
loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,626,014
|
)
|
|
|
-
|
|
|
|
(1,036
|
)
|
|
|
(5,627,050
|
)
|
Balance,
December 31, 2018
|
|
|
51
|
|
|
$
|
1
|
|
|
|
54,093,505
|
|
|
$
|
541
|
|
|
$
|
4,490,866
|
|
|
$
|
(22,009,285
|
)
|
|
$
|
(557,134
|
)
|
|
$
|
(8,917
|
)
|
|
$
|
(18,083,928
|
)
|
See
accompanying notes to the consolidated financial statements.
Inception
Mining, Inc.
Consolidated
Statements of Cash Flows
|
|
For
the Year Ended
|
|
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(5,627,050
|
)
|
|
$
|
(3,384,527
|
)
|
Adjustments to reconcile net loss to
net cash used in operations
|
|
|
|
|
|
|
|
|
Depreciation and
amortization expense
|
|
|
225,395
|
|
|
|
639,097
|
|
Common stock issued
for services
|
|
|
351,458
|
|
|
|
27,000
|
|
Warrants issued
for services
|
|
|
-
|
|
|
|
124,448
|
|
Loss on extinguishment
of debt
|
|
|
8,510
|
|
|
|
3,325
|
|
Change in derivative
liability
|
|
|
(979,561
|
)
|
|
|
(421,726
|
)
|
Amortization of
debt discount
|
|
|
2,438,886
|
|
|
|
721,305
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decr (incr) in trade
receivables
|
|
|
16,640
|
|
|
|
(17,368
|
)
|
Decr (incr) inventories
|
|
|
839,691
|
|
|
|
82,653
|
|
Decr (incr) prepaid
expenses and other current assets
|
|
|
(14,601
|
)
|
|
|
4,851
|
|
Incr (decr) accounts
payable and accrued liabilities
|
|
|
1,529,985
|
|
|
|
1,232,663
|
|
|
|
|
|
|
|
|
|
|
Incr
(decr) accounts payable and accrued liabilities - related parties
|
|
|
1,035,618
|
|
|
|
948,357
|
|
Net Cash Used In Operating Activities
|
|
|
(175,029
|
)
|
|
|
(39,922
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(30,499
|
)
|
|
|
(287,501
|
)
|
Net Cash Used In Investing Activities
|
|
|
(30,499
|
)
|
|
|
(287,501
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment of notes
payable
|
|
|
(120,000
|
)
|
|
|
(633,500
|
)
|
Repayment of notes
payable-related parties
|
|
|
(2,550,006
|
)
|
|
|
(1,377,881
|
)
|
Repayment of convertible
notes payable
|
|
|
(1,688,500
|
)
|
|
|
(373,000
|
)
|
Repayment of secured
borrowings
|
|
|
(40,647
|
)
|
|
|
-
|
|
Proceeds from notes
payable
|
|
|
-
|
|
|
|
649,500
|
|
Proceeds from notes
payable-related parties
|
|
|
1,813,200
|
|
|
|
870,700
|
|
Proceeds from convertible
notes payable
|
|
|
2,637,500
|
|
|
|
972,550
|
|
Proceeds from secured
borrowings
|
|
|
17,093
|
|
|
|
27,239
|
|
Common stock issued
with convertible note payable
|
|
|
89,010
|
|
|
|
-
|
|
Proceeds
from issuance of common stock
|
|
|
42,000
|
|
|
|
49,000
|
|
Net Cash Provided by Financing Activities
|
|
|
199,650
|
|
|
|
184,608
|
|
Effects of exchange
rate changes on cash
|
|
|
4,933
|
|
|
|
(35
|
)
|
Net Decrease in Cash
|
|
|
(945
|
)
|
|
|
(142,850
|
)
|
Cash at Beginning of Period
|
|
|
51,802
|
|
|
|
194,652
|
|
Cash at End of Period
|
|
$
|
50,857
|
|
|
$
|
51,802
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,057,500
|
|
|
$
|
381,926
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of
note payable - related party
|
|
$
|
-
|
|
|
$
|
150,000
|
|
Common stock issued for extinguishment
of debt and accounts payable
|
|
$
|
16,010
|
|
|
$
|
8,325
|
|
Common stock issued for note commitment
fee
|
|
$
|
46,193
|
|
|
$
|
8,325
|
|
Assets held to satisfy secured borrowings
|
|
$
|
19,401
|
|
|
$
|
119,362
|
|
Recognition of debt discounts on convertible
notes payable
|
|
$
|
1,031,741
|
|
|
$
|
-
|
|
See
accompanying notes to the consolidated financial statements.
Inception
Mining, Inc.
Notes
to Consolidated Financial Statements
As
of December 31, 2018 and 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
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.
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 Compañía
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 during year ended December 31, 2018, the Company recorded net loss of $5,627,050 and used $175,029 in cash
for operating activities. These factors among others indicate that the Company may be unable to continue as a going concern for
one year from the issuance of these financial statements.
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 Compañía
Minera Cerros del Río, S.A. de C.V., and its controlling interest subsidiaries, Compañía Minera Cerros del
Sur, S.A. de C.V. and Compañía 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 December 31, 2018 and December 31, 2017, the Company had no cash equivalents. The aggregate
cash balance on deposit in these accounts are 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 -
Effective January 1, 2018 we adopted the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Subtopic 606-10, Revenue from Contracts with Customers (“ASC 606-10”).
The adoption of ASC 606-10 had no impact on prior year or previously disclosed amounts. In accordance with ASC 606-10, revenue
is measured based on a consideration specified in a contract with a customer and recognized when we satisfy the performance obligation
specified in each contract.
The
Company generates revenue by selling gold and silver produced from its mining operations. The majority of the Company’s
sales come from the sale of refined gold; however, the end product at the Company’s gold operations is generally doré
bars. Doré is an alloy consisting primarily of gold but also containing silver and other metals. Doré is sent to
refiners to produce bullion that meets the required market standard of 99.95% gold. Under the terms of the Company’s refining
agreements, the doré bars are refined for a fee, and the Company’s share of the refined gold and silver is credited
to its bullion account.
The
Company recognizes revenue for gold and silver from doré production when it satisfies the performance obligation of transferring
gold and silver inventory to the customer, which generally occurs upon transfer of gold and silver bullion credits as this is
the point at which the customer obtains the ability to direct the use and obtain substantially all of the remaining benefits of
ownership of the asset.
The
Company generally recognizes the sale of gold bullion credits at the prevailing market price when gold bullion credits are delivered
to the customer. The transaction price is determined based on the agreed upon market price and the number of ounces delivered.
Payment is due upon delivery of gold bullion credits to the customer’s account.
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.
Loss
per Common Share -
Basic net loss per common share is computed by dividing net loss, less the preferred stock dividends, by
the weighted average number of common shares outstanding. Dilutive 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. Common
share equivalents of 28,206,471 have been excluded in the diluted income per share calculation for 2018 because they would be
anti-dilutive. Common share equivalents of 4,688,168 have been excluded in the diluted income per share calculation for 2017 because
they 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 years ended December 31, 2018 and 2017.
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.
Operating
Lease
– The Company leases its corporate headquarters and administrative offices in Salt Lake City, Utah on a month-to-month
basis.
The Company incurred rent expense of $13,891 and
$12,923 for the year ended December 31, 2018 and 2017.
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.
Recently
Issued Accounting Pronouncements –
From time to time, new accounting pronouncements are issued by FASB that are adopted
by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards,
which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
3.
Joint Venture – Corpus Gold, LLC
On
October 1, 2017, the Company entered into a joint venture agreement with Corpus Mining and Exploration, Ltd. (Corpus) and formed
a new entity, Corpus Gold, LLC (Corpus Gold). Corpus Gold is to provide a framework within which the Company will provide management
services in directing and managing an exploration, drilling and evaluation of the mineral resources in concessions owned by the
Company and Corpus will provide the capital necessary to complete such purpose. All revenues will be shared based on the revenue
sharing agreement of 80% to Corpus and 20% to the Company. The Company pays the monthly expenses of Corpus Gold and is reimbursed
by Corpus. As of December 31, 2018, the Company had a receivable of $0 for expenses spent in December 2018.
4.
Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories,
stockpiles and mineralized materials on leach pads at December 31, 2018 and 2017 consisted of the following:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Supplies
|
|
$
|
87,231
|
|
|
$
|
70,261
|
|
Mineralized Material on Leach Pads
|
|
|
247,213
|
|
|
|
843,183
|
|
ADR Plant
|
|
|
40,642
|
|
|
|
159,463
|
|
Finished Ore
|
|
|
195,528
|
|
|
|
357,275
|
|
Total Inventories
|
|
$
|
570,614
|
|
|
$
|
1,430,182
|
|
There
were no stockpiles at December 31, 2018 and 2017. During 2018, management decided to write down the inventory on one of its leach
pads. The Company recorded a write down of $1,058,812 for the inventory in process on the leach pad as of December 31, 2018.
5.
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
derivative liability as of December 31, 2018, in the amount of $2,547,806 has a level 3 classification under ASC 825-10.
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December
31, 2018 and 2017:
|
|
Debt
Derivative Liabilities
|
|
Balance, December 31, 2016
|
|
$
|
-
|
|
Transfers in upon initial
fair value of derivative liabilities
|
|
|
1,069,533
|
|
Change in fair
value of derivative liabilities and warrant liability
|
|
|
(421,726
|
)
|
Balance, December 31, 2017
|
|
$
|
647,807
|
|
Transfers in upon initial fair value
of derivative liabilities
|
|
|
2,879,560
|
|
Change in fair
value of derivative liabilities and warrant liability
|
|
|
(979,561
|
)
|
Balance, December 31, 2018
|
|
$
|
2,547,806
|
|
Net gain for
the period included in earnings relating to the liabilities held at December 31, 2018
|
|
$
|
979,561
|
|
Net gain for
the period included in earnings relating to the liabilities held at December 31, 2017
|
|
$
|
421,726
|
|
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
December 31, 2018, the Company marked to market the fair value of the debt derivatives and determined a fair value of $2,511,226.
The Company recorded a gain from change in fair value of debt derivatives of $953,390 for the year ended December 31, 2018. 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 203.03% to 306.25%, (3) weighted average risk-free interest rate of 2.45%
to 2.63% (4) expected life of 0.27 to 1.59 years, and (5) the quoted market price of the Company’s common stock at each
valuation date.
At
December 31, 2017, the Company marked to market the fair value of the debt derivatives and determined a fair value of $647,807.
The Company recorded a gain from change in fair value of debt derivatives of $421,726 for the year ended December 31, 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 149.26% to 181.45%, (3) weighted average risk-free interest rate of 1.53%
to 1.76% (4) expected life of 0.38 to 0.95 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.
Warrant
liabilities –
During the year ended December 31, 2018, the Company issued warrants in conjunction with the issuance
of three Crown Bridge Convertible Notes. These warrants contained certain reset provisions. The accounting treatment of derivative
financial instruments required that the Company record fair value of the derivatives as of the inception date (issuance date)
and to fair value as of each subsequent reporting date.
At
December 31, 2018 and 2017, the Company had a warrant liability of $36,580 and $0, respectively. The Company recorded a gain from
change in fair value of warrant liability of $26,171 and $0 for the years ended December 31, 2018 and 2017, respectively.
6.
Properties, Plant and Equipment, Net
Properties,
plant and equipment at December 31, 2018 and 2017 consisted of the following:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Land
|
|
$
|
270,736
|
|
|
$
|
279,344
|
|
Buildings
|
|
|
2,366,323
|
|
|
|
2,441,552
|
|
Machinery and Equipment
|
|
|
956,669
|
|
|
|
967,008
|
|
Office Equipment and Furniture
|
|
|
42,311
|
|
|
|
43,605
|
|
Vehicles
|
|
|
85,132
|
|
|
|
87,838
|
|
Construction
in Process
|
|
|
11,277
|
|
|
|
-
|
|
|
|
|
3,732,448
|
|
|
|
3,819,347
|
|
Less Accumulated
Depreciation
|
|
|
(3,068,407
|
)
|
|
|
(2,937,287
|
)
|
Total Property,
Plant and Equipment
|
|
$
|
664,041
|
|
|
$
|
882,060
|
|
During
the years ended December 31, 2018 and 2017, the Company recognized depreciation expense of $225,395 and $639,097, respectively.
The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative
expenses.
Depreciation
Allocation
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Cost of Goods Sold
|
|
$
|
187,158
|
|
|
$
|
523,168
|
|
General and Administrative
|
|
|
38,237
|
|
|
|
115,929
|
|
Total
|
|
$
|
225,395
|
|
|
$
|
639,097
|
|
7.
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 $341,845 and $352,713 as of December 31, 2018 and 2017, 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
increase in the reclamation liability in 2017 was related to the expansion of the heap leach facility and related infrastructure.
The decrease in 2018 was due to the foreign currency translation rate.
Changes
to the asset retirement obligation were as follows:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Balance, Beginning of Year
|
|
$
|
352,713
|
|
|
$
|
256,070
|
|
Liabilities incurred
|
|
|
(10,868
|
)
|
|
|
96,643
|
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
Balance, End
of Year
|
|
$
|
341,845
|
|
|
$
|
352,713
|
|
8.
Accounts Payable and Accrued Liabilities
Accounts
Payable and accrued liabilities at December 31, 2018 and 2017 consisted of the following:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Accounts Payable
|
|
$
|
558,749
|
|
|
$
|
899,939
|
|
Accrued Liabilities
|
|
|
394,017
|
|
|
|
270,123
|
|
Accrued Salaries and Benefits
|
|
|
410,930
|
|
|
|
262,323
|
|
Advances Payable
|
|
|
268,301
|
|
|
|
107,932
|
|
Total Accrued
Liabilities
|
|
$
|
1,631,997
|
|
|
$
|
1,540,317
|
|
9.
Secured Borrowings
On
June 20, 2017, the Company entered into four 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 December 31, 2017, the Company held 96 ounces of gold, valued
at a cost of $119,361, to satisfy the liabilities upon maturity leaving a net obligation of $86,733, which is recorded on the
Company’s balance sheet as secured borrowings.
On
June 25, 2018, the Company entered into four new financing arrangements with third parties for a combined principal amount of
$225,000. 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 $22,500, for a total expected remittance of $247,500. The maturity date of the notes is June 26, 2019.
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, 2018, the Company held 17 ounces
of gold, valued at a cost of $19,401, to satisfy the liabilities upon maturity leaving a net obligation of $217,223, which is
recorded on the Company’s balance sheet as secured borrowings.
Secured
Borrowings
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Secured obligations
|
|
$
|
225,005
|
|
|
$
|
195,720
|
|
Guaranteed interest
|
|
|
22,500
|
|
|
|
19,572
|
|
Deferred interest
|
|
|
(10,881
|
)
|
|
|
(9,198
|
)
|
|
|
|
236,624
|
|
|
|
206,094
|
|
Gold held as
security
|
|
|
(19,401
|
)
|
|
|
(119,361
|
)
|
Secured Borrowings,
net
|
|
$
|
217,223
|
|
|
$
|
86,733
|
|
10.
Notes Payable
Notes
payable were comprised of the following as of December 31, 2018 and December 31, 2017:
Notes
Payable
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
3-2-1 Partners, Inc.
|
|
$
|
-
|
|
|
$
|
40,000
|
|
GS Capital Partners
|
|
|
-
|
|
|
|
80,000
|
|
Phil Zobrist
|
|
|
60,000
|
|
|
|
60,000
|
|
Total Notes Payable
|
|
|
60,000
|
|
|
|
180,000
|
|
Less Unamortized
Discount
|
|
|
-
|
|
|
|
(698
|
)
|
Total Notes Payable,
Net of Unamortized Debt Discount
|
|
$
|
60,000
|
|
|
$
|
179,302
|
|
3-2-1
Partners, LLC –
On November 30, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners,
LLC in the principal amount of $40,000 (the “Note”) due on December 14, 2017 and bears a 5% interest rate. The Company
made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on January 16, 2018. As of December 31,
2018, 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 year ended December 31, 2018, the Company amortized $698 of debt discount to current period
operations as interest expense. The Company made a payment of $109,468 towards the principal balance and accrued interest of $29,468
on February 5, 2018. As of December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
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, 2018. 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 December 31,
2018, the gross balance of the note was $60,000 and accrued interest was $64,504.
11.
Notes Payable – Related Parties
Notes
payable – related parties were comprised of the following as of December 31, 2018 and December 31, 2017:
Notes
Payable - Related Parties
|
|
Relationship
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Claymore Management
|
|
Affiliate - Controlled by
Director
|
|
$
|
185,000
|
|
|
$
|
185,000
|
|
Diamond 80, LLC
|
|
Immediate Family Member
|
|
|
49,000
|
|
|
|
49,000
|
|
Francis E. Rich IRA
|
|
Immediate Family Member
|
|
|
100,000
|
|
|
|
-
|
|
GAIA Ltd
|
|
Affiliate - Controlled by Director
|
|
|
1,150,000
|
|
|
|
1,150,000
|
|
Legends Capital
|
|
Affiliate - Controlled by Director
|
|
|
765,000
|
|
|
|
815,000
|
|
LWB Irrev Trust
|
|
Affiliate - Controlled by Director
|
|
|
1,101,000
|
|
|
|
1,101,000
|
|
MDL Ventures
|
|
Affiliate - Controlled by Director
|
|
|
1,204,677
|
|
|
|
1,171,793
|
|
Silverbrook Corporation
|
|
Affiliate - Controlled by Director
|
|
|
2,227,980
|
|
|
|
2,227,980
|
|
WOC Energy LLC
|
|
Affiliate - Controlled
by Director
|
|
|
40,000
|
|
|
|
40,000
|
|
Total Notes Payable
- Related Parties
|
|
|
|
$
|
6,822,657
|
|
|
$
|
6,739,773
|
|
Claymore
Management
– On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management, an affiliated
company controlled by a director of the Company, 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, 2018. 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 December 31, 2018, the gross balance of the note was $185,000 and accrued
interest was $259,668.
D.
D’Ambrosio –
On February 13, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $88,000 (the “Note”) due on March 30,
2018 and bears a 5.70% interest rate. The Company made a payment of $93,000 towards the principal balance and accrued interest
of $5,000 on March 30, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On April 4, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $80,000 (the “Note”) due April 30, 2018
and bears a 5.00% interest rate. The Company made a payment of $84,000 towards the principal balance and accrued interest of $4,000
on April 16, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On April 19, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $80,000 (the “Note”) due on April 30,
2018 and bears a 5.00% interest rate. The Company made a payment of $84,000 towards the principal balance and accrued interest
of $4,000 on April 30, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On May 3, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $90,000 (the “Note”) due on May 15, 2018
and bears a 5.00% interest rate. The Company made a payment of $94,500 towards the principal balance and accrued interest of $4,500
on May 14, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On May 9, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $10,000 (the “Note”) due on May 15, 2018
and bears a 5.00% interest rate. The Company made a payment of $10,500 towards the principal balance and accrued interest of $500
on May 14, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On May 16, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $90,000 (the “Note”) due on May 30, 2018
and bears a 5.00% interest rate. The Company made a payment of $94,500 towards the principal balance and accrued interest of $4,500
on May 23, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On May 24, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on June 15,
2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest
of $5,000 on March 30, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On June 5, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on June 30,
2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest
of $5,000 on June 25, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On June 27, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $120,000 (the “Note”) due on July 18,
2018 and bears a 5.0% interest rate. The Company made a payment of $126,000 towards the principal balance and accrued interest
of $6,000 on July 5, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On July 6, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $150,000 (the “Note”) due on August 15,
2018 and bears a 5.00% interest rate. The Company made a payment of $157,500 towards the principal balance and accrued interest
of $7,500. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On August 10, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on August 31,
2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest
of $5,000 on August 29, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On August 31, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on September
15, 2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest
of $5,000 on September 13, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was
$0.
D.
D’Ambrosio –
On September 17, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on October 5,
2018 and bears a 5.0% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest
of $5,500 on October 3, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On October 15, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $105,000 (the “Note”) due on October 25,
2018 and bears a 5.0% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest
of $5,500 on October 30, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On November 13, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on December
25, 2018 and bears a 5.0% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest
of $5,000 on December 13, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio –
On December 19, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio,
an immediate family member of a Company officer, in the principal amount of $60,000 (the “Note”) due on January 20,
2019 and bears a 5.0% interest rate. The Company made a payment of $63,000 towards the principal balance and accrued interest
of $3,000 on December 31, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
Diamond
80, LLC –
On April 3, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC, an affiliated
company controlled by a director of the Company, in the principal amount of $50,000 (the “Note”) due on December 31,
2018 and bears a 5.0% 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 December 31, 2018, the outstanding balance of the Note was $49,000 and accrued interest
was $46,700.
Diamond
80, LLC –
On August 20, 2018, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC, an affiliated
company controlled by a director of the Company, in the principal amount of $40,000 (the “Note”) due on August 31,
2018 and bears a 50% interest rate. The Company made a payment of $42,000 towards the principal balance and accrued interest of
$2,000 on August 29, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
Francis
E. Rich IRA –
On January 31, 2018, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA,
an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on February
14, 2019 and bears a 30.0% interest rate. As of December 31, 2018, the outstanding balance of the Note was $100,000 and accrued
interest was $11,301.
GAIA
Ltd.
– Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to GAIA Ltd., an
affiliated company controlled by a director of the Company, 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, 2018. 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 December 31, 2018, the gross balance
of the note was $1,150,000 and accrued interest was $1,397,071.
Legends
Capital Group
– Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends
Capital Group, an affiliated company controlled by a director of the Company, 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, 2018. 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 December 31,
2018, the gross balance of the note was $765,000 and accrued interest was $952,237.
Legends
Capital Group –
On May 16, 2017, the Company issued an unsecured Short-Term Promissory Note to Legends Capital Group,
an affiliated company controlled by a director of the Company, in the principal amount of $100,000 (the “Note”) due
on July 1, 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. The Company made a payment of $40,000 towards the principal balance on February 28, 2018. The
Company made a payment of $10,000 towards the principal balance on May 2, 2018. As of December 31, 2018, the outstanding balance
of the Note was $0 and accrued interest was $7,000.
LW
Briggs Irrevocable Trust
– Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes
to LW Briggs Irrevocable Trust, an affiliated company controlled by a director of the Company, 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, 2018. 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 December 31, 2018, the gross balance of the note was $1,101,000 and accrued interest was $1,458,733.
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, 2018. The Company recognized a gain on the extinguishment
of debt of $1,487,158 for the remaining derivative liability. As of December 31, 2018, the gross balance of the note was $1,204,677
and accrued interest was $0.
Silverbrook
Corporation
– Between March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook
Corporation, an affiliated company controlled by a director of the Company, 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, 2018. 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 December 31,
2018, the gross balance of the note was $2,227,980 and accrued interest was $2,512,700.
WOC
Energy, LLC –
On November 6, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an
affiliated company controlled by a director of the Company, in the principal amount of $40,000 (the “Note”) due on
January 6, 2018 and bears a 4.0% interest rate. As of December 31, 2018, the outstanding balance of the Note was $40,000 and accrued
interest was $2,000.
WOC
Energy, LLC –
On June 5, 2018, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated
company controlled by a director of the Company, in the principal amount of $60,000 (the “Note”) due on June 30, 2018
and bears a 5.0% interest rate. The Company made a payment of $63,000 towards the principal balance and accrued interest of $3,000
on June 29, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC –
On July 19, 2018, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated
company controlled by a director of the Company, in the principal amount of $70,000 (the “Note”) due on August 15,
2018 and bears a 5.0% interest rate. The Company made a payment of $73,000 towards the principal balance and accrued interest
of $3,000 on August 8, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC –
On November 12, 2018, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an
affiliated company controlled by a director of the Company, in the principal amount of $70,000 (the “Note”) due on
December 15, 2018 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 December 19, 2018. As of December 31, 2018, the outstanding balance of the Note was $0 and accrued interest
was $0.
12.
Convertible Notes Payable
Convertible
notes payable were comprised of the following as of December 31, 2018 and December 31, 2017:
Convertible
Notes Payable
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Adar Alef LLC
|
|
$
|
105,000
|
|
|
$
|
-
|
|
Adar Bays LLC
|
|
|
-
|
|
|
|
63,000
|
|
Antczak Polich Law LLC
|
|
|
430,000
|
|
|
|
-
|
|
Auctus Fund
|
|
|
125,000
|
|
|
|
110,000
|
|
Coolidge Capital
|
|
|
75,000
|
|
|
|
-
|
|
Crossover Capital
|
|
|
82,894
|
|
|
|
110,500
|
|
Crown Bridge Partners
|
|
|
55,000
|
|
|
|
50,000
|
|
Selling Shareholder
|
|
|
150,000
|
|
|
|
-
|
|
Eagle Equities
|
|
|
103,000
|
|
|
|
63,000
|
|
Ema Financial
|
|
|
75,000
|
|
|
|
112,000
|
|
GS Capital Partners
|
|
|
300,000
|
|
|
|
-
|
|
JSJ Investments
|
|
|
100,000
|
|
|
|
-
|
|
Labrys Funding
|
|
|
300,000
|
|
|
|
-
|
|
LG Capital Funding
|
|
|
100,000
|
|
|
|
52,500
|
|
Morningview Financial
|
|
|
55,000
|
|
|
|
-
|
|
Power Up Lending
|
|
|
116,000
|
|
|
|
98,000
|
|
SBI Investments
|
|
|
110,000
|
|
|
|
-
|
|
Silo Equity Partners
|
|
|
-
|
|
|
|
53,000
|
|
Total Convertible Notes Payable
|
|
|
2,281,894
|
|
|
|
712,000
|
|
Less Unamortized
Discount
|
|
|
(1,112,499
|
)
|
|
|
(480,233
|
)
|
Total Convertible
Notes Payable, Net of
Unamortized Debt Discount
|
|
$
|
1,169,395
|
|
|
$
|
231,767
|
|
Adar
Alef, LLC
– On November 19, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Adar Alef, LLC (“Adar Alef”), in the principal amount of $105,000 (the “Note”) due on November 19, 2019
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue
discount (“OID”) of $5,000). 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. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the year ended December 31, 2018, the Company amortized $12,082 of debt discount to
current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $105,000 and accrued
interest was $967.
Adar
Bays, LLC
– On December 6, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Adar Bays, LLC (“Adar Bays”), in the principal amount of $63,000 (the “Note”) due on December 6, 2018
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $60,000 (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. On May 24, 2018, the Company
paid $87,374 to pay off the principal balance of $63,000 and $24,374 in accrued interest and prepayment penalty. For the year
ended December 31, 2018, the Company amortized $58,685 of debt discount to current period operations as interest expense. As of
December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
Adar
Bays, LLC
– On May 29, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Adar
Bays, LLC (“Adar Bays”), in the principal amount of $105,000 (the “Note”) due on May 29, 2019 and bears
8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount
(“OID”) of $5,000). 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. On November 14, 2018, the Company
paid $145,693 to pay off the principal balance of $105,000 and $40,693 in accrued interest and prepayment penalty. For the year
ended December 31, 2018, the Company amortized $105,000 of debt discount to current period operations as interest expense. As
of December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
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 a 40% discount of the lowest trading price
of the common stock during the 15 trading day period prior to conversion. At any time after the closing date, if the Company’s
common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions on this note. In
the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional
15% discount while the “Chill” is in effect. On February 5, 2018, the Company paid $156,759 to pay off the principal
balance of $110,000 and $46,759 in accrued interest and prepayment penalty. For the year ended December 31, 2018, the Company
amortized $55,201 of debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance
of the note was $0 and accrued interest was $0.
Auctus
Fund
– On December 4, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Auctus
Fund (“Auctus”), in the principal amount of $125,000 (the “Note”) due on September 4, 2019 and bears 12%
per annum interest, due at maturity. The total net proceeds the Company received was $112,250 (less an original issue discount
(“OID”) of $12,750). The Note is convertible into common stock, at holder’s option, at a 50% discount of the
lowest trading price of the common stock during the 25 trading day period prior to conversion. At any time after the closing date,
if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions
on this note. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased
an additional 15% discount while the “Chill” is in effect. For the year ended December 31, 2018, the Company amortized
$12,318 of debt discount to current period operations as interest expense. As of year ended December 31, 2018, the gross balance
of the note was $125,000 and accrued interest was $1,110.
Coolidge
Capital, LLC
– On May 21, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase
Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to the Purchaser
a Convertible Promissory Note (the “Note”) in the aggregate amount of $75,000. The total net proceeds the Company
received was $70,500 (less an original issue discount (“OID”) of $4,500). The Note has a maturity date of February
21, 2019 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 variable conversion price is 61% (39% discount) of the market price. Market price is the
average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this
note of $4,500 which will be amortized over the life of the note. On October 31, 2018, the Company paid $101,250 to pay off the
principal balance of $75,000 and $26,250 in accrued interest and prepayment penalty. For the year ended December 31, 2018, the
Company amortized $4,500 of debt discount to current period operations as interest expense. As of December 31, 2018, the gross
balance of the note was $0 and accrued interest was $0.
Coolidge
Capital, LLC
– On November 7, 2018, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to
the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $75,000. The total net proceeds
the Company received was $70,500 (less an original issue discount (“OID”) of $4,500). The Note has a maturity date
of August 7, 2019 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 variable conversion price is 61% (39% discount) of the market price. Market
price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount
on this note of $4,500 which will be amortized over the life of the note. For the year ended December 31, 2018, the Company amortized
$890 of debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the note
was $75,000 and accrued interest was $1,332.
Crossover
Capital Fund II, LLC
– On November 30, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $110,500 (the “Note”)
due on August 30, 2018 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $100,000
(less an original issue discount (“OID”) of $10,500). 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.
On May 23, 2018, the Company paid $157,777 to pay off the principal balance of $110,500 and $47,277 in accrued interest and prepayment
penalty. For the year ended December 31, 2018, the Company amortized $97,952 of debt discount to current period operations as
interest expense. As of December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
Crossover
Capital Fund II, LLC
– On July 10, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $82,894 (the “Note”)
due on April 10, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $75,000
(less an original issue discount (“OID”) of $7,894). 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.
In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional
10% discount while the “Chill” is in effect. For the year ended December 31, 2018, the Company amortized $52,641 of
debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $82,894
and accrued interest was $4,742.
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. The Company issued 100,000
warrants to purchase shares of common stock.in connection with this note. The warrants have a five year life and an exercise price
of $0.75 per share. On January 24, 2018, the Company paid $74,623 to pay off the principal balance of $50,000 and $24,623 in accrued
interest and prepayment penalty. For the year ended December 31, 2018, the Company amortized $30,411 of debt discount to current
period operations as interest expense. As of December 31, 2018, the gross balance of the note was $0 and accrued interest was
$0.
Crown
Bridge Partners
– On May 11, 2018, 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 May
11, 2019 and bears 5% 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. At any time after the closing
date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future
conversions on this note. The Company issued 100,000 warrants to purchase shares of common stock.in connection with this note.
The warrants have a five year life and an exercise price of $0.75 per share. On October 24, 2018, the Company paid $73,651 to
pay off the principal balance of $50,000 and $23,651 in accrued interest and prepayment penalty. For the year ended December 31,
2018, the Company amortized $50,000 of debt discount to current period operations as interest expense. As of December 31, 2018,
the gross balance of the note was $0 and accrued interest was $0.
Crown
Bridge Partners
– On October 25, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $55,000 (the “Note”) due on May
11, 2019 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $47,000 (less an original
issue discount (“OID”) of $8,000). 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. If the conversion price
drops below $0.15 per share, then the conversion price will be 50% of the trading price. The Company issued 100,000 warrants to
purchase shares of common stock.in connection with this note. The warrants have a five year life and an exercise price of $0.75
per share. For the year ended December 31, 2018, the Company amortized $10,096 of debt discount to current period operations as
interest expense. As of December 31, 2018, the gross balance of the note was $55,000 and accrued interest was $505.
Selling
Shareholder
– On August 2, 2018, the Company issued
an unsecured Convertible Promissory Note (“Note”) to the Selling Shareholder, in the principal amount of $150,000
(the “Note”) due on August 2, 2020 and bears 10% (24% default) per annum interest, due at maturity. The total net
proceeds the Company received was $150,000. 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. If at any time while the
note is outstanding, an event of default occurs, then an additional discount of 10% shall be factored into the variable conversion
price until the note is no longer outstanding. For the year ended December 31, 2018, the Company amortized $30,985 of debt discount
to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $150,000 and accrued
interest was $6,205.
Eagle
Equities, LLC
– On December 12, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $63,000 (the “Note”) due on December
12, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $60,000 (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. On June 5, 2018, the Company
paid $91,564 to pay off the principal balance of $63,000 and $28,564 in accrued interest and prepayment penalty. For the year
ended December 31, 2018, the Company amortized $59,721 of debt discount to current period operations as interest expense. As of
December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
Eagle
Equities, LLC
– On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $103,000 (the “Note”) due on June 8,
2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (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. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. On December 7, 2018, the Company paid $149,826 to pay off the principal balance of $103,000
and $46,826 in accrued interest and prepayment penalty. For the year ended December 31, 2018, the Company amortized $103,000 of
debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $0
and accrued interest was $0.
Eagle
Equities, LLC
– On December 12, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $103,000 (the “Note”) due on December
12, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (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. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the year ended December 31, 2018, the Company amortized $5,362 of debt discount to current
period operations as interest expense. As of December 31, 2018, the gross balance of the note was $103,000 and accrued interest
was $429.
EMA
Financial
– On December 5, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to
EMA Financial, in the principal amount of $112,000 (the “Note”) due on December 5, 2018 and bears 12% per annum interest,
due at maturity. The total net proceeds the Company received was $100,800 (less an original issue discount (“OID”)
of $11,200). 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. However, if the Company’s share price at any time
loses the bid, then the conversion price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion
price of $0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the conversion
shares to the Holder, or any date thereafter while conversion shares are held by the Holder, the closing bid price per share of
common stock on the principal market on the trading day on which the common shares are traded is less than the sale price used
to calculate the conversion price, then such conversion price shall be automatically reduced using the new low closing bid price
and additional shares issued to the Holder. In the event the Company experiences a DTC “Chill” on its shares, or if
the closing sale price at any time falls below $0.145, then the conversion price shall be decreased an additional 15% discount.
At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 5% discount
will apply to all future conversions on this note. On June 4, 2018, the Company paid $160,080 to pay off the principal balance
of $112,000 and $48,080 in accrued interest and prepayment penalty. For the year ended December 31, 2018, the Company amortized
$104,022 of debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the
note was $0 and accrued interest was $0.
EMA
Financial
– On October 23, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
EMA Financial, in the principal amount of $75,000 (the “Note”) due on July 23, 2019 and bears 12% per annum interest,
due at maturity. The total net proceeds the Company received was $67,500 (less an original issue discount (“OID”)
of $7,500). 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. However, if the Company’s share price at any time
loses the bid, then the conversion price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion
price of $0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the conversion
shares to the Holder, or any date thereafter while conversion shares are held by the Holder, the closing bid price per share of
common stock on the principal market on the trading day on which the common shares are traded is less than the sale price used
to calculate the conversion price, then such conversion price shall be automatically reduced using the new low closing bid price
and additional shares issued to the Holder. In the event the Company experiences a DTC “Chill” on its shares, or if
the closing sale price at any time falls below $0.047, then the conversion price shall be decreased an additional 15% discount.
At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 15% discount
will apply to all future conversions on this note. For the year ended December 31, 2018, the Company amortized $18,956 of debt
discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $75,000
and accrued interest was $1,701.
GS
Capital Partners
– On February 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on February
1, 2019 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). The Note is convertible into common stock, at holder’s option, at a 42% discount
of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. On July 30, 2018, the Company paid $107,156 to pay off the principal balance of $80,000
and $27,156 in accrued interest and prepayment penalty. For the year ended December 31, 2018, the Company amortized $80,000 of
debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $0
and accrued interest was $0.
GS
Capital Partners
– On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on June 8,
2019 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). The Note is convertible into common stock, at holder’s option, at a 42% discount
of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. On December 4, 2018, the Company paid $107,174 to pay off the principal balance of $80,000
and $27,174 in accrued interest and prepayment penalty. For the year ended December 31, 2018, the Company amortized $80,000 of
debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $0
and accrued interest was $0.
GS
Capital Partners
– On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on August
1, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original
issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount
of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the year ended December 31, 2018, the Company amortized $41,043 of debt discount to
current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $100,000 and accrued
interest was $3,332.
GS
Capital Partners
– On November 28, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $200,000 (the “Note”) due on November
28, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $190,000 (less an original
issue discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 42%
discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the
Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount
while the “Chill” is in effect. For the year ended December 31, 2018, the Company amortized $18,082 of debt discount
to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $200,000 and accrued
interest was $1,447.
JSJ
Investments
– On January 24, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to JSJ Investments (“JSJ”), in the principal amount of $60,000 (the “Note”) due on January 24, 2019 and
bears 12% per annum interest (default interest increases to 18% while default continues), due at maturity. The total net proceeds
the Company received was $58,000 (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. On May 18, 2018, the Company paid $83,111 to pay off the principal balance of $60,000 and $23,111
in accrued interest and prepayment penalty. For the year ended December 31, 2018, the Company amortized $60,000 of debt discount
to current period operations as interest expense. As of December 31, 2018, the gross balance of the note was $0 and accrued interest
was $0.
JSJ
Investments
– On May 16, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to JSJ
Investments (“JSJ”), in the principal amount of $128,000 (the “Note”) due on May 16, 2019 and bears 12%
per annum interest, due at maturity. The total net proceeds the Company received was $125,000 (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. On November 13, 2018, the Company
paid $173,933 to pay off the principal balance of $128,000 and $45,933 in accrued interest and prepayment penalty. For the year
ended December 31, 2018, the Company amortized $128,000 of debt discount to current period operations as interest expense. As
of December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
JSJ
Investments
– On November 9, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to JSJ Investments (“JSJ”), in the principal amount of $100,000 (the “Note”) due on November 9, 2019 and
bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $98,000 (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 year ended December
31, 2018, the Company amortized $14,247 of debt discount to current period operations as interest expense. As of December 31,
2018, the gross balance of the note was $100,000 and accrued interest was $1,710.
Labrys
Fund LP –
On May 25, 2018, 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 $114,500. The Note has a maturity date
of November 25, 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 total net proceeds the Company received was
$100,000 (less an original issue discount (“OID”) of $14,500). 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 May 25, 2018. In connection with the issuance of the Note, the Company issued to the Purchaser 316,298 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 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. The Default Note Conversion Price is a 45% discount of the lowest trading
price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a DTC “Chill”
on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions. The Company issued
55,250 shares of common stock in connection with this note, which were valued at $10,498 and recorded as part of the debt discount.
The Company recognized a debt discount on this note of $40,121 which will be amortized over the life of the note. On October 31,
2018, the Company paid $125,484 to pay off the principal balance of $114,500 and $10,984 in accrued interest and prepayment penalty.
For the year ended December 31, 2018, the Company amortized $40,121 of debt discount to current period operations as interest
expense. As of December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
Labrys
Fund LP –
On October 26, 2018, 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 $300,000. The Note has a maturity date
of April 26, 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 total net proceeds the Company received was
$270,000 (less an original issue discount (“OID”) of $30,000). 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 October 26, 2018. In connection with the issuance of the Note, the Company issued to the Purchaser 1,362,398 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 Issue Date into shares of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.11 as set forth in the Note, subject
to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest
trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a
DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions.
The Company issued 235,000 shares of common stock in connection with this note, which were valued at $28,200 and recorded as part
of the debt discount. The Company recognized a debt discount on this note of $85,473 which will be amortized over the life of
the note. For the year ended December 31, 2018, the Company amortized $30,996 of debt discount to current period operations as
interest expense. As of December 31, 2018, the gross balance of the note was $300,000 and accrued interest was $6,510.
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. On March 9, 2018, the Company
paid $76,400 to pay off the principal balance of $52,500 and $23,900 in accrued interest and prepayment penalty. For the year
ended December 31, 2018, the Company amortized $35,959 of debt discount to current period operations as interest expense. As of
December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
LG
Capital Funding
– On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to LG Capital Funding (“LG Cap”), in the principal amount of $75,000 (the “Note”) due on June 8, 2019
and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $71,250 (less an original issue
discount (“OID”) of $3,750). 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. On December 3, 2018, the
Company paid $103,045 to pay off the principal balance of $75,000 and $28,045 in accrued interest and prepayment penalty. For
the year ended December 31, 2018, the Company amortized $3,750 of debt discount to current period operations as interest expense.
As of December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
LG
Capital Funding
– On December 7, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to LG Capital Funding (“LG Cap”), in the principal amount of $100,000 (the “Note”) due on December 7,
2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $85,000 (less an original
issue discount (“OID”) of $15,000). The Note is convertible into common stock, at holder’s option, for the first
6 months at a fixed price of $0.18 per share and after that date at a 40% discount of the lowest trading price of the common stock
during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares,
the conversion price shall be decreased an additional 10% discount on all future conversions. The Company issued 39,473 shares
of common stock in connection with this note, which were valued at $7,500 and recorded as part of the debt discount. The Company
recognized a debt discount on this note of $22,500 which will be amortized over the life of the note. For the year ended December
31, 2018, the Company amortized $1,479 of debt discount to current period operations as interest expense. As of December 31, 2018,
the gross balance of the note was $100,000 and accrued interest was $658.
Morningview
Financial
– On November 26, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Morningview Financial (“Morningview”), in the principal amount of $55,000 (the “Note”) due on November
26, 2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $47,500 (less an original
issue discount (“OID”) of $7,500). 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 year ended December
31, 2018, the Company amortized $5,274 of debt discount to current period operations as interest expense. As of December 31, 2018,
the gross balance of the note was $55,000 and accrued interest was $527.
Power
Up Lending Group
– 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 total net proceeds
the Company received was $32,000 (less an original issue discount (“OID”) of $3,000). 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 fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price.
Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt
discount on this note of $3,000 which will be amortized over the life of the note. On January 31, 2018, the Company paid $49,767
to pay off the principal balance of $35,000 and $14,767 in accrued interest and prepayment penalty. For the year ended December
31, 2018, the Company amortized $1,579 of debt discount to current period operations as interest expense. As of December 31, 2018,
the gross balance of the note was $0 and accrued interest was $0.
On
December 5, 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 $63,000. The total net proceeds the Company received was $60,000
(less an original issue discount (“OID”) of $3,000). The Note has a maturity date of September 15, 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
fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the
average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this
note of $3,000 which will be amortized over the life of the note. On June 5, 2018, the Company paid $89,943 to pay off the principal
balance of $63,000 and $26,943 in accrued interest and prepayment penalty. For the year ended December 31, 2018, the Company amortized
$2,725 of debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of the note
was $0 and accrued interest was $0.
On
February 1, 2018, 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 $43,000. The total net proceeds the Company received was $40,000
(less an original issue discount (“OID”) of $3,000). The Note has a maturity date of November 15, 2018 and the Company
has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest
per annum) 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 fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price.
Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt
discount on this note of $3,000 which will be amortized over the life of the note. On July 12, 2018, the Company paid $60,531
to pay off the principal balance of $43,000 and $17,531 in accrued interest and prepayment penalty. For the year ended December
31, 2018, the Company amortized $3,000 of debt discount to current period operations as interest expense. As of December 31, 2018,
the gross balance of the note was $0 and accrued interest was $0.
On
June 5, 2018, 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 $63,000. The total net proceeds the Company received was $60,000
(less an original issue discount (“OID”) of $3,000). The Note has a maturity date of March 30, 2019 and the Company
has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest
per annum) 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 fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price.
Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt
discount on this note of $3,000 which will be amortized over the life of the note. On October 22, 2018, the Company paid $86,824
to pay off the principal balance of $63,000 and $23,824 in accrued interest and prepayment penalty. For the year ended December
31, 2018, the Company amortized $3,000 of debt discount to current period operations as interest expense. As of December 31, 2018,
the gross balance of the note was $0 and accrued interest was $0.
On
July 12, 2018, 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 $53,000. The total net proceeds the Company received was $50,000
(less an original issue discount (“OID”) of $3,000). The Note has a maturity date of April 30, 2019 and the Company
has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest
per annum) 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 fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price.
Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt
discount on this note of $3,000 which will be amortized over the life of the note. For the year ended December 31, 2018, the Company
amortized $1,767 of debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance
of the note was $53,000 and accrued interest was $2,997.
On
October 22, 2018, 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 $63,000. The total net proceeds the Company received was $60,000
(less an original issue discount (“OID”) of $3,000). The Note has a maturity date of July 30, 2019 and the Company
has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest
per annum) 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 fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price.
Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt
discount on this note of $3,000 which will be amortized over the life of the note. For the year ended December 31, 2018, the Company
amortized $747 of debt discount to current period operations as interest expense. As of December 31, 2018, the gross balance of
the note was $63,000 and accrued interest was $1,450.
SBI
Investments
– On December 17, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to SBI Investments, LLC (“SBI”), in the principal amount of $110,000 (the “Note”) due on June 17, 2019
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue
discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 50% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. At any time after the closing
date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future
conversions on this note. If at any time while the note is outstanding, an event of default occurs, then an additional discount
of 15% shall be factored into the variable conversion price until the note is no longer outstanding. For the year ended December
31, 2018, the Company amortized $8,462 of debt discount to current period operations as interest expense. As of December 31, 2018,
the gross balance of the note was $110,000 and accrued interest was $338.
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. On February 9, 2018, the
Company paid $77,030 to pay off the principal balance of $53,000 and $24,030 in accrued interest and prepayment penalty. For the
year ended December 31, 2018, the Company amortized $34,268 of debt discount to current period operations as interest expense.
As of December 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
13.
Stockholders’ Deficit
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. 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.
On
January 1, 2018, 760,000 shares of common stock were issued to officers, former officers and members of the board of directors
of the Company as payment for consulting services performed. These shares were valued at $0.2846 per share for a value of $216,296.
On
March 30, 2018, 20,000 shares of common stock were issued to a former officers and members of the board of directors of the Company
as part of a settlement agreement. These shares were valued at $0.2846 per share for a value of $5,692.
On
January 30, 2018, the Company issued 250,000 shares of common stock for $27,500 in cash. These shares were valued at $0.11 per
share.
On
March 30, 2018, the Company issued 36,385 shares for services performed per a consulting agreement in 2015. These shares were
valued and expensed based on quoted market prices at that time. These shares had never been issued.
On
May 25, 2018, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 55,250 shares
of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.19 per share for a total
value of $10,498.
On
May 27, 2018, the Company entered into a Settlement Agreement with a consultant through which the consultant agreed to return
36,364 shares of common stock to the Company. The 36,364 shares were returned to the Company and were immediately cancelled.
On
June 28, 2018, the Company issued 100,000 shares of common stock to Justin Wilson per a consulting agreement. These shares were
payment for services and were valued at $0.1601 per share for a total value of $16,010.
On
July 3, 2018, 100,000 shares of common stock were issued to a member of the board of directors of the Company as part of a settlement
agreement for consulting services. These shares were valued at $0.1601 per share for a value of $16,010. The Company recognized
a loss on this settlement of $8,510 and reduced payables by $7,500.
On
July 18, 2018, the Company issued 200,000 shares of common stock for $14,500 in cash. These shares were valued at $0.725 per share.
On
September 24, 2018, the Company entered into a Settlement Agreement with a consultant through which the consultant agreed to return
450,000 shares of common stock to the Company. The 450,000 shares were returned to the Company and were immediately cancelled.
On
September 28, 2018, 600,000 shares of common stock were issued to officers, former officers and members of the board of directors
of the Company as payment for consulting services performed. These shares were valued at $0.1891 per share for a value of $113,460.
On
October 26, 2018, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 235,000
shares of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.12 per share for
a total value of $28,200.
On
December 7, 2018, in connection with the issuance of the Note to LG Capital Funding, LLC, the Company issued to the Note Purchaser
39,473 shares of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.19 per share
for a total value of $7,499.
Warrants
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 year ended December 31, 2017, 34,048 three year warrants expired without being exercised. These warrants had an exercise price
of $4.95.
On
January 1, 2018, the Company issued 100,000 warrants associated with the issuance of a convertible note payable to Crown Bridge
Partners, LLC. The warrants have a five year life and are exercisable at $0.75 per share.
On
May 11, 2018, the Company issued 100,000 warrants associated with the issuance of a convertible note payable to Crown Bridge Partners,
LLC. The warrants have a five year life and are exercisable at $0.75 per share.
On
October 25, 2018, the Company issued 100,000 warrants associated with the issuance of a convertible note payable to Crown Bridge
Partners, LLC. The warrants have a five year life and are exercisable at $0.75 per share.
The
following tables summarize the warrant activity during the years ended December 31, 2018 and 2017:
Stock
Warrants
|
|
Number
of Warrants
|
|
|
Weighted
Average Exercise Price
|
|
Balance at December 31, 2016
|
|
|
277,685
|
|
|
$
|
3.08
|
|
Granted
|
|
|
500,000
|
|
|
|
0.70
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(34,048
|
)
|
|
|
4.95
|
|
Balance at December 31, 2017
|
|
|
743,637
|
|
|
|
1.28
|
|
Granted
|
|
|
300,000
|
|
|
|
0.75
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2018
|
|
|
1,043,637
|
|
|
$
|
1.12
|
|
2018
Outstanding Warrants
|
|
|
Warrants
Exercisable
|
|
Range
of
Exercise
Price
|
|
|
Number
Outstanding at
December 31, 2018
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable at
December 31, 2018
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.50
- 6.88
|
|
|
|
1,043,637
|
|
|
|
1.62
years
|
|
|
$
|
1.12
|
|
|
|
1,043,637
|
|
|
$
|
1.12
|
|
14.
Net Loss Per Common Share
Basic
earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of
shares of common stock outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could
occur if stock options, warrants, and convertible securities to issue common stock were exercised or converted into common stock,
if not anti-dilutive. The following is a reconciliation of the numerator and denominator used in the basic and diluted computation
of net income per share:
|
|
Year
Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(5,627,050
|
)
|
|
$
|
(3,384,527
|
)
|
Non-Controlling
Interest
|
|
|
1,036
|
|
|
|
369
|
|
Loss available
to Controlling Shareholders
|
|
$
|
(5,626,014
|
)
|
|
$
|
(3,384,158
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic Weighted Average Shares Outstanding
|
|
|
53,501,213
|
|
|
|
51,635,405
|
|
Effect of Dilutive
Securities
|
|
|
-
|
|
|
|
-
|
|
Diluted Weighted Average Shares
Outstanding
|
|
|
53,501,213
|
|
|
|
51,635,405
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
15.
Income Taxes
The
Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The
provision for income tax expense (recovery) is comprised the following amounts:
|
|
2018
|
|
|
2017
|
|
Expected income tax (recovery)
expense at the statutory rate of 34%
|
|
$
|
(1,913,197
|
)
|
|
$
|
(1,150,739
|
)
|
Tax effect of expenses that are not
deductible for tax purposes (net of other amounts deductible for tax purposes)
|
|
|
1,971
|
|
|
|
2,166
|
|
Change in valuation
allowance
|
|
|
1,911,226
|
|
|
|
1,148,573
|
|
Provision for
income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
components of deferred income tax in the accompanying balance sheets are as follows:
Deferred
income tax asset:
|
|
2018
|
|
|
2017
|
|
Net
operating loss carry-forwards
|
|
$
|
7,277,496
|
|
|
$
|
4,562,365
|
|
Section
195 Startup Costs
|
|
|
1,393,346
|
|
|
|
1,393,346
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
Debt
Discount
|
|
|
(859,485
|
)
|
|
|
(245,244
|
)
|
Derivative
Liability
|
|
|
(333,051
|
)
|
|
|
(143,387
|
)
|
Mineral
Property
|
|
|
-
|
|
|
|
-
|
|
Valuation
allowance
|
|
|
(7,478,306
|
)
|
|
|
(5,567,080
|
)
|
Deferred
income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of December 31, 2018 and December 31, 2017, the Company had net operating loss carryforwards for U.S. federal income tax purposes
of approximately $7,277,500 and $4,562,000 million, respectively. A portion of the federal amount, $1,710,000, is subject to an
annual limitation of approximately $17,000 as a result of a change in the Company’s ownership through February 2013, as
defined by Federal Internal Revenue Code Section 382 and the related income tax regulations. As a result of the 20-year federal
carryforward period and the limitation, approximately, $1,400,000 of the net operating loss will expire unutilized. These net
operating loss carry-forwards will expire through the year ending 2038.
The
valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized.
This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to
utilize all of the net operating loss carry-forwards before they will expire through the year 2038.
The
Company is subject to income tax in the U.S. federal jurisdiction. The Company has not been audited by the U.S. Internal Revenue
Service in connection with income taxes. The Company’s tax years beginning with the year ended June 30, 2011 through December
31, 2018 generally remain open to examination by the Internal Revenue Service until its net operating loss carryforwards are utilized
and the applicable statutes of limitation have expired.
16.
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. This agreement was renegotiated in October 2017 and the Company agreed to pay
the stockholder/director $25,000 per month starting in October 2017. This agreement was superseded by an Employment Agreement
as of July 1, 2018 (see Employment Agreements below). As of December 31, 2018, the Company owed $1,035,000 to the stockholder/director
in accrued consulting fees.
Employment
Agreements
– Effective as of December 31, 2017, the Company entered into a Settlement Agreement with Michael Ahlin through
which he agreed to receive 20,000 shares of common stock in exchange for waiving all amounts owed by the Company.
Mr.
Cluff currently serves as a director of the Company and has a separate agreement as a consultant of the Company effective as of
October 2, 2015.
The
Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The employment agreement was effective
as of July 1, 2018 and provides for compensation of $450,000 annually. Additionally, the employment agreement provides for equity
compensation to be issued valued at $5,000 per month and an optional annual bonus of up to $4,500,000 to be determined by the
Board of Directors.
Notes
Payable –
The Company took several short-term notes payable from related parties during 2017. The Company received $1,813,200
in cash from related parties and paid out $2,550,006 in cash to related parties on notes payable.
17.
Commitments and Contingencies
Litigation
The
Company at times is subject to other legal proceedings that arise in the ordinary course of business. The following is a summary
of pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations of
the Company.
On
January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami
(“Bertolami”) in the United States District Court for the Western District of North Carolina, Statesville Division.
This matter was dismissed for lack of personal jurisdiction in an Order and Judgment dated March 28, 2018.
On
June 12, 2017, Danzig Ltd, filed an arbitration in Boston, Massachusetts, with the American Arbitration Association (AAA) against
the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). Messrs. D’Ambrosio and Ahlin
were dismissed on the ground that they were not proper parties to the Arbitration. A hearing occurred the week of April 9, 2018.
On October 24, 2018, a Final Award was issued dismissing all claims asserted by Danzig against Inception and awarding Inception
$361,710.74 in fees and costs.
On
July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and two if its officers
and directors (Trent D’Ambrosio and Michael Ahlin). On November 16, 2018, Order No. 7 Dismissing Claims of Claimant [Foxcroft]
with Prejudice Under AAA Rule 57, and Granting Motion to Dismiss [Inception’s] Counterclaims without Prejudice was entered.
This concluded this arbitration as the claims asserted by Foxcroft against Inception were dismissed with prejudice, and Inception’s
claims were dismissed without prejudice.
On
August 22, 2017, the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin) filed a complaint
against Danzig Ltd., Elliott Foxcroft, and Brett Bertolami in the United States District Court, District of Utah, Central Division.
On November 29, 2018 the United States District Court for the District of Utah entered an order denying Inception’s motion
to dismiss Defendants’ Counterclaim but required the Defendants (Danzig, ltd, Bertalomi, and Foxcroft) to file a more definite
statement of their claims by December 14, 2018. The ordered filing was not made and Inception filed another motion to dismiss.
The dismissal of the counterclaim with prejudice was entered on January 15, 2019. A final Amended Judgment in a Civil Case was
entered in the case on February 13, 2019 which also included confirmation of the order and award entered in the Boston and Salt
Lake arbitrations, respectively.
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 was heard
in Honduras by a labor judge and the Company has appealed the ruling in this case.
In
the opinion of management, as of December 31, 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.
18.
Concentrations
We
generally sell a significant portion of our mineral production to a relatively small number of customers. For the year ended December
31, 2018, most 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 December 31, 2018. 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.
19.
Subsequent Events
Management
has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through April 1, 2019,
the date which the consolidated financial statements were available to be issued and there are no material subsequent events,
except as noted below.
On January 14, 2019, 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 $282,000. The Note has a maturity date of July 14, 2019 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 total net proceeds the Company received was $253,800 (less an original issue discount (“OID”) of $28,200).
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 January 14, 2019. In connection with the issuance of the Note,
the Company issued to the Purchaser 1,000,000 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 Issue Date
into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion
price of $0.11 as set forth in the Note, subject to adjustment as set forth in the Note if the Note is in Default. The Default
Note Conversion Price is a 45% discount of the lowest trading price of the common stock during the 30 trading day period prior
to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased
an additional 15% discount on all future conversions. The Company issued 130,000 shares of common stock in connection with this
note as commitment shares.
25,846,154 shares of common stock
DEALER PROSPECTUS
DELIVERY OBLIGATION
Until October 21,
2019, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
July 24, 2019