PART
I
ITEM
1. BUSINESS
As
used in this Annual Report on Form 10-K, unless otherwise indicated, the terms “we,” “us,” “our”
and “the Company” refer to Inception Mining, Inc., a Nevada corporation.
Forward-Looking
Statements and Associated Risks. This Annual Report on Form 10-K contains forward-looking statements. Such forward-looking
statements include statements regarding, among other things, (1) discussions about mineral resources and mineralized material,
(2) our projected sales and profitability, (3) our growth strategies, (4) anticipated trends in our industry, (5) our future financing
plans, (6) our anticipated needs for working capital, (7) our lack of operational experience and (8) the benefits related to ownership
of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations,
are generally identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend,” or “project” or the
negative of these words or other variations on these words or comparable terminology. These statements constitute forward-looking
statements. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results,
performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied
by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” as well as in this filing generally. Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined
under Item 1A below and other risks and matters described in this filing and in our other SEC filings. In light of these risks
and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur as
projected. We do not undertake any obligation to update any forward-looking statements.
The
Company
Overview
We
are a mining company that was formed in Nevada on July 2, 2007. As a mining company, we are engaged in the production of precious
metals. Our activities are not limited to production and they also include production, acquisition, exploration, and development
of mineral properties, primarily for gold, from an owned mining property in Honduras. During 2019, Inception Mining had two projects,
the UP and Burlington mine and the Clavo Rico mine, as further described below. Our target properties are those that have been
the subject of historical exploration. We have generated revenue and are generating revenue from mining operations.
Clavo
Rico Mine
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. Its workings include several historical underground mining 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. de R.L. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest
and later increased its ownership to 99.9%. This company has since invested over five million dollars in the expansion and development
of the mine and surrounding properties. Today, the Company operates this mine through exploration of surface-level material.
Mining
operations begin by crushing extracted material to approximately 3/8-inch size pebbles, which is then mixed with additional material
and loaded on the recovery pad for processing. The pebble material is sprinkled with a solution that leaches the gold from the
rock, and the solution is collected and processed on-site at Clavo Rico’s own ADR plant. The doré bars that result
from this process are shipped to the USA for refining.
Prior
to the expansion, the mine had only been processing approximately less than 500 tons of extracted material per day. The current
recovery operational increase has been sized to handle from 500 to 750 tons of extracted material per day on a recovery bed that
has the capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012 and believes
that sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity by the end
of September 30, 2020.
The
Company has engaged in preliminary drilling of this area and the resulting assays of samples indicate that the material should
have grades in the range of 0-5 grams of gold per ton.
UP
and Burlington Gold Mine
On
February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the UP and Burlington Gold Mine (“UP and Burlington”). Discovered in 1892, UP and Burlington is a private
gold property that has been held unused in a family trust for the past 75 years. UP and Burlington is located in Lemhi County,
Northwest of Salmon, Idaho, at an elevation of 7,994 feet. UP and Burlington’s two gold mining claims were brought to patent
in 1900, which covers the Mine’s 40 acres.
On
February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange
for $250,000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian
company.
Competition
and Mineral Prices
We
compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities,
personnel and financial resources. There is a limited supply of desirable mineral lands available for claim-staking, lease or
acquisition in the United States and other areas where we may conduct exploration activities. Because we compete with individuals
and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage in acquiring
desirable mineral properties. From time to time, specific properties or areas that would otherwise be attractive to us for exploration
or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial resources. Competition
in the mining industry is not limited to the acquisition of mineral properties but also extends to the technical expertise to
find, advance, and operate such properties; the labor to operate the properties; and the capital needed to fund the acquisition
and operation of such properties. Competition may result in our company being unable not only to acquire desired properties, but
to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration activities or to acquire
the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these
resources would have a material adverse effect on our results of operation and business. The mineral exploration industry is highly
fragmented, and we are a very small participant in this sector. Many of our competitors explore for a variety of minerals and
control many different properties around the world. Many of them have been in business longer than we have and have established
strategic partnerships and relationships and have greater financial resources than we do.
There
is significant competition for properties suitable for gold exploration. As a result, we may be unable to continue to acquire
interests in attractive properties on terms that we consider acceptable. We will be subject to competition and unforeseen limited
sources of supplies in the industry in the event spot shortages arise for supplies such as dynamite, and certain equipment such
as drill rigs, bulldozers and excavators that we will need to conduct exploration. If we are unsuccessful in securing the products,
equipment and services we need we may have to suspend our exploration plans until we are able to secure them.
Market
for Gold
Wholesale
purchasers for the gold we mine are readily available, as many purchasers of precious metals exist in the United States and abroad.
Among the largest are Handy & Harman, Engelhard Industries and Johnson Matthey, Ltd. Historically, these markets are liquid
and volatile. Wholesale purchase prices for precious metals can be affected by a number of factors, all of which are beyond our
control, including but not limited to:
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fluctuation
in the supply of, demand, and market price for gold;
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mining
activities of our competitors;
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sale
or purchase of gold by central banks and for investment purposes by individuals and financial institutions;
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interest
rates;
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currency
exchange rates;
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inflation
or deflation;
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fluctuation
in the value of the United States dollar and other currencies; and
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political
and economic conditions of major gold or other mineral-producing countries.
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If
we find gold that is deemed of economic grade and in sufficient quantities to justify removal, we may seek additional capital
through equity or debt financing to build a mine and processing facility, or enter into joint venture or other arrangements with
large and more experienced companies better able to fund ongoing exploration and development work, or find some other entity to
mine our property on our behalf, or sell or lease our rights to mine the gold. Upon mining, the ore would be processed through
a series of steps that produces a rough concentrate. This rough concentrate is then sold to refiners and smelters for the value
of the minerals that it contains, less the cost of further concentrating, refining and smelting. Refiners and smelters then sell
the gold on the open market through brokers who work for wholesalers including the major wholesalers listed above.
Compliance
with Government Regulation
Mining
Operations
CLAVO
RICO (Honduras, Central America)
The
mining operations in Honduras are governed by the national entities Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry
of Natural Resources and Environment (SERNA). The Clavo Rico mine has operated under a grandfathered concession granted many years
ago and has now complied with all regulatory requirements of the above agencies and the recently adopted Honduran Mining laws
(The General Mining Law was approved by Legislative Decree No. 238-2012, dated January 23, 2013), including employee health and
safety regulations, Environmental requirements, water discharge requirements, and potential reclamation requirements. As the above
ministries have only limited operational experience and the new mining law has only recently been adopted, the interpretation,
adoption and enforcement of many regulations are evolving. Other local ordinances (municipality of El Corpus) minor and most regulatory
efforts are as a result of interaction between the mine and the local populace, (examples include use of the mine haul road for
local traffic, restricting mine operations to daylight hours for noise considerations, watering for dust control, etc.) where
no regulation or law exists, we have attempted to duplicate best practices as required in other business climates.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
Environmental
Laws
Mining
activities at the Company’s properties are also subject to various environmental laws, both federal and state, including
but not limited to the federal National Environmental Policy Act, CERCLA (as defined below), the Resource Recovery and Conservation
Act, the Clean Water Act, the Clean Air Act and the Endangered Species Act, and certain Idaho state laws governing the discharge
of pollutants and the use and discharge of water. Various permits from federal and state agencies are required under many of these
laws. Local laws and ordinances may also apply to such activities as construction of facilities, land use, waste disposal, road
use and noise levels.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), imposes strict, joint, and
several liabilities on parties associated with releases or threats of releases of hazardous substances. Liable parties include,
among others, the current owners and operators of facilities at which hazardous substances were disposed or released into the
environment and past owners and operators of properties who owned such properties at the time of such disposal or release. This
liability could include response costs for removing or remediating the release and damages to natural resources. Our properties,
because of past mining activities, could give rise to potential liability under CERCLA.
Under
the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies may incur costs for generating, transporting,
treating, storing, or disposing of hazardous or solid wastes associated with certain mining-related activities. RCRA costs may
also include corrective action or cleanup costs.
Mining
operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, such as crushers
and storage facilities, and from mobile sources such as trucks and heavy construction equipment. All of these sources are subject
to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality laws.
Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in order
to comply with the permitting conditions.
Under
the federal Clean Water Act and the delegated Colorado water-quality program, point-source discharges into waters of the State
are regulated by the National Pollution Discharge Elimination System (NPDES) program. Storm water discharges also are regulated
and permitted under that statute. Section 404 of the Clean Water Act regulates the discharge of dredge and fill material into
Waters of the United States, including wetlands. All of those programs may impose permitting and other requirements on our operations.
The
National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of major federal actions. The federal
action requirement must be satisfied if the project involves federal land or if the federal government provides financing or permitting
approvals. NEPA does not establish any substantive standards, but requires the analysis of any potential impacts. The scope of
the assessment process depends on the size of the project. An Environmental Assessment (EA) may be adequate for smaller projects.
An Environmental Impact Statement (EIS), which is much more detailed and broader in scope than an EA, is required for larger projects.
NEPA compliance requirements for any of our proposed projects could result in additional costs or delays.
The
Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S. Department of Interior. The purpose
of the ESA is to conserve and recover listed endangered and threatened species and their habitat. Under the ESA, endangered means
that a species is in danger of extinction throughout all or a significant portion of its range. The term threatened under such
statute means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful to take
a listed species, which can include harassing or harming members of such species or significantly modifying their habitat. Future
identification of endangered species or habitat in our project areas may delay or adversely affect our operations.
U.S.
federal and state reclamation requirements often mandate concurrent reclamation and require permitting in addition to the posting
of reclamation bonds, letters of credit or other financial assurance sufficient to guarantee the cost of reclamation. If reclamation
obligations are not met, the designated agency could draw on these bonds or letters of credit to fund expenditures for reclamation
requirements. Reclamation requirements generally include stabilizing, contouring and re-vegetating disturbed lands, controlling
drainage from portals and waste rock dumps, removing roads and structures, neutralizing or removing process solutions, monitoring
groundwater at the mining site, and maintaining visual aesthetics.
Capital
Equipment and Research & Development Expenditures
During
the year ended December 31, 2019, we did not incur any expense related to research and development. Additionally, we are not currently
conducting any research and development activities other than those relating to the possible acquisition of new gold and/or silver
properties or projects of which there is no guarantee. As we proceed with our exploration programs, we may need to engage additional
contractors and consider the possibility of adding additional permanent employees, as well as the possible purchase or lease of
equipment.
Employees
As
of the date of this filing, we currently employ ninety-nine (99) full-time employees and generally around twelve (12) temporary
employees in the United States and Honduras. We have contracts with various independent contractors and consultants to fulfill
additional needs, including investor relations, exploration, development, permitting, and other administrative functions, and
may staff further with employees as we expand activities and bring new projects on line.
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts
We
do not currently own any patents or trademarks. Also, we are not a party to any license or franchise agreements, concessions,
or labor contracts arising from any patents or trademarks, or any royalty agreements.
Company
Information
The
public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov. Further information about the
Company may be found at its website: www.inceptionmining.com. The Company makes available its filings to investors, free of charge,
on this website.
Reports
to Security Holders
You
may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. You may also find all the reports that we have filed electronically with the SEC at their Internet site www.sec.gov.
ITEM
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. You should consider carefully the following risks, along with all
of the other information included in this report, before deciding to buy our common stock. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial may also impair our business operations. If we are unable
to prevent events that have a negative effect from occurring, then our business may suffer.
RISKS
RELATED TO OUR COMPANY
We
have incurred losses since our inception in 2007 and may never be profitable, which raises doubt about our ability to continue
as a going concern.
Since
our inception in 2007 and until the Merger in 2015, we had nominal operations and incurred operating losses. As of December 31,
2019, our accumulated deficit since inception was $28,984,217. We have substantial current obligations and at December 31, 2019,
we had $22,331,953 of current liabilities compared to only $935,467 of current assets. Since inception, we have been able to raise
only minimal additional capital, and we have minimal cash on hand. Accordingly, the Company does not have sufficient cash resources
or current assets to pay its current obligations, and we have been meeting many of our obligations through the issuance of our
common stock to our employees, consultants and advisors as payment for the goods and services.
Our
management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions
along with the substantial turmoil in the capital and credit markets, there is a significant possibility that we will be unable
to obtain financing to continue our operations.
These
circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph
to our independent registered public accounting firm’s report on our audited financial statements as of and for the year
ended December 31, 2019. If we are unable to continue as a going concern, investors will likely lose all of their investment in
our company.
We
have a limited operating history.
As
an early stage company that has made acquisitions in only the past several years, we are subject to all the risks inherent in
the initial organization, financing, expenditures, complications, and delays inherent in a new business. Investors should evaluate
an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. Our business
is dependent upon the implementation of our business plan. There can be no assurance that our efforts will be successful or that
we will ultimately be able to attain profitability. Additionally, the Company’s merger with the operating foreign entity
was based on a review of all historical data and potential revenue streams and resources as could be ascertained from the submission
of documents and a thorough review of all data made available. We believe the materials to be accurate and have attempted to discount
the valuations due to perceived risks of foreign operations and the tasks of incorporating a non-public operating entity into
Inception Mining Inc.
Exploring
for gold is an inherently speculative business.
Natural
resource exploration, and exploring for gold in particular, is a business that by its nature is very speculative. Unusual or unexpected
geological formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins,
landslides, and the inability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved
in mineral exploration programs and the subsequent development of gold deposits. At our Clavo Rico mine, the resources may become
scarce or more difficult to obtain.
We
will require significant additional capital to continue our exploration activities, and, if warranted, to develop mining operations.
We
will be required to raise significantly more capital in order to fund our Clavo Rico operations. Our ability to obtain necessary
funding depends upon a number of factors, including the price of gold, base metals, and other minerals we are able to mine, the
status of the national and worldwide economy, and the availability of funds in the capital markets. If we are unable to obtain
the required financing in the near future for these or other purposes, our exploration activities would be delayed or indefinitely
postponed, we would likely may lose our lease and options to acquire an ownership interest in UP and Burlington and be unable
to fund our operations at the Clavo Rico mine in Honduras. This would likely lead to failure of our Company. Even if financing
is available, it may be on terms that are not favorable to us, in which case, our ability to become profitable or to continue
operating would be adversely affected. If we are unable to raise funds, the market value of our securities will likely decline,
and our investors may lose some or all of their investment.
The
global financial conditions may have an impact on our business and financial condition in ways that we currently cannot predict.
The
continued pressure on commodities markets and related turmoil in the global financial system may have an impact on our business
and financial position. The recent high costs of consumables may negatively impact costs of our operations. In addition, current
financial market conditions may limit our ability to raise capital through credit and equity markets. As discussed further below,
the prices of the metals that we may produce are affected by a number of factors, and it is unknown how these factors will be
impacted by a continuation of the financial crisis.
Fluctuating
gold and mineral prices could negatively impact our business plan.
The
potential for profitability of our gold and mineral mining operations and the value of any mining properties we may acquire will
be directly related to the market price of gold and minerals that we mine. Historically, gold and other mineral prices have widely
fluctuated, and are influenced by a wide variety of factors, including inflation, currency fluctuations, regional and global demand,
and political and economic conditions. Fluctuations in the price of gold and other minerals that we mine may have a significant
influence on the market price of our common stock and a prolonged decline in these prices will have a negative effect on our results
of operations and financial condition.
Our
business is subject to extensive environmental regulations which may make exploring for or mining prohibitively expensive, and
which may change at any time.
All
of our operations are subject to extensive environmental regulations, which could make exploration expensive or prohibit it altogether.
We may be subject to potential liabilities associated with the pollution of the environment and the disposal of waste products
that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental
pollution, which may reduce the amount of money that we have available to use for exploration. This may adversely affect our financial
position, which may cause you to lose your investment. If we are unable to fully remedy an environmental problem, we might be
required to suspend operations or to enter into interim compliance measures pending the completion of the required remedy. If
a decision is made to mine our properties and we retain any operational responsibility for doing so, our potential exposure for
remediation may be significant, and this may have a material adverse effect upon our business and financial position. We have
not yet purchased insurance for potential environmental risks (including potential liability for pollution or other hazards associated
with the disposal of waste products from our exploration activities). However, if we mine one or more of our properties and retain
operational responsibility for mining, then such insurance may not be available to us on reasonable terms or at a reasonable price.
All of our exploration and, if warranted, development activities may be subject to regulation under one or more local, state and
federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations
and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion of our
business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited
to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch as posting
of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits,
increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental
laws.
We
may be denied the government licenses and permits which we need to explore on our properties. In the event that we discover commercially
exploitable deposits, we may be denied the additional government licenses and permits which we will need to mine our properties.
Exploration
activities usually require the granting of permits from various governmental agencies. Depending on the size, location and scope
of the exploration program, additional permits may also be required before exploration activities can be undertaken. Prehistoric
or Indian grave yards, threatened or endangered species, archeological sites or the possibility thereof, difficult access, excessive
dust and important nearby water resources may all result in the need for additional permits before exploration activities can
commence. As with all permitting processes, there is the risk that unexpected delays and excessive costs may be experienced in
obtaining required permits. The needed permits may not be granted at all. Delays in or our inability to obtain necessary permits
will result in unanticipated costs, which may result in serious adverse effects upon our business.
The
values of our properties are subject to volatility in the price of gold and any other deposits we may seek or locate.
Our
ability to obtain additional and continuing funding, and our profitability in the event we ever commence mining operations or
sell our rights to mine, will be significantly affected by changes in the market price of gold. Further, the gold deposits that
are recovered from our Clavo Rico mine will also be subject to the volatility in the price of gold. Gold prices fluctuate widely
and are affected by numerous factors, all of which are beyond our control. Some of these factors include the sale or purchase
of gold by central banks and financial institutions; interest rates; currency exchange rates; inflation or deflation; fluctuation
in the value of the United States dollar and other currencies; speculation; global and regional supply and demand, including investment,
industrial and jewelry demand; and the political and economic conditions of major gold or other mineral producing countries throughout
the world, such as Russia and South Africa. The price of gold or other minerals have fluctuated widely in recent years, and a
decline in the price of gold could cause a significant decrease in the value of our properties, limit our ability to raise money,
and render continued exploration and development of our properties impracticable. If that happens, then we could lose our rights
to our properties and be compelled to sell some or all of these rights. Additionally, the future development of our properties
beyond the exploration stage is heavily dependent upon the level of gold prices remaining sufficiently high to make the development
of our properties economically viable. You may lose your investment if the price of gold decreases. The greater the decrease in
the price of gold, the more likely it is that you will lose money.
Honduran
mining operations have increased exposure.
Sustaining
foreign mining operations, such as those in Honduras, comes with increased uncertainty, due to less stable governments, political
interruptions, volatility in taxes and fees, implementation of new laws and regulations, and more. The effect of this exposure
can lead to closure of operations, nationalization, and strikes, all of which are beyond the company’s control. Granting
and maintaining concessions is highly subject to political whim and maintaining the concessions is subject to a number of factors
and variables beyond the company’s control. We do not currently insure against these interruptions but have chosen to structure
our operations to minimize exposure to capital assets by subcontracting major areas of work, and to otherwise keep our financial
exposure limited even at the expense of operation costs and our bottom line.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and other financial risks.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and with increasing taxes and fees associated with
importing of necessary goods, equipment and services not adequately found in country and with exporting of the finished gold doré.
Recent enactment of the Honduran mining laws has helped stabilize the fees, but continual review by the various government operations,
and central bank subject the historical operations to review and could impact our ability to export on a timely basis and/or face
possible fines etc. associated with repatriation of past revenues, etc.
Possible
amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.
The
U.S. Congress has considered proposals to amend the General Mining Law of 1872 that would have, among other things, permanently
banned the sale of public land for mining. The proposed amendment would have expanded the environmental regulations to which we
might be subject and would have given Indian tribes the ability to hinder or prohibit mining operations near tribal lands. The
proposed amendment would also have imposed a royalty of 8% of gross revenue on new mining operations located on federal public
land, which might have applied to our future properties. The proposed amendment would have made it more expensive or perhaps too
expensive to recover any otherwise commercially exploitable gold deposits which we might find on our future properties. While
at this time the proposed amendment is no longer pending, this or similar changes to the law in the future could have a significant
impact on our business model.
Market
forces or unforeseen developments may prevent us from obtaining the supplies and equipment necessary to explore for gold and other
resources.
Gold
exploration, and resource exploration in general, demands contractors available for such work, and unforeseen shortages of supplies
and/or equipment could result in the disruption of our planned exploration activities. Current demand for exploration drilling
services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled
times for our exploration program. Fuel prices are extremely volatile as well. We will attempt to locate suitable equipment, materials,
manpower and fuel if sufficient funds are available. If we cannot find the equipment and supplies needed for our various exploration
programs, we may have to suspend some or all of them until equipment, supplies, funds and/or skilled manpower become available.
Any such disruption in our activities may adversely affect our exploration activities and financial condition.
We
may not be able to maintain the infrastructure necessary to conduct exploration activities.
Our
exploration activities depend upon adequate infrastructure. Reliable roads, bridges, power sources, and water supply are important
factors that affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference
in the maintenance or provision of such infrastructure could adversely affect our exploration activities and financial condition.
Our
exploration activities may be adversely affected by the local climates, which could prevent or impair us from exploring our properties
year-round.
The
local climate in our area of operations may impair or prevent us from conducting exploration activities on our properties year
round. Because of its rural location and limited infrastructure in this area, our property is generally impassible for several
weeks each year as a result of significant rain or snow events. Earthquakes, heavy rains, snowstorms, and floods could result
in serious damage to or the destruction of facilities, equipment or means of access to our properties, or may otherwise prevent
us from conducting exploration activities on our properties.
We
do not currently carry any property or casualty insurance.
Our
business is subject to a number of risks and hazards generally, including but not limited to, adverse environmental conditions,
industrial accidents, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory
environment, and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result
in damage to our properties, equipment, infrastructure, personal injury or death, environmental damage, delays, monetary losses
and possible legal liability. You could lose all or part of your investment if any such catastrophic event occurs. We do not carry
any property or casualty insurance at this time (but we will carry all insurances that we are required to by law, such as motor
vehicle and workers’ compensation, plus other coverage that may be in the best interest of the Company). Even if we do obtain
insurance, it may not cover all of the risks associated with our operations. Insurance against risks such as environmental pollution
or other hazards as a result of exploration and operations are often not available to us or to other companies in our business
on acceptable terms. Should any events against which we are not insured actually occur, we may become subject to substantial losses,
costs and liabilities, which will adversely affect our financial condition.
Reclamation
obligations could require significant additional expenditures.
We
are responsible for the reclamation obligations related to any exploratory and mining activities. The satisfaction of current
and future bonding requirements and reclamation obligations will require a significant amount of capital. There is a risk we will
be unable to fund these additional bonding requirements, and further, increases to our bonding requirements or excessive actual
reclamation costs will negatively affect our financial position and results of operation.
Title
to mineral properties can be uncertain, and we are at risk of loss of ownership of our property.
Our
ability to explore and mine future leased and optioned properties depends on the validity of title to that property. These uncertainties
relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory
guidelines, assessment work and possible conflicts with other claims not determinable from descriptions of record. Since a substantial
portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty
is inherent in the mining industry. Thus, there may be challenges to the title to future properties, which, if successful, could
impair development and/or operations.
The
probability of a mining claim having the necessary quantity and quality to result in a profitable mining operation is uncertain,
and our claims, even with large investments by us, may never generate a profit.
We
are dependent upon the successful exploration of our mining property and the discovery of valuable mineralization on the property.
All anticipated future revenues would come directly or indirectly from the UP and Burlington and Clavo Rico projects. Should we
fail to locate economically extractable mineralization on our property or enter into an agreement to option and sell our interests
to some other mining operation, we will have no revenue and our business will fail.
Our
ongoing operations and past mining activities of others are subject to environmental risks, which could expose us to significant
liability and delay, suspension or termination of our operations.
Mining
exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws
regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations
mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations
on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities
are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating
the design and use of exploration methods and equipment.
Environmental
and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which
will require stricter standards and enforcement, and increased fines and penalties for non-compliance. Such changes may prevent
us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business.
Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus
causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that
we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental
hazards may exist on UP and Burlington and/or on Clavo Rico, or we may acquire properties in the future that have unknown environmental
issues caused by previous owners or operators, or that may have occurred naturally.
We
could be exposed to significant liability for violations of hazardous substances laws because of the use or presence of such substances
at our project.
Our
mining operations are subject to numerous federal, state, and local statutory and regulatory standards relating to the use, storage,
and disposal of hazardous substances. We use cyanide, propane and industrial lubricants and other substances at our mining locations,
which are or could become classified as hazardous substances. If it is discovered that any hazardous substances have been released
into the environment at or by the project in concentrations that exceed regulatory limits, we could become liable for the investigation
and removal of those substances, regardless of their source and time of release. If we fail to comply with these laws, ordinances
or regulations (or any change thereto), we could be subject to civil or criminal liability, the imposition of liens or fines,
and large expenditures to bring the project into compliance. Furthermore, we may be held liable for the cleanup of releases of
hazardous substances at other locations where we arranged for disposal of those substances, even if we did not cause the release
at that location. The cost of any remediation activities in connection with a spill or other release of such substances could
be significant.
Our
industry is highly competitive, attractive mineral lands are scarce, and we may not be able to obtain quality properties.
We
compete with many companies in the mining industry, including large, established mining companies with capabilities, personnel
and financial resources that far exceed our limited resources. In addition, there is a limited supply of desirable mineral lands
available for claim-staking, lease or acquisition in the United States, and other areas where we may conduct exploration activities.
We are at a competitive disadvantage in acquiring mineral properties, since we compete with these larger individuals and companies,
many of which have greater financial resources and larger technical staffs. Likewise, our competition extends to locating and
employing competent personnel and contractors to prospect, develop and operate mining properties. Many of our competitors can
offer attractive compensation packages that we may not be able to meet. Such competition may result in our company being unable
not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund
our operation and advance our properties. Our inability to compete with other companies for these resources would have a material
adverse effect on our results of operation and business.
We
depend on our Chief Executive Officer and Chief Financial Officer and the loss of these individuals could adversely affect our
business.
Our
company is completely dependent on Trent D’ Ambrosio, our Chief Executive Officer and Chief Financial Officer. Mr. D’
Ambrosio is also a member of our Board of Directors. The loss of Mr. D’ Ambrosio could significantly and adversely affect
our business and could even result in a complete failure of the Company. We do not carry any life insurance on the life of Mr.
D’ Ambrosio.
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses
that could materially and adversely affect our operations.
Exploration
for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result
in the discovery of economically feasible mineralization. Few properties that are explored are ultimately advanced to the stage
of producing mines. We are subject to all of the operating hazards and risks normally incident to exploring for and developing
mineral properties such as, but not limited to:
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economically
insufficient mineralized material;
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fluctuations
in production costs that may make mining uneconomical;
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labor
disputes;
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unanticipated
variations in grade and other geologic problems;
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environmental
hazards;
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water
conditions;
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difficult
surface or underground conditions;
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industrial
accidents, such as personal injury, fire, flooding, cave-ins, and landslides;
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metallurgical
and other processing problems;
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mechanical
and equipment performance problems; and
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decreases
in revenues and reserves due to lower gold and mineral prices.
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Any
of these risks can materially and adversely affect, among other things, the development of properties, production quantities and
rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these
risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we
would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts
spent that are not recoverable.
Our
operations are subject to permitting requirements that could require us to delay, suspend or terminate our operations on our mining
property.
Our
operations and exploration activities require permits from the local, state and federal governments. We may be unable to obtain
these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if
there is a delay in receiving these permits, our timetable and business plan for Inception will be adversely affected.
Mineral
deposit estimates are imprecise and subject to error.
Mineral
deposit estimation calculations may prove unreliable. Assumptions made regarding the supporting data may prove inaccurate and
unforeseen events may lead to further inaccuracies. Sample variability, mining and processing adjustments, environmental changes,
metal price fluctuations, and law and regulation changes are all factors that could lead to deviances from any original estimations.
Despite future investment in exploration activities, there is no guarantee we will locate additional commercially viable ore deposits
or reserves. Most exploration projects do not result in discovery of commercially viable and mineable ore deposits. With little
capital available, we will have to limit our exploration, which decreases the chances of finding a commercially viable ore body.
Even if potentially promising mineralization is identified at UP and Burlington, we may choose to not begin production due to
high extraction costs, low gold prices, or inadequate amount and reduced recovery rates. Further, we may cease our production
operations at Clavo Rico due to high extraction costs, low gold prices, or inadequate amount and reduced recovery rates. If exploration
activities do not suggest a commercially successful prospect, then we may altogether abandon plans to pursue efforts to further
develop these properties.
Historical
production of gold at Clavo Rico may not be indicative of the potential for future development or revenue.
Historical
production of gold and minerals from Clavo Rico cannot be relied upon as an indication that these mines will have commercially
feasible reserves. Investors in our securities should not rely on historical operations of Clavo Rico as an indication that we
will be able to place them into commercial production again. We expect to incur losses unless and until such time as the properties
enter into commercial production and generate sufficient revenue to fund our continuing operations.
Our
independent auditors have expressed substantial doubt about our ability to continue as a going concern.
In
their audit opinion issued in connection with our consolidated balance sheets as of December 31, 2019 and our related consolidated
statements of operations, deficiency in stockholders’ deficit, and cash flows for the year ended December 31, 2019, our
auditors have expressed substantial doubt about our ability to continue as a going concern given our recurring net losses, negative
cash flows from operations and the limited amount of funds on our balance sheet. We have prepared our financial statements on
a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The consolidated financial statements do not include any adjustments that might be necessary should
we be unable to continue in existence. This could make it more difficult to raise capital in the future.
Risks
Associated with Our Common Stock
Trading
on the Over the Counter markets may be volatile and sporadic, which could depress the market price of our common stock and make
it difficult for our stockholders to resell their shares.
Our
common stock is quoted on the OTCQB tier of the over-the-counter markets administered by OTC Markets Group, Inc. under the symbol
“IMII”. Trading in stock quoted on over the counter markets is often thin, volatile, and characterized by wide fluctuations
in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could
depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the over the counter markets
are not a stock exchange, and trading of securities on the over the counter markets is often more sporadic than the trading of
securities listed on other stock exchanges such as the NASDAQ Stock Market, New York Stock Exchange or American Stock Exchange.
Accordingly, our shareholders may have difficulty reselling any of their shares.
Our
stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the FINRA’s
sales practice requirements, which may limit a stockholders’ ability to buy and sell our stock.
Our
stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has
a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions
with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction and monthly account statements showing the market value of each penny stock held in the customers’ account.
The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability or willingness of broker-dealers to trade our securities. We believe that the penny
stock rules discourage broker-dealer and investor interest in, and limit the marketability of, our common stock.
Our
common stock may be affected by limited trading volume and price fluctuation which could adversely impact the value of our common
stock.
There
has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will
either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price
and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance.
In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy
or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations
may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot
predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be
stable or appreciate over time.
FINRA
sales practice requirements may also limit a stockholders’ ability to buy and sell our stock.
In
addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA
rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that
the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’ s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high
probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and
sell our stock and have an adverse effect on the market value for our shares.
Because
the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling
to trade our securities. This means that you may have difficulty reselling your shares, which may cause the value of your investment
to decline.
Our
shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange
Act”) which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or
in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written
agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices,
it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your
shares and may cause the value of your investment to decline.
A
decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our
ability to continue operations and we may go out of business.
A
prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction
in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct
our planned operations through the sale of equity securities, or convertible debt instruments, a decline in the price of our common
stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest
in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds
from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability
to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we
may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the
sale of our common stock and we may be forced to go out of business.
Our
stock price may be volatile.
The
stock market in general has experienced volatility that often has been unrelated to the operating performance of any specific
public company. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response
to various factors, many of which are beyond our control, including the following:
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changes
in our industry;
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competitive
pricing pressures;
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our
ability to obtain working capital financing;
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additions
or departures of key personnel;
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limited
“public float” in the hands of a small number of persons whose sales or lack of sales could result in positive
or negative pricing pressure on the market prices of our common stock;
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sales
of our common stock;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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loss
of any strategic relationship;
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regulatory
developments;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial results.
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In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our common stock.
We
have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.
We
have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future.
Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from
operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may
also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and
payment of dividends will be at the discretion of our Board of Directors.
We
have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited
protections against interested director transactions, conflicts of interest and similar matters.
Recent
federal legislation, including the Sarbanes-Oxley Act of 2002 and the Jumpstart our Business Startups Act of 2012, among others,
has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management
and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted
by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures that are required under the rules of national securities
exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption
of a code of ethics. While our Board of Directors has adopted a Code of Ethics and Business Conduct, we have not yet adopted any
of these corporate governance measures and, since our securities are not listed on a national securities exchange or NASDAQ, we
are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders
would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and
that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation
committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages
to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in
the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures
in formulating their investment decisions.
Difficulties
we may encounter managing our growth could adversely affect our results of operations.
As
our business needs expand, we may need to hire a significant number of employees. This expansion may place a significant strain
on our managerial and financial resources. To manage the potential growth of our operations and personnel, we will be required
to:
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improve
existing, and implement new, operational, financial and management controls, reporting systems and procedures;
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install
enhanced management information systems; and
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train,
motivate, and manage our employees.
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We
may not be able to install adequate management information and control systems in an efficient and timely manner, and our current
or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable
to manage growth effectively, our business would be seriously harmed.
If
we lose key personnel or are unable to attract and retain additional qualified personnel, we may not be able to successfully manage
our business and achieve our objectives.
We
believe our future success will depend upon our ability to retain our key management, primarily Mr. D’ Ambrosio, our Chief
Executive Officer and Chief Financial Officer. We may not be successful in attracting, assimilating and retaining our employees
in the future.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If
our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding
period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence
of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional
financing through the sale of equity or equity related securities in the future at a time and price that we deem reasonable or
appropriate.
ITEM
2: PROPERTIES
UP
and Burlington Gold Mine, Salmon, Lemhi County, Idaho
On
February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the UP and Burlington Gold Mine (“UP and Burlington”). Discovered in 1892, UP and Burlington is a private
gold property that has been held unused in a family trust for the past 75 years. UP and Burlington is located in Lemhi County,
Northwest of Salmon, Idaho, at an elevation of 7,994 feet. UP and Burlington’s two gold mining claims were brought to patent
in 1900, which covers the Mine’s 40 acres.
On
February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange
for $250.000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian
company.
Clavo
Rico Gold Mine, Honduras, Central America
On
October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held
Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession
through its subsidiary Compañía Minera Cerros del Sur, S.A de C.V. Its workings include several historical underground
mining operations dating back to the early Mayan and Spanish occupation.
The
Company’s primary mine is a surface operation, 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 99.5%. This company has since invested over five million dollars in the expansion and development
of the mine and surrounding properties. Today, the Company operates this mine through exploration of surface-level material.
Prior
to the expansion of the Mine, the mine had only been processing approximately less than 500 tons of extracted material per day.
The current recovery operational increase has been sized to handle from 500 to 750 tons of extracted material per day on a recovery
bed that has the capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012
and believes that sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity
by the end of June 30, 2020.
At
this property and during the period covered under this Annual Report, the Company extracted 103,787 tons of material through surface
operations, with an average grade of 2.17 grams of gold per ton. After processing this material using the on-site leach pad, the
Company produced 3,697 ounces of gold for a gold recovery percentage of 54.75% and 79 ounces of silver for refining, for a silver
recovery percentage of 37.86%.
The
Company utilizes four distinct properties located at the Clavo Rico Concession: the main Clavo Rico property, where extraction,
leaching, and processing occurs, and the Modesto, Loli, and Juan Carlos Williams properties, which are used as extraction sites.
The Modesto location was acquired by the Company pursuant to a real estate purchase agreement in March 2016. The Company is permitted
access to the Loli and Juan Carlos Williams properties pursuant to informal oral agreements.
Clavo
Rico as located in Honduras.
The
Clavo Rico Concession in relation to the town of El Corpus.
Parcels
of the Clavo Rico Concession that are currently explored or otherwise used by the Company.
The
current water supply utilized at the mine is from rain water. During the rainy season (October through February), the Company
captures and stores water in on-site collection ponds. The power supply is from the Honduran power grid, although the Company
maintains generators on site in the event of loss of power supply or inconsistent power supply.
Other
Projects
The
Company had previously disclosed exploration in the Northern Nevada Rift through a partner. Any exploration in these areas has
ceased and the Company has no plans to pursue exploration in this area at this time.
Corporate
Headquarters
We
currently maintain our corporate offices at 5330 South 900 East, Suite 280, Murray, Utah 84117. During the year ended December
31, 2019, we paid monthly rent of approximately $1,000 for use of a corporate office.
ITEM
3. LEGAL PROCEEDINGS
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.
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.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable as the Company conducts no active mining operations in the U.S. or its territories.
Notes
to Consolidated Financial Statements
As
of December 31, 2019 and 2018
1.
Nature of Business
Inception
Mining, Inc. (formerly known as Gold American Mining Corp.) was incorporated under the name of Golf Alliance Corporation and under
the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. is a precious metal mineral acquisition, exploration and
development company. Inception Development, Inc., its wholly owned subsidiary, was incorporated under the laws of the State of
Idaho on January 28, 2013.
Golf
Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally
closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided
to redirect its business focus toward precious metal mineral acquisition and exploration.
On
March 5, 2010, the Company amended its articles of incorporation to (1) to change its name to Silver America, Inc. and (2) increased
its authorized common stock from 100,000,000 to 500,000,000.
On
June 23, 2010 the Company amended its articles of incorporation to change its name to Gold American Mining Corp.
On
November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder
canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was
effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse
stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock
split as if it occurred on the first day of the first period presented.
On
February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly-owned
subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset
Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to
which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception,
the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an
entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under
common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell
company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior
to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the
Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently,
the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.
On
May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception”
or the “Company”).
On
October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held
Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession
through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico,
S.A. de C.V. and holds other mining concessions. Pursuant to the agreement, the Company issued of 240,225,901 shares of common
stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger
agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo
Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early
Mayan and Spanish occupation.
On
January 11, 2016, the Company implemented a 5.5 to 1 reverse stock split. This reverse stock split was effective on May 26, 2016.
All share and per share references have been retroactively adjusted to reflect this 5.5 to 1 reverse stock split in the financial
statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on
the first day of the first period presented. Immediately before the Reverse Split, the Company had 266,669,980 shares of common
stock outstanding. Immediately after the Reverse Split, the Company had 48,485,451 shares of common stock outstanding, pending
fractional-share rounding-up calculations to adjust for the Reverse Split.
The
Company’s primary mine is located on the 200 hectare Clavo Rico Concession, located in southern Honduras. This mine was
originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by 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, 2019, the Company recorded net loss of $6,973,968 and used $429,845 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, 2019 and December 31, 2018, 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 122,123,227 have been excluded in the diluted income per share calculation for 2019 because they would be
anti-dilutive. 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.
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, 2019 and 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.
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 $13,637 and $13,891 for the year ended December 31, 2019 and 2018.
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.
Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories,
stockpiles and mineralized materials on leach pads at December 31, 2019 and 2018 consisted of the following:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Supplies
|
|
$
|
62,912
|
|
|
$
|
87,231
|
|
Mineralized Material on Leach Pads
|
|
|
201,407
|
|
|
|
247,213
|
|
ADR Plant
|
|
|
92,404
|
|
|
|
40,642
|
|
Finished Ore
|
|
|
498,346
|
|
|
|
195,528
|
|
Total Inventories
|
|
$
|
855,069
|
|
|
$
|
570,614
|
|
There
were no stockpiles at December 31, 2019 and 2018. 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.
4.
Derivative Financial Instruments
The
Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets
and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market
in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such
as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The
derivative liability as of December 31, 2019, in the amount of $4,983,107 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, 2019 and 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
|
|
|
5,095,389
|
|
Change in fair value of derivative liabilities
and warrant liability
|
|
|
(2,397,289
|
)
|
Transfers to
permanent equity upon conversion of note payable
|
|
|
(262,799
|
)
|
Balance, December 31, 2019
|
|
$
|
4,983,107
|
|
Net gain for
the period included in earnings relating to the liabilities held at December 31, 2019
|
|
$
|
2,379,289
|
|
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
December 31, 2019, the Company marked to market the fair value of the debt derivatives and determined a fair value of $4,971,378.
The Company recorded a gain from change in fair value of debt derivatives of $2,372,438 for the year ended December 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 225.30% to 256.89%, (3) weighted average risk-free interest rate of 1.58%
to 1.59% (4) expected life of 1.39 to 2.03 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
December 31, 2019 and 2018, the Company had a warrant liability of $11,729 and $36,580, respectively. The Company recorded a gain
from change in fair value of warrant liability of $24,851 and $26,171 for the years ended December 31, 2019 and 2018, respectively.
5.
Properties, Plant and Equipment, Net
Properties,
plant and equipment at December 31, 2019 and 2018 consisted of the following:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Land
|
|
$
|
267,471
|
|
|
$
|
270,736
|
|
Buildings
|
|
|
2,337,775
|
|
|
|
2,366,323
|
|
Machinery and Equipment
|
|
|
946,777
|
|
|
|
956,669
|
|
Office Equipment and Furniture
|
|
|
42,191
|
|
|
|
42,311
|
|
Vehicles
|
|
|
84,105
|
|
|
|
85,132
|
|
Construction
in Process
|
|
|
7,487
|
|
|
|
11,277
|
|
|
|
|
3,685,806
|
|
|
|
3,732,448
|
|
Less Accumulated
Depreciation
|
|
|
(3,242,458
|
)
|
|
|
(3,068,407
|
)
|
Total Property,
Plant and Equipment
|
|
$
|
443,348
|
|
|
$
|
664,041
|
|
During
the years ended December 31, 2019 and 2018, the Company recognized depreciation expense of $212,006 and $225,395, respectively.
The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative
expenses.
Depreciation
Allocation
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Cost of Goods Sold
|
|
$
|
176,288
|
|
|
$
|
187,158
|
|
General and Administrative
|
|
|
35,718
|
|
|
|
38,237
|
|
Total
|
|
$
|
212,006
|
|
|
$
|
225,395
|
|
6.
Mine Reclamation Liability
The
Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and re-vegetating various
portions of our site after mining and mineral processing operations are completed. These reclamation efforts are conducted in
accordance with plans reviewed and approved by the appropriate regulatory agencies.
The
fair value of the long-term liability of $513,051 and $341,845 as of December 31, 2019 and 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 liability for information indicating that our assumptions should change.
The
increase in the reclamation liability in 2019 was related to the expansion of the heap leach facility and related infrastructure
and accretion. The decrease in 2018 was due to the foreign currency translation rate.
Changes
to the asset retirement obligation were as follows:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Balance, Beginning of Year
|
|
$
|
341,845
|
|
|
$
|
352,713
|
|
Liabilities incurred
|
|
|
171,206
|
|
|
|
(10,868
|
)
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
Balance, End
of Year
|
|
$
|
513,051
|
|
|
$
|
341,845
|
|
7.
Accounts Payable and Accrued Liabilities
Accounts
Payable and accrued liabilities at December 31, 2019 and 2018 consisted of the following:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Accounts Payable
|
|
$
|
750,529
|
|
|
$
|
558,749
|
|
Accrued Liabilities
|
|
|
530,779
|
|
|
|
394,017
|
|
Accrued Salaries and Benefits
|
|
|
507,043
|
|
|
|
410,930
|
|
Advances Payable
|
|
|
403,995
|
|
|
|
268,301
|
|
Total Accrued
Liabilities
|
|
$
|
2,192,346
|
|
|
$
|
1,631,997
|
|
8.
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.
On
June 26, 2019, the Company entered into four new financing arrangements with third parties for a combined principal amount of
$247,571. 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 $24,757, for a total expected remittance of $272,328. The maturity date of the notes is June 25, 2020.
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, 2019, the Company held 35 ounces
of gold, valued at a cost of $49,257, to satisfy the liabilities upon maturity leaving a net obligation of $211,066, which is
recorded on the Company’s balance sheet as secured borrowings.
Secured
Borrowings
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Secured obligations
|
|
$
|
247,571
|
|
|
$
|
225,005
|
|
Guaranteed interest
|
|
|
24,757
|
|
|
|
22,500
|
|
Deferred interest
|
|
|
(12,005
|
)
|
|
|
(10,881
|
)
|
|
|
|
260,323
|
|
|
|
236,624
|
|
Gold held as
security
|
|
|
(49,257
|
)
|
|
|
(19,401
|
)
|
Secured Borrowings,
net
|
|
$
|
211,066
|
|
|
$
|
217,223
|
|
9.
Notes Payable
Notes
payable were comprised of the following as of December 31, 2019 and December 31, 2018:
Notes
Payable
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Phil
Zobrist
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Total Notes Payable
|
|
$
|
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, 2019. 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,
2019, the gross balance of the note was $60,000 and accrued interest was $75,304.
10.
Notes Payable – Related Parties
Notes
payable – related parties were comprised of the following as of December 31, 2019 and December 31, 2018:
Notes
Payable - Related Parties
|
|
Relationship
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Clavo
Rico, Incorporated
|
|
Affiliate - Controlled by
Director
|
|
$
|
3,377,980
|
|
|
$
|
-
|
|
Claymore Management
|
|
Affiliate - Controlled by Director
|
|
|
185,000
|
|
|
|
185,000
|
|
Debra D’ambrosio
|
|
Immediate Family Member
|
|
|
57,000
|
|
|
|
-
|
|
Diamond 80, LLC
|
|
Immediate Family Member
|
|
|
-
|
|
|
|
49,000
|
|
Francis E. Rich IRA
|
|
Immediate Family Member
|
|
|
100,000
|
|
|
|
100,000
|
|
GAIA Ltd
|
|
Affiliate - Controlled by Director
|
|
|
-
|
|
|
|
1,150,000
|
|
Legends Capital
|
|
Affiliate - Controlled by Director
|
|
|
755,000
|
|
|
|
765,000
|
|
LWB Irrev Trust
|
|
Affiliate - Controlled by Director
|
|
|
1,101,000
|
|
|
|
1,101,000
|
|
MDL Ventures
|
|
Affiliate - Controlled by Director
|
|
|
1,305,236
|
|
|
|
1,204,677
|
|
Silverbrook Corporation
|
|
Affiliate - Controlled by Director
|
|
|
-
|
|
|
|
2,227,980
|
|
WOC Energy LLC
|
|
Affiliate - Controlled
by Director
|
|
|
40,000
|
|
|
|
40,000
|
|
Total Notes Payable
- Related Parties
|
|
|
|
$
|
6,921,216
|
|
|
$
|
6,822,657
|
|
Clavo
Rico, Incorporated – On April 5, 2019, GAIA Ltd and Silverbrook Corporation assigned 100% of the outstanding principal
balance of their notes and all accrued interest to Clavo Rico, Incorporated. The GAIA Ltd and Silverbrook Corporation notes had
been extended until December 31, 2019 and bear 18% per annum interest. As of December 31, 2019, the gross balance of the notes
were $3,377,980 and accrued interest was $4,517,807.
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, 2019. 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,
2019, the gross balance of the note was $185,000 and accrued interest was $292,858.
D.
D’Ambrosio – On January 4, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $125,000 (the “Note”) due on February 5, 2019 and bears a 5.00% interest rate. The Company
made a payment of $131,250 towards the principal balance and accrued interest of $6,250 on February 13, 2019. As of December 31,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On February 19, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $100,000 (the “Note”) due on March 19, 2019 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 8, 2019. As of December 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On March 14, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $100,000 (the “Note”) due on April 30, 2019 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 April 5, 2019. As of December 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On April 9, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $122,000 (the “Note”) due on May 30, 2019 and bears a 5.00% interest rate. The Company
made a payment of $128,100 towards the principal balance and accrued interest of $6,100 on May 21, 2019. As of December 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On June 14, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $182,000 (the “Note”) due on July 5, 2019 and bears a 5.00% interest rate. The Company
made a payment of $191,100 towards the principal balance and accrued interest of $9,100 on May 21, 2019. As of December 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On July 12, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $150,000 (the “Note”) due on August 12, 2019 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 on July 25, 2019. As of December 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On November 7, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $160,000 (the “Note”) due on December 5, 2019 and bears a 5.00% interest rate. The Company
made a payment of $168,000 towards the principal balance and accrued interest of $8,000 on November 27, 2019. As of December 31,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On November 29, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $152,000 (the “Note”) due on December 15, 2019 and bears a 5.00% interest rate. The Company
made a payment of $159,600 towards the principal balance and accrued interest of $7,600 on December 12, 2019. As of December 31,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On December 12, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $150,000 (the “Note”) due on December 31, 2019 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 on December 27, 2019. As of December 31,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On December 30, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $57,000 (the “Note”) due on January 30, 2020 and bears a 5.00% interest rate. As of December
31, 2019, the outstanding balance of the Note was $57,000 and accrued interest was $2,850.
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 December 31, 2018 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 September 30, 2018. The Company made a payment
of $49,000 towards the principal balance on May 21, 2019. As of December 31, 2019, the outstanding balance of the Note was $0
and accrued interest was $36,700.
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 February 14, 2020 and bears a 15.0% semi-annual interest rate.
As of December 31, 2019, the outstanding balance of the Note was $100,000 and accrued interest was $11,425.
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, 2019. 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. On April 5, 2019, the entire outstanding balance of $1,150,000 and accrued interest was assigned to Clavo Rico,
Incorporated. As of December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
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, 2019. 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. On November 29, 2019, the Company made a payment of $10,000 towards the outstanding
principal balance. As of December 31, 2019, the gross balance of the note was $755,000 and accrued interest was $1,089,685.
Legends
Capital Group – On May 16, 2017, the Company issued an unsecured Short-Term Promissory Note to Legends Capital Group
in the principal amount of $100,000 (the “Note”) due on September 15, 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. On May 21, 2019, the Company paid the remaining interest balance
of $7,000. As of December 31, 2019, the outstanding balance of the Note was $0 and accrued interest was $0.
LW
Briggs Irrevocable Trust – Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes
to LW Briggs Irrevocable Trust for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing
0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into
a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The
Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest
expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price
of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading
day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed
and the note was extended until December 31, 2019. 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, 2019, the gross balance
of the note was $1,101,000 and accrued interest was $1,656,913.
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, 2019. The Company recognized a gain on the extinguishment
of debt of $1,487,158 for the remaining derivative liability. As of December 31, 2019, the gross balance of the note was $1,305,236
and accrued interest was $0.
Pine
Valley Investments, LLC – On May 7, 2019, the Company issued an unsecured Short-Term Promissory Note to Pine Valley
Investments, LLC in the principal amount of $100,000 (the “Note”) due on May 21, 2019 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 May 21, 2019. As of December
31, 2019, the outstanding balance of the Note was $0 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, 2019. 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. On April 5, 2019, the entire outstanding balance of $2,227,980 and accrued interest
was assigned to Clavo Rico, Incorporated. As of December 31, 2019, the gross balance of the note was $0 and accrued interest was
$0.
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 September 30, 2019 and bears a 4.0% interest rate. As of December
31, 2019, the outstanding balance of the Note was $40,000 and accrued interest was $0.
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 11, 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 December 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On February 22, 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 31, 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 December 31, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On April 3, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $60,000 (the “Note”) due on May 10, 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 May 21, 2019. As of December 31, 2019, the outstanding
balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On April 16, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $55,000 (the “Note”) due on May 31, 2019 and bears a 5.0% interest rate. The Company made a payment
of $57,750 towards the principal balance and accrued interest of $2,750 on May 21, 2019. As of December 31, 2019, the outstanding
balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On May 1, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the principal
amount of $40,000 (the “Note”) due on May 31, 2019 and bears a 5.0% interest rate. This note was a conversion of accounts
payable due to the lender of $40,000. The Company made a payment of $12,000 towards the principal balance and accrued interest
of $2,000 on July 10, 2019. The Company made a payment of $10,000 towards the principal balance on July 15, 2019. The Company
made a payment of $11,000 towards the principal balance and accrued interest of $1,000 on August 28, 2019. The Company made a
payment of $10,000 towards the principal balance on September 5, 2019. As of December 31, 2019, the outstanding balance of the
Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On November 13, 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 December 15, 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 December 12, 2019. As of December 31,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
11.
Convertible Notes Payable
Convertible
notes payable were comprised of the following as of December 31, 2019 and December 31, 2018:
Convertible
Notes Payable
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Adar Alef LLC
|
|
$
|
-
|
|
|
$
|
105,000
|
|
Antczak Polich Law LLC
|
|
|
355,980
|
|
|
|
430,000
|
|
Auctus Fund
|
|
|
-
|
|
|
|
125,000
|
|
Coolidge Capital
|
|
|
-
|
|
|
|
75,000
|
|
Crossover Capital
|
|
|
-
|
|
|
|
82,894
|
|
Crown Bridge Partners
|
|
|
-
|
|
|
|
55,000
|
|
Investor
|
|
|
3,985,000
|
|
|
|
150,000
|
|
Eagle Equities
|
|
|
-
|
|
|
|
103,000
|
|
Ema Financial
|
|
|
-
|
|
|
|
75,000
|
|
GS Capital Partners
|
|
|
-
|
|
|
|
300,000
|
|
JS Investments
|
|
|
-
|
|
|
|
100,000
|
|
Labrys Funding
|
|
|
-
|
|
|
|
300,000
|
|
LG Capital Funding
|
|
|
-
|
|
|
|
100,000
|
|
Morningview Financial
|
|
|
-
|
|
|
|
55,000
|
|
Power Up Lending
|
|
|
-
|
|
|
|
116,000
|
|
SBI Investments
|
|
|
-
|
|
|
|
110,000
|
|
Scotia International
|
|
|
400,000
|
|
|
|
-
|
|
Total Convertible Notes Payable
|
|
|
4,740,980
|
|
|
|
2,281,894
|
|
Less Unamortized
Discount
|
|
|
(2,818,373
|
)
|
|
|
(1,112,499
|
)
|
Total Convertible Notes Payable, Net
of Unamortized Debt Discount
|
|
|
1,922,607
|
|
|
|
1,169,395
|
|
Less Short-Term
Convertible Notes Payable
|
|
|
(355,980
|
)
|
|
|
(1,169,395
|
)
|
Total Long-Term
Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
1,566,627
|
|
|
$
|
-
|
|
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. On May 22, 2019, the Company paid $146,137 to pay off the principal balance of $105,000
and $41,137 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized $92,918 of
debt discount to current period operations as interest expense. As of December 31, 2019, the gross balance of the note was $0
and accrued interest was $0.
Antczak
Polich Law, LLC – On August 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 December 31, 2019, the gross balance of the note was $300,000 and
accrued interest was $36,033.
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 $130,000 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. During the year ended December 31, 2019, the Company made several payments
amounting to $74,020. As of December 31, 2019, the gross balance of the note was $55,980 and accrued interest was $10,062.
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. On May 23, 2019, the Company paid $171,475 to pay off the
principal balance of $125,000 and $46,475 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the
Company amortized $111,240 of debt discount to current period operations as interest expense. As of December 31, 2019, 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. On May 3, 2019, the Company paid $105,000 to pay off
the principal balance of $75,000 and $30,000 in accrued interest and prepayment penalty. For the year ended December 31, 2019,
the Company amortized $3,610 of debt discount to current period operations as interest expense. As of December 31, 2019, the gross
balance of the note was $0 and accrued interest was $0.
Coolidge
Capital, LLC – On May 10, 2019, 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 $100,000. The total net proceeds the Company
received was $95,000 (less an original issue discount (“OID”) of $5,000). The Note has a maturity date of February
10, 2020 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 $5,000 which will be amortized over the life of the note. On November 13, 2019, the Company paid $145,934 to pay off the
principal balance of $100,000 and $45,934 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the
Company amortized $5,000 of debt discount to current period operations as interest expense. As of December 31, 2019, the gross
balance of the note was $0 and accrued interest was $0.
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. On May 23, 2019, the Company paid $68,750 to pay off the principal balance of $50,000 and
$18,750 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized $50,000 of debt
discount to current period operations as interest expense. As of December 31, 2019, 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. 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 year ended December 31, 2019, the Company amortized
$30,253 of debt discount to current period operations as interest expense. As of December 31, 2019, the gross balance of the note
was $0 and accrued interest was $0.
Crossover
Capital Fund II, LLC – On May 3, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $80,500 (the “Note”)
due on February 3, 2020 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $70,975
(less an original issue discount (“OID”) of $9,525). 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.
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 May 22, 2019, the Company paid $93,161 to pay off the principal balance
of $80,500 and $12,661 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized
$80,500 of debt discount to current period operations as interest expense. As of December 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. On April 18, 2019, the Company paid $83,738 to pay off the principal balance of $55,000 and $28,738 in accrued interest
and prepayment penalty. For the year ended December 31, 2019, the Company amortized $44,904 of debt discount to current period
operations as interest expense. As of December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
Crown
Bridge Partners – 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. On October 7, 2019, the Company paid
$83,738 to pay off the principal balance of $55,000 and $28,738 in accrued interest and prepayment penalty. For the year ended
December 31, 2019, the Company amortized $55,000 of debt discount to current period operations as interest expense. As of December
31, 2019, the gross balance of the note was $0 and accrued interest was $0.
Investor
– On August 2, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Investor, 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 year ended December
31, 2019, the Company amortized $119,015 of debt discount to current period operations as interest expense. As of December 31,
2019, the gross balance of the note was $0 and accrued interest was $0.
Investor
– On May 20, 2019, the Company issued a secured Convertible Promissory Note (“Note”) to Investor, in the
principal amount of $4,250,000 (the “Note”) due on May 20, 2021 and bears 10% (24% default) per annum interest, due
at maturity. The total net proceeds the Company received was $3,000,000. The Note is convertible into common stock, at holder’s
option, at 100% of market price less $0.01 per share. Market price means the mathematical average of the five lowest individually
daily volume weighted average prices of the common stock from the period beginning on the issuance date and ending on the maturity
date. The conversion price has a floor price of $0.01 per share of common stock, provided there has not been an event of default.
The Company issued 9,250,000 warrants to purchase shares of common stock in connection with this note. The warrants have a
three year life and an exercise price as follows: 3,750,000 at an exercise price of $0.40 per share, 3,000,000 at an exercise
price of $0.50 per share and 2,500,000 at an exercise price of $0.60 per share. The proceeds were allocated between the note for
$1,788,038 and the warrants for $1,211,962. The note has an early payoff penalty of 140% of the then outstanding face value. On
July 29,2019, the investor converted $265,000 of the principal balance into 2,986,597 shares of common stock valued at $0.11 per
share. The Company recognized a loss on the extinguishment of debt of $40,350. For the year ended December 31, 2019, the Company
amortized $1,253,230 of debt discount to current period operations as interest expense. As of December 31, 2019, the gross balance
of the note was $3,985,000 and accrued interest was $249,641.
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. On May 22, 2019, the Company paid $147,812 to pay off the principal balance of $103,000
and $44,812 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized $97,638 of
debt discount to current period operations as interest expense. As of December 31, 2019, 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. On April 25, 2019, the Company paid $107,308 to pay off the principal balance
of $75,000 and $32,308 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized
$56,044 of debt discount to current period operations as interest expense. As of December 31, 2019, the gross balance of the note
was $0 and accrued interest was $0.
EMA
Financial – On May 1, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to EMA
Financial, in the principal amount of $75,000 (the “Note”) due on February 1, 2020 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. In the event the Company experiences a DTC “Chill”
on its shares, or if the closing sale price at any time falls below $0.15, 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. On October 21, 2019, the Company paid $107,009 to pay off the
principal balance of $75,000 and $32,009 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the
Company amortized $75,000 of debt discount to current period operations as interest expense. As of December 31, 2019, 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. 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 year ended December 31, 2019, the Company amortized $57,515 of
debt discount to current period operations as interest expense. As of December 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. On May 23, 2019, the Company paid $267,890 to pay off the principal balance of $200,000
and $67,890 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized $181,918 of
debt discount to current period operations as interest expense. As of December 31, 2019, the gross balance of the note was $0
and accrued interest was $0.
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. On July 12, 2019, the Company paid $133,726 to pay off the principal balance of $100,000
and $33,726 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized $100,000 of
debt discount to current period operations as interest expense. As of December 31, 2019, 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. On May 10, 2019, the Company
paid $145,961 to pay off the principal balance of $100,000 and $45,961 in accrued interest and prepayment penalty. For the year
ended December 31, 2019, the Company amortized $85,753 of debt discount to current period operations as interest expense. As of
December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
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. On May 23, 2019, the Company
paid $138,452 to pay off the principal balance of $100,000 and $38,452 in accrued interest and prepayment penalty. For the year
ended December 31, 2019, the Company amortized $100,000 of debt discount to current period operations as interest expense. As
of December 31, 2019, 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, 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
$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. On May 22, 2019, the Company paid $319,510 to pay off the principal balance of $300,000 and $19,510 in accrued interest
and prepayment penalty. For the year ended December 31, 2019, the Company amortized $54,477 of debt discount to current period
operations as interest expense. As of December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
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. On May 22, 2019, the Company paid $293,867 to pay off the principal balance of $282,000 and $11,867 in accrued interest
and prepayment penalty. For the year ended December 31, 2019, the Company amortized $113,641 of debt discount to current period
operations as interest expense. As of December 31, 2019, 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. On May 23, 2019, the Company
paid $146,252 to pay off the principal balance of $100,000 and $46,252 in accrued interest and prepayment penalty. For the year
ended December 31, 2019, the Company amortized $21,020 of debt discount to current period operations as interest expense. As of
December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
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. On May 23, 2019, the Company
paid $78,546 to pay off the principal balance of $55,000 and $23,546 in accrued interest and prepayment penalty. For the year
ended December 31, 2019, the Company amortized $49,726 of debt discount to current period operations as interest expense. As of
December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
Odyssey
Capital Funding, LLC – On May 15, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Odyssey Capital Funding, LLC (“Odyssey Capital”), in the principal amount of $105,000 (the “Note”)
due on May 15, 2020 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $100,000
(less an original issue discount (“OID”) of $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. On November 8, 2019, the Company paid $154,128 to pay off the principal
balance of $105,000 and $49,128 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company
amortized $105,000 of debt discount to current period operations as interest expense. As of December 31, 2019, the gross balance
of the note was $0 and accrued interest was $0.
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 10% 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. On July 25, 2019, the Company paid $146,866 to pay off the principal balance of $100,000
and $46,866 in accrued interest and prepayment penalty. For the year ended December 31, 2019, the Company amortized $100,000 of
debt discount to current period operations as interest expense. As of December 31, 2019, the gross balance of the note was $0
and accrued interest was $0.
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 year ended December 31, 2019, the Company amortized $1,233 of debt discount to current period operations
as interest expense. As of December 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.
On April 16, 2019, the Company paid $90,083 to pay off the principal balance of $63,000 and $27,083 in accrued interest and prepayment
penalty. For the year ended December 31, 2019, the Company amortized $2,253 of debt discount to current period operations as interest
expense. As of December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
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.
On May 22, 2019, the Company paid $67,353 to pay off the principal balance of $53,000 and $14,353 in accrued interest and prepayment
penalty. For the year ended December 31, 2019, the Company amortized $3,000 of debt discount to current period operations as interest
expense. As of December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
Power
Up Lending Group – 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 28, 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 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 May 22, 2019, the Company paid $80,062 to pay off the principal balance of $63,000 and $17,062 in accrued interest and prepayment
penalty. For the year ended December 31, 2019, the Company amortized $3,000 of debt discount to current period operations as interest
expense. As of December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
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. On May 23, 2019, the Company
paid $147,827 to pay off the principal balance of $110,000 and $37,827 in accrued interest and prepayment penalty. For the year
ended December 31, 2019, the Company amortized $101,538 of debt discount to current period operations as interest expense. As
of December 31, 2019, the gross balance of the note was $0 and accrued interest was $0.
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 year ended December 31, 2019,
the Company amortized $29,332 of debt discount to current period operations as interest expense. As of December 31, 2019, the
gross balance of the note was $400,000 and accrued interest was $23,342.
12.
Stockholders’ Deficit
Common
Stock
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
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, 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
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.
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.
On
April 26, 2019, in connection with an extension of a Note to Labrys Fund LP, the Company issued to the Note Purchaser 300,000
shares of its common stock as an extension fee for the extension of the note. These shares were valued at $0.3399 per share for
a total value of $101,970.
On
June 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. Per this agreement, the Company
will issue 200,000 shares of common stock each month for 11 months. This stock was valued at $0.11 per share for a value of $22,000.
On
July 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at $0.15
per share for a value of $30,000.
On
July 29, 2019, the Company issued to a Note Holder 2,986,597 shares of its common stock under a conversion notice. The conversion
was for $265,000 in principle. The shares were valued at $0.11 per share for a total value of $328,526. The Company recognized
a loss of extinguishment of debt of $40,350 on this conversion.
On
August 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.08 per share for a value of $16,000.
On
September 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.08 per share for a value of $16,000.
On
October 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.08 per share for a value of $16,000.
On
November 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.065 per share for a value of $13,000.
On
December 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.05 per share for a value of $10,000.
Warrants
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.
On
May 20, 2019, the Company entered into a Note Purchase Agreement (the “Agreement”) with an investor (the “Investor”)
through which the Investor purchased (i) a Senior Secured Redeemable Convertible Note (“Note”) with a face value of
$4,250,000 that is convertible into shares of common stock of the Company and (ii) a warrant (“Warrant”) to purchase
9,250,000 shares of common stock of the Company. The warrant has a life of three years. The warrant is exercisable at the following
prices – 3,750,000 shares of common stock at $0.40 per share, 3,000,000 shares of common stock at $0.50 per share and 2,500,000
shares of common stock at $0.60 per share. These warrants’ relative fair value, based on cash proceeds allocation, was $1,211,962,
which has been recorded in additional paid-in capital.
The
following tables summarize the warrant activity during the years ended December 31, 2019 and 2017:
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
|
|
|
9,250,000
|
|
|
|
0.49
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(680,000
|
)
|
|
|
0.90
|
|
Balance at December 31, 2019
|
|
|
9,613,637
|
|
|
$
|
0.53
|
|
2019
Outstanding Warrants
|
|
Warrants
Exercisable
|
|
Range
of
Exercise
Price
|
|
Number
Outstanding at December 31, 2019
|
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable at December 31, 2019
|
|
|
Weighted
Average Exercise Price
|
|
$
|
0.40 - 6.88
|
|
|
9,613,637
|
|
|
2.40 years
|
|
$
|
0.53
|
|
|
|
9,613,637
|
|
|
$
|
0.53
|
|
13.
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,
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(6,973,968
|
)
|
|
$
|
(5,627,050
|
)
|
Non-Controlling
Interest
|
|
|
(964
|
)
|
|
|
1,036
|
|
Loss available
to Controlling Shareholders
|
|
$
|
(6,974,932
|
)
|
|
$
|
(5,626,014
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic Weighted Average Shares Outstanding
|
|
|
57,056,526
|
|
|
|
53,501,213
|
|
Effect of Dilutive
Securities
|
|
|
-
|
|
|
|
-
|
|
Diluted Weighted Average Shares
Outstanding
|
|
|
57,056,526
|
|
|
|
53,501,213
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.12
|
)
|
|
$
|
(0.11
|
)
|
Diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.11
|
)
|
14.
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:
|
|
2019
|
|
|
2018
|
|
Expected income tax (recovery)
expense at the statutory rate of 26%
|
|
$
|
(1,813,232
|
)
|
|
$
|
(1,913,197
|
)
|
Tax effect of expenses that are not deductible
for tax purposes (net of other amounts deductible for tax purposes)
|
|
|
3,079
|
|
|
|
1,971
|
|
Change in valuation
allowance
|
|
|
1,810,153
|
|
|
|
1,911,226
|
|
Provision for
income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
components of deferred income tax in the accompanying balance sheets are as follows:
Deferred
income tax asset:
|
|
2019
|
|
|
2018
|
|
Net operating loss carry-forwards
|
|
$
|
10,021,474
|
|
|
$
|
7,277,496
|
|
Section 195 Startup Costs
|
|
|
1,393,346
|
|
|
|
1,393,346
|
|
Debt Discount
|
|
|
(1,503,066
|
)
|
|
|
(859,485
|
)
|
Derivative Liability
|
|
|
(623,295
|
)
|
|
|
(333,051
|
)
|
Valuation allowance
|
|
|
(9,288,459
|
)
|
|
|
(7,478,306
|
)
|
Deferred income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of December 31, 2019 and December 31, 2018, the Company had net operating loss carryforwards for U.S. federal income tax purposes
of approximately $10,021,500 and $7,277,500, 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 2039.
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 2039.
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, 2012 through December
31, 2019 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.
15.
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, 2019, the Company owed $1,035,000 to the stockholder/director
in accrued consulting fees.
Employment
Agreements – Effective as of December 31, 2018, 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 April 1, 2019 and provides for compensation of $300,000 annually. Additionally, the employment agreement provides for benefits
and an optional annual bonus to be determined by the Board of Directors.
Notes
Payable – The Company took several short-term notes payable from related parties during 2019. The Company received $1,688,000
in cash from related parties and paid out $2,249,186 in cash to related parties on notes payable (see Note 10).
16.
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.
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, 2019, 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.
17.
Concentrations
We
generally sell a significant portion of our mineral production to a relatively small number of customers. For the year ended December
31, 2019, 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, 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.
18.
Subsequent Events
Management
has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through March 27,
2020, the date which the consolidated financial statements were available to be issued and there are no material subsequent
events, except as noted below.
On
February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange
for $250,000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian
company.
On
January 16, 2020, the Company issued 1,645,000 shares of common stock related to a conversion notice received from an investor.
On February 11, 2020, the Company issued 1,000,000 shares of common stock related to a conversion notice received from an investor.
On February 27, 2020, the Company issued 1,415,500 shares of common stock related to a conversion notice received from an investor.
The Company is still evaluating the accounting for these conversion notices.