Filed Pursuant to Rule 424(b)(1)
Registration No. 333-231917

 

 

PROSPECTUS

 

INCEPTION MINING INC.

 

25,846,154 SHARES

COMMON STOCK

 

This prospectus relates to the sale, from time to time, by the Selling Stockholder of up to 25,846,154 shares of our common stock, par value $0.00001 per share (the “ Resale Shares ”) issuable to the Selling Stockholder upon (i) conversion of an outstanding Senior Secured Redeemable Convertible Note (the “ Note ”) issued by the Company in favor of the Selling Stockholder and (ii) exercise of a common stock purchase warrant (the “ Warrant ”) to purchase 9,250,000 shares of common stock. Both the Note and the Warrant were purchased by the Selling Stockholder pursuant to that certain Note Purchase Agreement, dated May 20, 2019 (the “ Note Purchase Agreement ”).

 

The Selling Stockholder may sell some or all of the Resale Shares from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The offering price bears no relationship to our assets, book value, earnings or any other customary investment criteria. We will not receive any proceeds from the sale of the Resale Shares by the Selling Stockholder. The Resale Shares may be sold by the Selling Stockholder to or through underwriters or dealers, directly to purchasers or through agents designated from time to time. For additional information regarding the methods of sale you should refer to the section entitled “ Plan of Distribution ” beginning on page 14 of this prospectus.

 

We will bear all costs relating to the registration of the Resale Shares. All selling and other expenses incurred by the Selling Stockholder will be borne by the Selling Stockholder.

 

Our common stock is quoted on the OTC Link, LLC alternative trading system operated by OTC Markets Group Inc. at the OTCQB level (the “OTCQB”) under the symbol “IMII”. The closing price of our common stock on the OTCQB on May 28, 2019, was $0.26 per share.

 

These securities involve a high degree of risk. See the caption “Risk Factors” beginning on page 4 of this Prospectus.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy the securities in any circumstances under which the offer or solicitation is unlawful. Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus.

 

The Date of This Prospectus Is: July 24, 2019

 

     

 

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 1
THE OFFERING 3
RISK FACTORS 4
FORWARD LOOKING INFORMATION 12
USE OF PROCEEDS 12
DETERMINATION OF OFFERING PRICE 12
DILUTION 12
SELLING STOCKHOLDER 13
PLAN OF DISTRIBUTION 14
DESCRIPTION OF SECURITIES 15
INTERESTS OF NAMED EXPERTS AND COUNSEL 23
WHERE YOU CAN FIND MORE INFORMATION 23
INFORMATION WITH RESPECT TO THE REGISTRANT 24
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 33
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 41
LEGAL PROCEEDINGS 45
FINANCIAL STATEMENTS 47

 

You should rely only on the information contained in this prospectus. We have not, and the Selling Stockholder has not, authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell, nor is the Selling Stockholder seeking an offer to buy, securities in any state where the offer or solicitation is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial condition, results of operations, and prospects may have changed since such date.

 

The distribution of this prospectus and the issuance of the securities in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the issuance of the securities and the distribution of this prospectus outside the United States. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, the securities offered by this prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.

 

     

 

 

PROSPECTUS SUMMARY

 

The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus. All references in this Prospectus to Shares are as of May 28, 2019, unless otherwise specified. We have not authorized any person to give you any supplemental information or to make any representations for us. You should not rely upon any information about our company that is not contained in this prospectus. Information contained in this prospectus may become stale. You should not assume the information contained in this prospectus or any prospectus supplement is accurate as of any date other than their respective dates, regardless of the time of delivery of this prospectus, any prospectus supplement or of any sale of the shares. Our business, financial condition, results of operations, and prospects may have changed since those dates. The selling stockholders are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted.

 

In this prospectus, the “Company,” “Inception,” “Inception Mining,” “we,” “us,” and “our,” refer to Inception Mining Inc., a Nevada corporation.

 

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 owned mining properties. Inception Mining has acquired 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.

 

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” or the “Mine”) pursuant to that certain asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). Accordingly, the Company owns and controls this property exclusively; there are no third parties who impose conditions of any kind on operations at this location. We are presently in the exploration stage at UP and Burlington. UP and Burlington contain two federal patented mining claims which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises UP and Burlington. Production at this mine is subject to a 3% net smelter royalty, which may increase or decrease depending on the amount of gold produced.

 

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. The UP and Burlington site is located six miles from the city of Salmon; is 0.6 miles away from the closest major road (Ridge Rd.); and is 1.56 miles away from the closest major power line. We believe Salmon, along with the surrounding County of Lemhi, provides an excellent infrastructure for our mine. Salmon has a population of 3,122 and Lemhi County has a population of 7,806. In 2014-2015, heavy maintenance and right-of-way repair was completed and a new road to UP and Burlington mine site was constructed.

 

UP and Burlington’s two gold mining claims were brought to patent in 1900, which covers the Mine’s 40 acres. Subsequently, in 1989, a U.S. Forest Survey was performed on the UP and Burlington site confirming that the patented claims cover an area which is six hundred feet by three thousand feet (600‘x3000’). The Mine’s patented claims remove the challenges associated when working on U.S. Forest lands, Bureau of Land Management (“BLM”), state or other property types. With our purchase of UP and Burlington, we have the benefit of working on private land, which requires only a hauling / road permit to commence significant operations.

 

The Company has obtained the necessary permitting, cut additional access roads, made surface improvements, and initiated surface mining on a 2,500 foot per day lighted vein for bulk sampling, vein definition and ore valuation. In Phase II, we plan to contract an underground mining and operations plan, expand portal development leveraging existing underground access, and implement underground mining to a depth based on optimizing costs versus processed ore value. There is no guarantee that we will be successful in implementing any stage of our plans.

 

Our plan includes the continuation of obtaining a Lemhi County Conditional Use Permit and an Idaho Department of Lands Surface Reclamation Bond. Since receiving the permitting for the U.S. Forest Service Access Road, the access road is now complete. In addition, we have contracts such as geotechnical contracts, mining contracts, toll processing contracts, and underground mine plan contracts.

 

The Company and its independent consultants are in the process of developing a detailed exploration-drilling program to confirm and expand mineralized zones in the Mine and collect additional environmental and technical data. The first phase began in 2013. The Company intends to continue drilling, metallurgical testing, engineering and environmental programs and studies and has updated the historic feasibility study and environmental permit applications.

 

We also plan to review opportunities and acquire additional mineral properties with current or historic precious and base metal mineralization with meaningful exploration potential.

 

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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 June 30, 2023. The Company has engaged in preliminary drilling of this area.

 

The Business

 

Inception Mining, Inc. (formerly known as Gold American Mining Corp.) was incorporated under the name of Golf Alliance Corporation and under the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. is a precious metal mineral acquisition, exploration and development company. Inception Development, Inc., its wholly owned subsidiary, was incorporated under the laws of the State of Idaho on January 28, 2013.

 

Golf Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided to redirect its business focus toward precious metal mineral acquisition and exploration.

 

On March 5, 2010, the Company amended its articles of incorporation to (1) to change its name to Silver America, Inc. and (2) increased its authorized common stock from 100,000,000 to 500,000,000.

 

On June 23, 2010 the Company amended its articles of incorporation to change its name to Gold American Mining Corp.

 

On February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of the Company, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty.. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). The Company 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 shifted to focus on the ownership and operation of the mine acquired from Inception Resources.

 

On May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception,” “Inception Mining,” or the “Company”).

 

On October 2, 2015, the Company consummated an Agreement and Plan of 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. Clavo Rico’s workings include several historical underground operations dating back to the early Mayan and Spanish occupation.

 

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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%.

 

Recent Developments

 

May 20, 2019 Financing

 

On May 20, 2019, we entered into a Note Purchase Agreement (“NPA”) with the Selling Stockholder, pursuant to which we issued (i) a Senior Secured Redeemable Convertible Note (the “Note”) with an aggregate face value of $4,250,000 (of which $1,250,000 was retained by the Selling Stockholder as an original issue discount) and (ii) a common stock purchase warrant (the “Warrant”) to purchase 9,250,000 shares of common stock in exchange for $3,000,000 cash consideration. As long as a Trigger Event (as defined in the Note) has not occurred, the Note is subject to interest at a rate of 10.0% per annum and may be converted into shares of the Company’s common stock at a price equal to 100% of the average of the five lowest individual daily volume weighted average prices of the shares of common stock, less $0.01 per share (the “Conversion Price”), during the period beginning on the issuance date of the Note and ending on May 20, 2021, the Maturity Date of the Note. For each Trigger Event that occurs, the interest rate of the Note will increase by 10% and the discount to the market price will increase by 10%. The Conversion Price shall not be less than $0.01 per share of common stock (the “Floor Price”), unless an event of default has occurred, in which case the Floor Price is not applicable. In no event will the Conversion Price be less than the par value per share of the common stock of the Company. The Selling Stockholder transaction closed on May 20, 2019. “Trigger Events” that will result in less favorable financial terms for the Company include delays in receiving the conversion shares, the issuance of restricted shares if investor provides a legal opinion that shares may be issued without a restrictive legend, the issuance of a certificate if investor requests electronic delivery via DTC, the failure to timely perform obligations in the Transaction Documents, inaccurate representations in the NPA, events of default over $250,000, bankruptcy, insolvency, or reorganization, a lapse in the effectiveness of a registration statement, the suspension from trading on the trading market, the failure to meet the listing requirements of the trading market, notice that the Company intends not to comply with a conversion notice, the admission of the Company of its inability to pay its debts as they become due or appointment of a custodian or receiver, a judgment or judgments in excess of $250,000, delays in filing public reports, the initiation of an administrative or enforcement proceeding, and the Company’s common stock is under chill or freeze by DTC.

 

THE OFFERING

 

The following summary of the offering contains basic information about the offering and the common stock and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the common stock, please refer to the section of this prospectus entitled “Description of Securities” on page 15 .

 

Common Stock offered by the Selling Stockholder   25,846,154 shares of common stock, par value $0.00001 per share.
     
Common Stock outstanding before this offering:   57,848,505
     
Common Stock to be outstanding immediately after this offering:   83,694,659 (assuming the Note is fully converted and the Warrant is fully exercised).
     
Use of proceeds  

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Stockholder. We will not receive any proceeds from the sale of shares of our common stock by the Selling Stockholder pursuant to this prospectus. However, we will receive proceeds for any exercise of warrants, but not for the subsequent sale of the shares underlying the warrants, which we are hereby registering.

     
Offering Price   Market prices prevailing at the time of sale, at prices related to the prevailing market prices. The Selling Stockholder will determine when and how they will sell the common stock offered in this prospectus.
     
Transfer Agent  

Colonial Stock Transfer Co., Inc., 66 Exchange Place, Suite 100, Salt Lake City, Utah 84111

 

OTCQB Ticker Symbol:   IMII

 

We have agreed to pay all costs and expenses relating to the registration of our common stock. The selling stockholder will only be responsible for any commissions, taxes, attorney’s fees and other charges relating to the offer or sale of these securities. The selling stockholder may sell their common stock through one or more broker/dealers, and these broker/dealers may receive customary compensation in the form of underwriting discounts, concessions or commissions from the selling stockholder as they shall agree.

 

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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 March 31, 2019, our accumulated deficit since inception was $25,795,942. We have substantial current obligations and at March 31, 2019, we had $22,150,053 of current liabilities compared to only $490,818 of current assets. Since inception, we have been able to raise only minimal additional capital, and we have minimal cash on hand. Accordingly, the Company does not have sufficient cash resources or current assets to pay its current obligations, and we have been meeting many of our obligations through the issuance of our common stock to our employees, consultants and advisors as payment for the goods and services.

 

Our management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions along with the substantial turmoil in the capital and credit markets, there is a significant possibility that we will be unable to obtain financing to continue our operations.

 

As we are in the beginning stages of our exploration activities on UP and Burlington, and such property has not generated revenue in the recent past, we expect to incur additional losses in the foreseeable future, and such losses may continue to be significant. To become profitable, we must be successful in raising capital to continue with our mining efforts, exploration activities, meet the work commitment requirements on UP and Burlington and Clavo Rico, discover economically feasible mineralization deposits and establish reserves, successfully develop the properties and finally realize adequate prices on our minerals in the marketplace.

 

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, 2018. 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.

 

The feasibility of mineral extraction from UP and Burlington has not yet been established, as we have not completed exploration or other work necessary to determine if it is commercially feasible to develop the properties.

 

UP and Burlington does not have any proven or probable reserves. A “reserve,” as defined by the SEC, is that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. A reserve requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically extracted and produced. We have not yet completed our feasibility study with regard to UP and Burlington. As a result, we currently have no reserves and there are no assurances that we will be able to prove that there are reserves on UP and Burlington.

 

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Exploring for gold is an inherently speculative business.

 

Natural resource exploration, and exploring for gold in particular, is a business that by its nature is very speculative. There is a strong possibility that we will not discover gold or any other resources that can be mined or extracted at a profit at our UP and Burlington project. Even if we do discover gold or other deposits at that project, the deposit may not be of the quality or size necessary for us to make a profit after extracting it. Few properties that are explored are ultimately developed into producing mines. Unusual or unexpected geological formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins, landslides, and the inability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved in mineral exploration programs and the subsequent development of gold deposits. 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 develop UP and Burlington for mining production, assuming economically viable reserves exist. There is no assurance that our investments in UP and Burlington will be financially productive. We will also 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.

 

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We may be denied the government licenses and permits which we need to explore on our properties. In the event that we discover commercially exploitable deposits, we may be denied the additional government licenses and permits which we will need to mine our properties.

 

Exploration activities usually require the granting of permits from various governmental agencies. For example, exploration drilling on unpatented mineral claims requires a permit to be obtained from the United States Bureau of Land Management, which may take several months or longer to grant the requested permit. Depending on the size, location and scope of the exploration program, additional permits may also be required before exploration activities can be undertaken. Prehistoric or Indian graveyards, 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 with 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.

 

Our property titles may be challenged. We are not insured against any challenges, impairments or defects to our mineral claims or property titles. We have not fully verified title to our properties.

 

Our future unpatented claims will be created and maintained in accordance with the federal General Mining Law of 1872. Unpatented claims are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations under the General Mining Law. Defending any challenges to our future property titles may be costly and may divert funds that could otherwise be used for exploration activities and other purposes. In addition, unpatented claims are always subject to possible challenges by third parties or contests by the federal government, which, if successful, may prevent us from exploiting our discovery of commercially extractable gold. Challenges to our title may increase our costs of operation or limit our ability to explore on certain portions of our properties. We are not insured against challenges, impairments or defects to our property titles, nor do we intend to carry extensive title insurance in the future. Potential conflicts to our mineral claims are discussed in detail elsewhere herein.

 

Honduran mining operations have increased exposure.

 

Sustaining foreign mining operations, such as those in Honduras, comes with increased uncertainty, due to less stable governments, political interruptions, volatility in taxes and fees, implementation of new laws and regulations, and more. The effect of this exposure can lead to closure of operations, nationalization, and strikes, all of which are beyond the company’s control. Granting and maintaining concessions is highly subject to political whim and maintaining the concessions is subject to a number of factors and variables beyond the company’s control. We do not currently insure against these interruptions but have chosen to structure our operations to minimize exposure to capital assets by subcontracting major areas of work, and to otherwise keep our financial exposure limited even at the expense of operation costs and our bottom line.

 

Foreign operations involve numerous risks associated with fluctuating exchange rates and other financial risks.

 

Foreign operations involve numerous risks associated with fluctuating exchange rates and with increasing taxes and fees associated with importing of necessary goods, equipment and services not adequately found in country and with exporting of the finished gold doré. Recent enactment of the Honduran mining laws has helped stabilize the fees, but continual review by the various government operations, and central bank subject the historical operations to review and could impact our ability to export on a timely basis and/or face possible fines etc. associated with repatriation of past revenues, etc.

 

Possible amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.

 

The U.S. Congress has considered proposals to amend the General Mining Law of 1872 that would have, among other things, permanently banned the sale of public land for mining. The proposed amendment would have expanded the environmental regulations to which we might be subject and would have given Indian tribes the ability to hinder or prohibit mining operations near tribal lands. The proposed amendment would also have imposed a royalty of 8% of gross revenue on new mining operations located on federal public land, which might have applied to our future properties. The proposed amendment would have made it more expensive or perhaps too expensive to recover any otherwise commercially exploitable gold deposits which we might find on our future properties. While at this time the proposed amendment is no longer pending, this or similar changes to the law in the future could have a significant impact on our business model.

 

  6  

 

 

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.

 

  7  

 

 

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:

 

  economically insufficient mineralized material;
     
  fluctuations in production costs that may make mining uneconomical;
     
  labor disputes;
     
  unanticipated variations in grade and other geologic problems;

 

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  environmental hazards;
     
  water conditions;
     
  difficult surface or underground conditions;
     
  industrial accidents, such as personal injury, fire, flooding, cave-ins, and landslides;
     
  metallurgical and other processing problems;
     
  mechanical and equipment performance problems; and
     
  decreases in revenues and reserves due to lower gold and mineral prices.

 

Any of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts spent that are not recoverable.

 

Our operations are subject to permitting requirements that could require us to delay, suspend or terminate our operations on our mining property.

 

Our operations and exploration activities require permits from the local, state and federal governments. We may be unable to obtain these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits, our timetable and business plan for Inception will be adversely affected.

 

We may never find commercially viable gold or other reserves on UP and Burlington.

 

Mineral exploration and development involve a high degree of risk and few properties that are explored are ultimately developed into producing mines. We cannot assure you that any future mineral exploration and development activities will result in any discoveries of proven or probable reserves as defined by the SEC since such discoveries are remote. Nor can we provide any assurance that, even if we discover commercial quantities of mineralization, a mineral property will be brought into commercial production. Development of our mineral properties will follow only upon obtaining sufficient funding and satisfactory exploration results.

 

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 UP and Burlington and Clavo Rico may not be indicative of the potential for future development or revenue.

 

Historical production of gold and minerals from UP and Burlington and 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 UP and Burlington and 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, 2018 and our related consolidated statements of operations, deficiency in stockholders’ deficit, and cash flows for the year ended December 31, 2018, 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.

 

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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 alternative trading system 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.

 

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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:

 

  changes in our industry;
     
  competitive pricing pressures;
     
  our ability to obtain working capital financing;
     
  additions or departures of key personnel;
     
  limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market prices of our common stock;
     
  sales of our common stock;
     
  our ability to execute our business plan;
     
  operating results that fall below expectations;
     
  loss of any strategic relationship;
     
  regulatory developments;
     
  economic and other external factors; and
     
  period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

We have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.

 

We have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors.

 

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

 

Recent federal legislation, including the Sarbanes-Oxley Act of 2002 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.

 

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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:

 

  improve existing, and implement new, operational, financial and management controls, reporting systems and procedures;
     
  install enhanced management information systems; and
     
  train, motivate, and manage our employees.

 

We may not be able to install adequate management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable to manage growth effectively, our business would be seriously harmed.

 

If we lose key personnel or are unable to attract and retain additional qualified personnel, we may not be able to successfully manage our business and achieve our objectives.

 

We believe our future success will depend upon our ability to retain our key management, 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.

 

FORWARD-LOOKING INFORMATION

 

This prospectus contains forward-looking statements. These statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “likely,” “believe,” “intend,” “expect,” or similar words. These statements discuss future expectations, contain projections regarding future developments, operations, or financial conditions, or state other forward-looking information. When considering such forward-looking statements, you should keep in mind the risk factors noted in this section and other cautionary statements throughout this prospectus and any prospectus supplement. You should also keep in mind that all forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If one or more risks identified in this prospectus, a prospectus supplement, or any applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.

 

USE OF PROCEEDS

 

We will not receive any part of the proceeds from sale of the common stock registered herein, including the common stock of the Selling Stockholder underlying the Note and the Warrant. The Selling Stockholder may sell all or any part of its shares in private transactions or in the over-the-counter market at prices related to the prevailing prices of our common stock at the time of negotiation.

 

DETERMINATION OF OFFERING PRICE

 

We have not set an offering price for the shares registered hereunder, as the only shares being registered are those sold pursuant to the NPA. The Selling Stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.

 

DILUTION

 

Not applicable. The shares registered under this registration statement are not being offered for purchase. The shares are being registered on behalf of our Selling Stockholders pursuant to the NPA.

 

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SELLING STOCKHOLDER

 

On May 20, 2019, we closed a Note Purchase Agreement (“NPA”) with an accredited investor (the “Selling Stockholder” or “Investor”) by which the accredited investor purchased for consideration of $3,000,000:

 

  (i) a Senior Secured Redeemable Convertible Note (the “Note”) with an aggregate face value of $4,250,000 (of which $1,250,000 was retained by the Selling Stockholder as an original issue discount), and
  (ii) a common stock purchase warrant (the “Warrant”) to purchase 9,250,000 shares of common stock.

 

As of the closing date of these transactions and the filing date of this Registration Statement, the Note has not been converted in whole or in part and the Warrant has not been exercised in full or in part.

 

The Note bears interest at the rate of 10% per annum and may be converted into shares of the Company’s common stock at a price equal to 100% of the average of the five lowest individual daily volume weighted average prices of the shares of common stock, less $0.01 per share (the “Conversion Price”), during the period beginning on the issuance date of the Note and ending on May 20, 2021, the maturity date of the Note. The Conversion Price shall not be less than $0.01 per share of common stock (the “Floor Price”), unless an event of default has occurred, in which case the Floor Price is not applicable. In no event will the Conversion Price be less than the par value per share of the common stock of the Company. In no event will the Conversion Price be less than the par value of the Company’s common stock per share. The conversion amounts will be subject to adjustment as a result of stock dividends, stock splits and the like.

 

If a “Trigger Event” occurs then the interest rate and the conversion price will be adjusted. For each Trigger Event that occurs, the interest rate of the Note will increase by 10% and the discount to the conversion price will increase by 10%. “Trigger Events” that will result in less favorable financial terms for the Company include delays in receiving the conversion shares, the issuance of restricted shares if investor provides a legal opinion that shares may be issued without a restrictive legend, the issuance of a certificate if investor requests electronic delivery via DTC, the failure to timely perform obligations in the Transaction Documents, inaccurate representations in the NPA, events of default over $250,000, bankruptcy, insolvency, or reorganization, a lapse in the effectiveness of a registration statement, the suspension from trading on the trading market, the failure to meet the listing requirements of the trading market, notice that the Company intends not to comply with a conversion notice, the admission of the Company of its inability to pay its debts as they become due or appointment of a custodian or receiver, a judgment or judgments in excess of $250,000, delays in filing public reports, the initiation of an administrative or enforcement proceeding, and the Company’s common stock is under chill or freeze by DTC.

 

The Company shall not effect any conversion of the Note, and the Investor will not have the right to convert any portion thereof, to the extent that such conversion would result in the Investor owning more than 4.99% of the number of shares of common stock outstanding immediately after such conversion (the “Note Beneficial Ownership Limitation”). Upon no less than 61 days’ notice to the Company, the Investor may increase Note Beneficial Ownership Limitation to 9.99%.

 

If the Company fails for any reason to deliver to the Investor the Conversion Shares within one trading day following receipt of any Delivery Notice (the “Share Delivery Date”), the Company shall pay to the Investor liquidated damages in the amount of 2% of the product of (i) the aggregate number of Conversion Shares not issued to the Investor on a timely basis and to which the Investor is entitled and (ii) the highest Closing Price of the Common Stock between the date on which the Company should have issued such shares to the Investor and the actual date of receipt of Conversion Shares by Investor.

 

The Warrant shall be exercisable until the three year anniversary of the Warrant. The “Exercise Price” applicable under the Warrant shall be a price per share equal to $0.40 with respect to 3,750,000 shares, $0.50 with respect to 3,000,000 shares, and $0.60 with respect to 2,500,000 shares of Common Stock. The Company shall not effect any exercise of the Warrant, and the Investor will not have the right to exercise any portion thereof, to the extent that such conversion would result in the Investor owning more than 4.99% of the number of shares of common stock outstanding immediately after such conversion (the “Warrant Beneficial Ownership Limitation”). Upon no less than 61 days’ notice to the Company, the Investor may increase or decrease the Warrant Beneficial Ownership Limitation, provided that it may in no event exceed 9.99%.

 

In connection with the Note Purchase Agreement, the Company agreed to register for sale all of the shares of the Company’s common stock that are issuable (i) upon conversion in full of the Note; (ii) as interest or principal on the Note; (iii) upon exercise of the Warrant. Such registration statement shall be filed by the Company within 30 days of the NPA and the Company shall use its reasonable best efforts to have it declared effective within 75 days of the NPA. The Company intends to comply fully with its registration obligations under the Registration Rights Agreement. We believe that we will be able to meet the deadlines with respect to the filing date and the effective date of the Registration Statement of which this Prospectus is a part, but we cannot provide any assurance in this regard. If we were to default on any of our registration obligations, we will incur additional penalties under the Note as a Trigger Event.

 

This prospectus relates to the resale, from time to time, by the Selling Stockholder identified in this prospectus, of up to an aggregate of 25,846,154 shares of our common stock, par value $0.00001 per share (the “ Resale Shares ”). We are registering the shares hereby pursuant to the terms of our agreement with the Selling Stockholder. The Selling Stockholder identified in the table below may offer all or part of the Resale Shares from time to time. However, the Selling Stockholder is under no obligation to sell all or any portion of such shares nor is the Selling Stockholder obligated to sell any Resale Shares immediately upon effectiveness of this prospectus.

 

  13  

 

 

The table below sets forth certain information regarding the Selling Stockholder and the Resale Shares offered by them in this prospectus. The Selling Stockholder has not had a material relationship with us within the past three years other than as described in the footnotes to the table below or as a result of their acquisition of our shares or other securities.

 

    Number of Shares     Number of     Number of Shares  
    Beneficially Owned     Shares     Beneficially Owned  
    Prior to this Offering     Being Sold     After this Offering*  
Selling Stockholder   Number     Percent (1)     Offered     Number     Percent (1)  
Discover Growth Fund, LLC     0 (2)     0 %   25,846,154 (2)     25,846,154 (2)     30.88 %

 

* Assumes that all the shares underlying the Note are converted and sold and all the shares underlying the Warrant are exercised and sold.
   
(1) Applicable percentage ownership is based on 57,848,505 shares of common stock outstanding as of May 28, 2019. Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding.
   
(2) Represents shares of common stock issuable upon exercise of that certain Warrant or conversion of that certain Note in connection with the NPA dated May 20, 2019. The Note may be converted at a conversion price equal to 100% of the average of the five lowest individual daily volume weighted average prices of the shares of common stock, less $0.01 per share, during the period beginning on the issuance date of the Note and ending on the maturity date of the Note. The Note and NPA contain a 4.99% Blocker. John Kirkland, president of the general partner of its managing member, holds sole dispositive power over these shares. The Note Purchase Agreement prohibits the Selling Stockholder from voting any shares held by it except in accordance with the recommendations of the Company’s Board of Directors. Mr. Kirkland is not affiliated with any FINRA members. This Selling Stockholder acquired the securities in the ordinary course of business, and at the time of the purchase of the securities to be resold, the Selling Stockholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities.

 

PLAN OF DISTRIBUTION

 

This prospectus relates to the resale of an aggregate of 25,846,154 shares of our common stock, par value $0.00001 per share.

 

The Selling Stockholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of the shares of our common stock covered by this prospectus on the over-the-counter market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. The Selling Stockholder may sell all or a portion of their respective shares of common stock covered by this prospectus from time to time at prevailing market prices at the time of sale, at varying prices or at negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
     
  block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
     
  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
     
  an exchange distribution in accordance with the rules of the applicable exchange;
     
  privately negotiated transactions;
     
  in transactions through broker-dealers that agree with the Selling Stockholder to sell a specified number of such securities at a stipulated price per security;
     
  through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
     
  a combination of any such methods of sale; or
     
  any other method permitted pursuant to applicable law.

 

The Selling Stockholder may also sell securities under Rule 144 under the Securities Act of 1933, if available, rather than under this prospectus.

 

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Broker-dealers engaged by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as may be set forth in a supplement to this prospectus, in the case of an agency transaction, not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

The Selling Stockholder might not sell any, or all, of the shares of our common stock offered pursuant to this prospectus. In addition, we cannot assure you that the Selling Stockholder will not transfer the shares of our common stock by other means not described in this prospectus.

 

The Selling Stockholder and any brokers, dealers, agents or underwriters that participate with the Selling Stockholder in the distribution of our common stock pursuant to this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In this case, any commissions received by these broker-dealers, agents or underwriters and any profit on the resale of our common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any profits realized by the Selling Stockholder may be deemed to be underwriting commissions. If the Selling Stockholder and any brokers, dealers, agents or underwriters that participate with the Selling Stockholder in the distribution of our common stock pursuant to this prospectus are deemed to be an underwriter, the Selling Stockholder and such other participants in the distribution may be subject to certain statutory liabilities and would be subject to the prospectus delivery requirements of the Securities Act in connection with sales of shares of our common stock.

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholder or any other person. We will make copies of this prospectus available to the Selling Stockholder and will inform them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

DESCRIPTION OF SECURITIES

 

The following is a summary of the rights of our common stock and preferred stock. This summary does not purport to be complete and is qualified in its entirety by the provisions of our articles of incorporation and bylaws, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Nevada law.

 

We have authorized capital stock of 510,000,000 shares, consisting of 500,000,000 shares of common stock, par value $0.00001 per share, and 10,000,000 shares of preferred stock, par value $0.00001 per share, including 51 shares designated as of Series A Preferred Stock.

 

Common Stock

 

We currently have 57,848,505 shares of our common stock issued and outstanding. Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors. Stockholders do not have pre-emptive rights to purchase shares in any future issuance of our common stock.

 

The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders after payment of all creditors.

 

All of the issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.

 

Preferred Stock

 

We are authorized to designate and issue up to 10,000,000 shares of preferred stock, par value of $0.00001. On August 30, 2016, the Board of Directors of the Company, pursuant to Article II of the Company’s Articles of Incorporation, approved the designation of fifty-one (51) shares of its authorized capital stock as “Series A Preferred Stock”. The Certificate of Designation for the Series A Preferred Stock was filed on August 31, 2016. These shares have preferential voting rights and no conversion rights.

  

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Warrants

 

On July 1, 2017, the Company issued 400,000 warrants associated with an investor relations agreement to Red Cloud Klondike Strike, Inc. The warrants have a two year life and are exercisable at 100,000 warrants at $0.55 per share, 100,000 warrants at $0.65 per share and 200,000 warrants at $0.75 per share.

 

During the year ended December 31, 2017, 34,048 three year warrants expired without being exercised. These warrants had an exercise price of $4.95.

 

On January 1, 2018, the Company issued 100,000 warrants associated with the issuance of a convertible note payable to Crown Bridge Partners, LLC. The warrants have a five year life and are exercisable at $0.75 per share.

 

On May 11, 2018, the Company issued 100,000 warrants associated with the issuance of a convertible note payable to Crown Bridge Partners, LLC. The warrants have a five year life and are exercisable at $0.75 per share.

 

On October 25, 2018, the Company issued 100,000 warrants associated with the issuance of a convertible note payable to Crown Bridge Partners, LLC. The warrants have a five year life and are exercisable at $0.75 per share.

 

On March 8, 2019, 100,000 warrants expired and were forfeited without being exercised.

 

The following tables summarize the warrant activity during the three months ended March 31, 2019 and the year ended December 31, 2018:

 

Stock Warrants   Number of
Warrants
    Weighted Average
Exercise Price
 
Balance at December 31, 2017     743,637     $ 1.28  
Granted     300,000       0.75  
Exercised     -       -  
Forfeited     -       -  
Balance at December 31, 2018     1,043,637       1.12  
Granted     -       -  
Exercised     -       -  
Forfeited     (100,000 )     0.75  
Balance at March 31, 2019     943,637     $ 1.16  

 

2019 Outstanding Warrants     Warrants Exercisable  
Range of Exercise Price     Number Outstanding at
March 31, 2019
    Weighted Average Remaining Contractual Life   Weighted Average Exercise Price     Number Exercisable at
March 31, 2019
    Weighted Average Exercise Price  
$ 0.50 - 6.88       943,637     1.52 years   $ 1.16       943,637     $ 1.16  

 

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On May 20, 2019, the Company issued 9,250,000 warrants to the Selling Stockholder in connection with a Note Purchase Agreement. The warrants have a three year life. The exercise price applicable under this Warrant shall be a price per share equal to $0.40 with respect to 3,750,000 shares, $0.50 with respect to 3,000,000 shares, and $0.60 with respect to 2,500,000 shares of common stock.

 

Convertible Notes

 

Convertible notes payable were comprised of the following as of March 31, 2019 and December 31, 2018:

 

Convertible Notes Payable   March 31, 2019     December 31, 2018  
Adar Alef LLC   $ 105,000     $ 105,000  
Antczak Polich Law LLC     430,000       430,000  
Auctus Fund     125,000       125,000  
Coolidge Capital     75,000       75,000  
Coventry Enterprises     50,000       -  
Crossover Capital     -       82,894  
Crown Bridge Partners     55,000       55,000  
Selling Shareholder     -       150,000  
Eagle Equities     103,000       103,000  
Ema Financial     75,000       75,000  
GS Capital Partners     300,000       300,000  
JS Investments     200,000       100,000  
Labrys Funding     582,000       300,000  
LG Capital Funding     100,000       100,000  
Morningview Financial     55,000       55,000  
One 44 Capital     100,000       -  
Power Up Lending     116,000       116,000  
SBI Investments     110,000       110,000  
Scotia International     400,000       -  
Total Convertible Notes Payable     2,981,000       2,281,894  
Less Unamortized Discount     (1,028,583 )     (1,112,499 )
Total Convertible Notes Payable, Net of Unamortized Debt Discount     1,952,417       1,169,395  
Less Short-Term Convertible Notes Payable     (1,636,365 )     (1,169,395 )
Total Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount   $ 316,052     $ -  

 

Adar Alef, LLC – On November 19, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Adar Alef, LLC (“Adar Alef”), in the principal amount of $105,000 (the “Note”) due on November 19, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $25,890 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $105,000 and accrued interest was $3,038.

 

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Antczak Polich Law, LLC – On July 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $300,000 (the “Note”) due on August 1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $300,000 in legal fees due to Antczak for its services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s option, at a fixed conversion price of $0.75 per share. As of March 31, 2019, the gross balance of the note was $300,000 and accrued interest was $17,951.

 

Antczak Polich Law, LLC – On December 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $130,000 (the “Note”) due on December 1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $1300,000 in legal fees due to Antczak for its services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s option, at a fixed conversion price of $0.75 per share. As of March 31, 2019, the gross balance of the note was $130,000 and accrued interest was $3,419.

 

Auctus Fund – On December 4, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Auctus Fund (“Auctus”), in the principal amount of $125,000 (the “Note”) due on September 4, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $112,250 (less an original issue discount (“OID”) of $12,750). The Note is convertible into common stock, at holder’s option, at a 50% discount of the lowest trading price of the common stock during the 25 trading day period prior to conversion. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions on this note. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $41,058 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $125,000 and accrued interest was $4,808.

 

Coolidge Capital, LLC – On November 7, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $75,000. The total net proceeds the Company received was $70,500 (less an original issue discount (“OID”) of $4,500). The Note has a maturity date of August 7, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $4,500 which will be amortized over the life of the note. For the three months ended March 31, 2019, the Company amortized $1,484 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $75,000 and accrued interest was $3,551.

 

Coventry Enterprises, LLC – On February 12, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to Coventry Enterprises, LLC (“Coventry”), in the principal amount of $50,000 (the “Note”) due on February 12, 2020 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $47,500 (less an original issue discount (“OID”) of $2,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $6,438 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $50,000 and accrued interest was $644.

 

Crossover Capital Fund II, LLC – On July 10, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $82,894 (the “Note”) due on April 10, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $75,000 (less an original issue discount (“OID”) of $7,894). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. On January 4, 2019, the Company paid $118,750 to pay off the principal balance of $82,894 and $35,856 in accrued interest and prepayment penalty. For the three months ended March 31, 2019, the Company amortized $30,253 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $0 and accrued interest was $0.

 

Crown Bridge Partners – On October 25, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $55,000 (the “Note”) due on May 11, 2019 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $47,000 (less an original issue discount (“OID”) of $8,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. If the conversion price drops below $0.15 per share, then the conversion price will be 50% of the trading price. The Company issued 100,000 warrants to purchase shares of common stock.in connection with this note. The warrants have a five year life and an exercise price of $0.75 per share. For the three months ended March 31, 2019, the Company amortized $13,562 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $55,000 and accrued interest was $1,183.

 

  18  

 

 

Selling Shareholder – On August 2, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to the Selling Shareholder, in the principal amount of $150,000 (the “Note”) due on August 2, 2020 and bears 10% (24% default) per annum interest, due at maturity. The total net proceeds the Company received was $150,000. The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. If at any time while the note is outstanding, an event of default occurs, then an additional discount of 10% shall be factored into the variable conversion price until the note is no longer outstanding. On January 23, 2019, the Company paid $210,000 to pay off the principal balance of $150,000 and $60,000 in accrued interest and prepayment penalty. For the three months ended March 31, 2019, the Company amortized $119,015 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $0 and accrued interest was $0.

 

Eagle Equities, LLC – On December 12, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $103,000 (the “Note”) due on December 12, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $25,397 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $103,000 and accrued interest was $2,461.

 

EMA Financial – On October 23, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to EMA Financial, in the principal amount of $75,000 (the “Note”) due on July 23, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $67,500 (less an original issue discount (“OID”) of $7,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. However, if the Company’s share price at any time loses the bid, then the conversion price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion price of $0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the conversion shares to the Holder, or any date thereafter while conversion shares are held by the Holder, the closing bid price per share of common stock on the principal market on the trading day on which the common shares are traded is less than the sale price used to calculate the conversion price, then such conversion price shall be automatically reduced using the new low closing bid price and additional shares issued to the Holder. In the event the Company experiences a DTC “Chill” on its shares, or if the closing sale price at any time falls below $0.047, then the conversion price shall be decreased an additional 15% discount. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 15% discount will apply to all future conversions on this note. For the three months ended March 31, 2019, the Company amortized $24,725 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $75,000 and accrued interest was $3,921.

 

GS Capital Partners – On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on August 1, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. On January 22, 2019, the Company paid $133,814 to pay off the principal balance of $100,000 and $33,814 in accrued interest and prepayment penalty. For the three months ended March 31, 2019, the Company amortized $57,515 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $0 and accrued interest was $0.

 

GS Capital Partners – On November 28, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $200,000 (the “Note”) due on November 28, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $190,000 (less an original issue discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $49,315 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $200,000 and accrued interest was $5,392.

 

GS Capital Partners – On January 23, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on February 23, 2020 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $16,919 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $100,000 and accrued interest was $1,468.

 

JSJ Investments – On November 9, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to JSJ Investments (“JSJ”), in the principal amount of $100,000 (the “Note”) due on November 9, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $98,000 (less an original issue discount (“OID”) of $2,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the three months ended March 31, 2019, the Company amortized $24,658 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $100,000 and accrued interest was $4,668.

 

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JSJ Investments – On February 5, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to JSJ Investments (“JSJ”), in the principal amount of $100,000 (the “Note”) due on February 5, 2020 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $98,000 (less an original issue discount (“OID”) of $2,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the three months ended March 31, 2019, the Company amortized $14,795 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $100,000 and accrued interest was $1,775.

 

Labrys Fund LP – On October 26, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with LABRYS FUND, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate principal amount of $300,000. The Note has a maturity date of April 26, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The total net proceeds the Company received was $270,000 (less an original issue discount (“OID”) of $30,000). The Company has the right to prepay the Note, provided it makes a payment to the Purchaser as set forth in the Note within 180 days of its Issue Date. The transactions described above closed on October 26, 2018. In connection with the issuance of the Note, the Company issued to the Purchaser 1,362,398 shares of its common stock (the “Returnable Shares”) that shall be returned to the Company’s treasury if the Note is fully repaid and satisfied. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.11 as set forth in the Note, subject to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions. The Company issued 235,000 shares of common stock in connection with this note, which were valued at $28,200 and recorded as part of the debt discount. The Company recognized a debt discount on this note of $85,473 which will be amortized over the life of the note. For the three months ended March 31, 2019, the Company amortized $42,267 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $300,000 and accrued interest was $15,386.

 

Labrys Fund LP – On January 14, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with LABRYS FUND, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate principal amount of $282,000. The Note has a maturity date of July 14, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The total net proceeds the Company received was $250,000 (less an original issue discount (“OID”) of $32,000). The Company has the right to prepay the Note, provided it makes a payment to the Purchaser as set forth in the Note within 180 days of its Issue Date. The transactions described above closed on January 14, 2019. In connection with the issuance of the Note, the Company issued to the Purchaser 1,000,000 shares of its common stock (the “Returnable Shares”) that shall be returned to the Company’s treasury if the Note is fully repaid and satisfied. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.11 as set forth in the Note, subject to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions. The Company issued 130,000 shares of common stock in connection with this note, which were valued at $17,550 and recorded as part of the debt discount. The Company recognized a debt discount on this note of $113,641 which will be amortized over the life of the note. For the three months ended March 31, 2019, the Company amortized $41,717of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $282,000 and accrued interest was $7,046.

 

LG Capital Funding – On December 7, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to LG Capital Funding (“LG Cap”), in the principal amount of $100,000 (the “Note”) due on December 7, 2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $85,000 (less an original issue discount (“OID”) of $15,000). The Note is convertible into common stock, at holder’s option, for the first 6 months at a fixed price of $0.18 per share and after that date at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount on all future conversions. The Company issued 39,473 shares of common stock in connection with this note, which were valued at $7,500 and recorded as part of the debt discount. The Company recognized a debt discount on this note of $22,500 which will be amortized over the life of the note. For the three months ended March 31, 2019, the Company amortized $5,548 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $100,000 and accrued interest was $3,123.

 

Morningview Financial – On November 26, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Morningview Financial (“Morningview”), in the principal amount of $55,000 (the “Note”) due on November 26, 2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $47,500 (less an original issue discount (“OID”) of $7,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the three months ended March 31, 2019, the Company amortized $13,562 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $55,000 and accrued interest was $1,884.

 

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One 44 Capital, LLC – On January 28, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to One 44 Capital, LLC (“One 44”), in the principal amount of $100,000 (the “Note”) due on December 12, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the three months ended March 31, 2019, the Company amortized $16,986 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $100,000 and accrued interest was $1,699.

 

Power Up Lending Group – On July 12, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $53,000. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of April 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. On January 14, 2019, the Company paid $75,855 to pay off the principal balance of $53,000 and $22,855 in accrued interest and prepayment penalty. For the three months ended March 31, 2019, the Company amortized $1,233 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $0 and accrued interest was $0.

 

Power Up Lending Group – On October 22, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of July 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. For the three months ended March 31, 2019, the Company amortized $961 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $63,000 and accrued interest was $3,314.

 

Power Up Lending Group – On January 11, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $53,000. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of October 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. For the three months ended March 31, 2019, the Company amortized $812 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $53,000 and accrued interest was $1,377.

 

SBI Investments – On December 17, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to SBI Investments, LLC (“SBI”), in the principal amount of $110,000 (the “Note”) due on June 17, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 50% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions on this note. If at any time while the note is outstanding, an event of default occurs, then an additional discount of 15% shall be factored into the variable conversion price until the note is no longer outstanding. For the three months ended March 31, 2019, the Company amortized $54,396 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $110,000 and accrued interest was $2,507.

 

Scotia International of Nevada, Inc. – On January 10, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to Scotia International of Nevada, Inc. (“Scotia”), in the principal amount of $400,000 (the “Note”) due on January 10, 2022 and bears 6% per annum interest, due at maturity. The Note was issued as part of a buyout agreement on the net smelter royalty due Scotia on the precious metals mined from the Company’s mining operation in Honduras. The Note is convertible into common stock, at holder’s option, at $0.50 per share as long as the Company’s common stock’s bid price is less than $0.75 per share. If the bid price is more than $0.75 per share, then Scotia may elect to convert at the average bid price of the common stock during the 10 trading day period prior to conversion. For the three months ended March 31, 2019, the Company amortized $6,610 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $400,000 and accrued interest was $5,261.

 

Subsequent Notes

 

Since March 31, 2019, the Company has entered into the following convertible notes:

 

On April 3, 2019, the Company issued a secured promissory note with WOC Energy, LLC for $60,000 with an interest rate of 5.00 % and matures on May 10, 2019. The Company received $60,000 in cash. This note was collateralized by a specific lot of precious metals being shipped from the mining operation in Honduras to the US for refining.

 

On April 9, 2019, the Company issued a secured promissory note with Debra D’Ambrosio for $100,000 with an interest rate of 5.00 % and matures on May 15, 2019. The Company received $100,000 in cash. This note was collateralized by all open lots of precious metals being shipped from the mining operation in Honduras to the US for refining.

 

On April 16, 2019, the Company issued a secured promissory note with WOC Energy, LLC for $57,750 with an interest rate of 5.00 % and matures on May 23, 2019. The Company received $57,750 in cash. This note was collateralized by a specific lot of precious metals being shipped from the mining operation in Honduras to the US for refining.

 

On April 16, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of February 20, 2020 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The accounting for this note is still being determined by the Company.

 

On April 18, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $55,000 (the “Note”) due on April 18, 2020 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $47,000 (less an original issue discount (“OID”) of $8,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. If the conversion price drops below $0.15 per share, then the conversion price will be 50% of the trading price. The accounting for this note is still being determined by the Company.

 

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Scotia International of Nevada, Inc. – On January 10, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to Scotia International of Nevada, Inc. (“Scotia”), in the principal amount of $400,000 (the “Note”) due on January 10, 2022 and bears 6% per annum interest, due at maturity. The Note was issued as part of a buyout agreement on the net smelter royalty due Scotia on the precious metals mined from the Company’s mining operation in Honduras. The Note is convertible into common stock, at holder’s option, at $0.50 per share as long as the Company’s common stock’s bid price is less than $0.75 per share. If the bid price is more than $0.75 per share, then Scotia may elect to convert at the average bid price of the common stock during the 10 trading day period prior to conversion. For the three months ended March 31, 2019, the Company amortized $6,610 of debt discount to current period operations as interest expense. As of March 31, 2019, the gross balance of the note was $400,000 and accrued interest was $5,261.

 

Anti-Takeover Effects of Our Articles of Incorporation and Bylaws

 

Certain provisions of Nevada law, our amended and restated articles of incorporation and bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of the Company by means of a tender offer, proxy contest or otherwise, or by changing its Board of Directors and management. According to our articles of incorporation and bylaws, neither the holders of our common stock nor the holders of any preferred stock have cumulative voting rights in the election of our directors. The lack of cumulative voting and the combination of the present ownership by a few stockholders of a significant portion of the Company’s issued and outstanding capital stock makes it more difficult for other stockholders to replace our Board of Directors or for a third party to obtain control of the Company by replacing its Board of Directors.

 

Anti-Takeover Effects of Nevada Law

 

Business Combinations

 

The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, generally prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder for a period of two years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the Board of Directors prior to the date the interested stockholder obtained such status or the combination is approved by the Board of Directors and thereafter is approved at a meeting of the stockholders by the affirmative vote of stockholders representing at least 60% of the outstanding voting power held by disinterested stockholders, and extends beyond the expiration of the two-year period, unless:

 

  the combination was approved by the Board of Directors prior to the person becoming an interested stockholder or the transaction by which the person first became an interested stockholder was approved by the Board of Directors before the person became an interested stockholder or the combination is later approved by a majority of the voting power held by disinterested stockholders; or
     
  if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the two years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.

 

A “combination” is generally defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer, or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, (c) 10% or more of the earning power or net income of the corporation, and (d) certain other transactions with an interested stockholder or an affiliate or associate of an interested stockholder.

 

In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within two years, did own) 10% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our Company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

 

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Control Share Acquisitions

 

The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS apply to “issuing corporations” that are Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and that conduct business directly or indirectly in Nevada. The control share statute prohibits an acquirer, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Generally, once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.

 

A corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws, provided that the opt-out election must be in place on the 10th day following the date an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. We have not opted out of the control share statutes and will be subject to these statutes if we are an “issuing corporation” as defined in such statutes.

 

The effect of the Nevada control share statutes is that the acquiring person, and those acting in association with the acquiring person, will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders at an annual or special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of our Company.

 

Disclosure of Commission Position on Indemnification for Securities Act Liabilities

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Colonial Stock Transfer Company, Inc. The transfer agent’s address is 66 Exchange Place, Suite 100, Salt Lake City, UT 84111, and its telephone number is (801) 355-5740.

 

Market Listing

 

Our common stock is listed for quotation on the OTCQB Tier of the OTC Markets Group, Inc. under the symbol “IMII.”

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

The financial statements of Inception Mining, Inc. as of and for the periods ended December 31, 2018 and December 31, 2017 included in this prospectus have been audited by Sadler, Gibb & Associates, LLC, independent registered public accounting firm, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern as described in Note 2 to the financial statements) appearing elsewhere in this document and in the registration statement filed with the SEC, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, an interest, direct or indirect, in the registrant or any of its parents or subsidiaries. No other person is connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee. Brunson Chandler & Jones, PLLC has provided an opinion on the validity of our common stock.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities we are offering to sell. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement and the exhibits, schedules and amendments to the registration statement. For further information with respect to us and our securities, we refer you to the registration statement and to the exhibits and schedules to the registration statement. Statements contained in this prospectus about the contents of any contract, agreement or other document are not necessarily complete, and, in each instance, we refer you to the copy of the contract, agreement or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

 

You may read and copy the registration statement of which this prospectus is a part at the SEC’s public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. You can request copies of the registration statement by writing to the Securities and Exchange Commission and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s public reference room. In addition, the SEC maintains a website, which is located at www.sec.gov , that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC’s website.

 

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We are subject to the information reporting requirements of the Securities Exchange Act of 1934, and we will file reports, proxy statements and other information with the SEC. All documents filed with the SEC are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at www.beyondcommerceinc.com. You may access our reports, proxy statements and other information free of charge at this website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information on such website is not incorporated by reference and is not a part of this prospectus.

 

INFORMATION WITH RESPECT TO THE REGISTRANT

 

Business

 

Inception Mining, Inc. (formerly known as Gold American Mining Corp.) was incorporated under the name of Golf Alliance Corporation and under the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. is a precious metal mineral acquisition, exploration and development company. Inception Development, Inc., its wholly owned subsidiary, was incorporated under the laws of the State of Idaho on January 28, 2013.

 

Golf Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided to redirect its business focus toward precious metal mineral acquisition and exploration.

 

On March 5, 2010, the Company amended its articles of incorporation to (1) to change its name to Silver America, Inc. and (2) increased its authorized common stock from 100,000,000 to 500,000,000.

 

On June 23, 2010 the Company amended its articles of incorporation to change its name to Gold American Mining Corp.

 

On February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently, the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.

 

On May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception” or the “Company”).

 

On October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. and holds other mining concessions. Pursuant to the agreement, the Company issued of 240,225,901 shares of common stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early Mayan and Spanish occupation.

 

The Company’s primary mine is located on the 200 hectare Clavo Rico Concession, located in southern Honduras. This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest and later increased its ownership to 99.9%.

 

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Business Strategy

 

The Company’s business strategy is focused on creating value for stakeholders through the ownership and advancement of the Clavo Rico mine and other exploration opportunities for gold-focused projects. Since the Merger in 2015, the Company has implemented many upgrades and efficiencies at the Clavo Rico mine, and continues to focus on making the mining operations in Honduras more efficient and transparent. The Company plans to accelerate its exploration program at the Clavo Rico mine through additional drilling and studies with the intent of identifying mineralized material. The Company may pursue acquisitions and joint ventures that are value accretive to its stockholders through the pursuit of similarly attractive gold-focused projects.

 

Industry Operating Environment

 

In 2013, the Government of Honduras instituted the Ley General de Minería (“General Mining Law”) Decreto No. 32‒2013 and created the Instituto Hondureño de Geología y Minas (INHGEOMIN). INHGEOMIN has the legal authority to execute the national mining policy, develop plans, programs, and projects related to mining and to create administrative, operational, and technical units within the mining sector. Article 6 of the Mining Law implements the system of concession permits for mining, except for artisanal and small-scale mining, which require participation in a registration system. Inception Mining obtained the Clavo Rico concession in 2015, which provides indefinite exclusive mining rights under the Ley General de Minería of 2013, in exchange for demonstration of geologic activity and an annual fee. The government encourages mining enterprises to conduct value-added processing in the country and to engage a local workforce, which Inception Mining supports.

 

Competition

 

We compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities, personnel and financial resources. There is a limited supply of desirable mineral lands available for claim-staking, lease or acquisition in the United States, Honduras, and other areas where we may conduct exploration activities. Because we compete with individuals and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage in acquiring desirable mineral properties. From time to time, specific properties or areas that would otherwise be attractive to us for exploration or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial resources. Competition in the mining industry is not limited to the acquisition of mineral properties but also extends to the technical expertise to find, advance, and operate such properties; the labor to operate the properties; and the capital needed to fund the acquisition and operation of such properties. Competition may result in our company being unable not only to acquire desired properties, but to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration activities or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation and business. The mineral exploration industry is highly fragmented, and we are a very small participant in this sector. Many of our competitors explore for a variety of minerals and control many different properties around the world. Many of them have been in business longer than we have and have established strategic partnerships and relationships and have greater financial resources than we do.

 

There is significant competition for properties suitable for gold exploration. As a result, we may be unable to continue to acquire interests in attractive properties on terms that we consider acceptable. We will be subject to competition and unforeseen limited sources of supplies in the industry in the event spot shortages arise for supplies such as dynamite, and certain equipment such as drill rigs, bulldozers and excavators that we will need to conduct exploration. If we are unsuccessful in securing the products, equipment and services we need we may have to suspend our exploration plans until we are able to secure them.

 

Marketing and Customers

 

Readily available commodities markets exist in the U.S. and around the world for the sale of minerals. Therefore, we will likely be able to sell minerals that we are able to recover.

 

Governmental Regulation and Environmental Matters

 

Mining Operations

 

UP and BURLINGTON (Lemhi County, Idaho)

 

The mine operations in Idaho are governed by both federal and state law. We are required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the United States generally. Federal laws, such as those governing the purchase, transport or storage of explosives, and those governing mine safety and health, also apply. The Company plans to obtain a Lemhi County Conditional Use Permit, an Idaho Department of Lands Surface Reclamation Bond and permitting for the U.S. Forest Service Access Road.

 

When this mine comes into production, we will also be subject to the rules and regulations of the Mine Safety and Health Administration, a Division of the United States Department of Labor.

 

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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.

 

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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, 2018, 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. As part of our purchase of UP and Burlington, we granted a net smelter royalty (“NSR”) of 3% of production in the UP and Burlington mine.

 

Existing and Probable Government Regulation to Our Current and Intended Business

 

Exchange Act

 

We are subject to the following regulations of the Exchange Act, and applicable securities laws, rules and regulations promulgated under the Exchange Act by the SEC. Compliance with these requirements of the Exchange Act increases our legal and accounting costs.

 

Smaller Reporting Company

 

We are subject to the reporting requirements of Section 13 of the Exchange Act, and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.” That designation will relieve us of some of the informational requirements of Regulation S-K.

 

Sarbanes/Oxley Act

 

We are also subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes/Oxley Act”). The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act will substantially increase our legal and accounting costs.

 

Exchange Act Reporting Requirements

 

Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in SEC Regulation 14A. Matters submitted to shareholders at a special or annual meeting thereof or pursuant to a written consent will require us to provide our shareholders with the information outlined in Schedules 14A (where proxies are solicited) or 14C (where consents in writing to the action have already been received or are anticipated to be received) of SEC Regulation 14, as applicable; and preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies are forwarded to our shareholders.

 

We are also required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in Current Reports on Form 8-K.

 

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Reports to Security Holders

 

We are subject to the reporting and other requirements of the Exchange Act, and we intend to furnish our shareholders annual reports containing financial statements audited by our independent registered public accounting firm and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year. We file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements. We may also file additional documents with the Commission if they become necessary in the course of our Company’s operations.

 

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.

 

DESCRIPTION OF PROPERTY

 

UP and Burlington Gold Mine, Salmon, Lemhi County, Idaho

 

On February 25, 2013, the Company acquired certain real property and mineral rights commonly known as the UP and Burlington Gold Mine (“UP and Burlington”) pursuant to an asset purchase agreement. We are presently in the exploration stage at UP and Burlington. The UP and Burlington project consists of two federal patented mining claims, which Inception Resources Mining acquired for the purpose of the exploration and potential development of gold on the 40 acres that comprise this property.

 

Discovered in 1892, UP and Burlington is a private gold property that has been held unused for the past 75 years. UP and Burlington is located in Lemhi County, northwest of Salmon, Idaho, at an elevation of 7,994 feet. The UP and Burlington site is located six miles from the city of Salmon; 0.6 miles from the closest major road (Ridge Rd.); and 1.56 miles from the closest major power line. We believe Salmon, along with the surrounding County of Lemhi, provides an excellent infrastructure for our mine. Salmon has a population of 3,122 and Lemhi County has a population of 7,806.

 

UP and Burlington’s two gold mining claims were brought to patent in 1900, which covers the Mine’s 40 acres. Subsequently, in 1989, a U.S. Forest Survey was performed on the UP and Burlington site confirming that the patented claims cover an area that is six hundred feet by three thousand feet (600’ x 3000’). The Mine’s patented claims remove the challenges associated when working on U.S. Forest lands, Bureau of Land Management (“BLM”), state or other property types. With our purchase of UP and Burlington, we have the benefit of working on private land, which requires only a hauling/road permit to commence significant operations.

 

The Company has obtained the necessary permitting, cut additional access roads, made surface improvements, and initiated surface mining on a 2,500 foot per day lighted vein for bulk sampling, vein definition and material evaluation. In Phase II, we plan to contract with an underground mining contractor to expand portal development leveraging existing underground access, and implement an underground mining operation. There is no guarantee that we will be successful in implementing any stage of our plans.

 

Our plan includes the continuation of obtaining a Lemhi County Conditional Use Permit and an Idaho Department of Lands Surface Reclamation Bond. Since receiving the permitting for the U.S. Forest Service Access Road, the access road is now complete. In addition, we have contracts such as geotechnical contracts, mining contracts, toll processing contracts, and underground mine plan contracts.

 

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UP and Burlington as located in Idaho.

 

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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, 2023.

 

At this property and during the period covered under this registration statement, the Company extracted 91,932 tons of material through surface operations, with an average grade of 2.46 grams of gold per ton and 0.84 grams of silver per ton. After processing this material using the on-site leach pad, the Company produced 2,932 ounces of gold for a gold recovery percentage of 40.20% and 998 ounces of silver for refining, for a silver recovery percentage of 40.19%

 

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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.

 

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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.

 

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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 three months ended March 31, 2019, we paid monthly rent of approximately $1,000 for use of a corporate office, which we anticipate will be sufficient in the short term.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

Except for historical information, the following Management’s Discussion and Analysis contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) discussions about mineral resources and mineralized material, (b) our projected sales and profitability, (c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for working capital, (g) our lack of operational experience and (h) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.

 

Overview

 

On February 25, 2013, Inception Mining, Inc. (“Inception” or the “Company”) and its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which Inception purchased the UP 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 smelter royalty, which may increase or decrease depending on the amount of gold produced. Inception Resources was an entity owned by and under the control of a shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). We were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of the gold mine pursuant to the terms of the Assert Purchase Agreement. As a result of such acquisition, our operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently, we believe that acquisition has caused us to cease to be a shell company as we no longer have nominal operations.

 

We are a mining company engaged in the production, acquisition, exploration, and development of mineral properties, primarily for gold, from owned mining properties. Inception Resources has acquired two projects, as described below. Our target properties are those that have been the subject of historical exploration.

 

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” or the “Mine”) pursuant to that certain asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). Accordingly, the Company owns and controls this property exclusively; there are no third parties who impose conditions of any kind on operations at this location. We are presently in the exploration stage at UP and Burlington. UP and Burlington contains two federal patented mining claims which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises UP and Burlington. Production at this mine is subject to a 3% net smelter royalty, which may increase or decrease depending on the amount of gold produced.

 

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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. The UP and Burlington site is located six miles from the city of Salmon; is 0.6 miles away from the closest major road (Ridge Rd.); and is 1.56 miles away from the closest major power line. We believe Salmon, along with the surrounding County of Lemhi, provides an excellent infrastructure for our mine. Salmon has a population of 3,122 and Lemhi County has a population of 7,806. In 2014-2015, heavy maintenance and right-of-way repair was completed and a new road to UP and Burlington mine site was constructed.

 

UP and Burlington’s two gold mining claims were brought to patent in 1900, which covers the Mine’s 40 acres. Subsequently, in 1989, a U.S. Forest Survey was performed on the UP and Burlington site confirming that the patented claims cover an area which is six hundred feet by three thousand feet (600’x3000’). The Mine’s patented claims remove the challenges associated when working on U.S. Forest lands, Bureau of Land Management (“BLM”), state or other property types. With our purchase of UP and Burlington, we have the benefit of working on private land, which requires only a hauling / road permit to commence significant operations.

 

The Company has obtained the necessary permitting, cut additional access roads, made surface improvements, and initiated surface mining on a 2,500 foot per day lighted vein for bulk sampling, vein definition and ore valuation. In Phase II, we plan to contract an underground mining and operations plan, expand portal development leveraging existing underground access, and implement underground mining to a depth based on optimizing costs versus processed ore value. There is no guarantee that we will be successful in implementing any stage of our plans.

 

Our plan includes the continuation of obtaining a Lemhi County Conditional Use Permit and an Idaho Department of Lands Surface Reclamation Bond. Since receiving the permitting for the U.S. Forest Service Access Road, the access road is now complete. In addition, we have contracts such as geotechnical contracts, mining contracts, toll processing contracts, and underground mine plan contracts.

 

The Company and its independent consultants are in the process of developing a detailed exploration-drilling program to confirm and expand mineralized zones in the Mine and collect additional environmental and technical data. The first phase began in 2013. The Company intends to continue drilling, metallurgical testing, engineering and environmental programs and studies and has updated the historic feasibility study and environmental permit applications.

 

We also plan to review opportunities and acquire additional mineral properties with current or historic precious and base metal mineralization with meaningful exploration potential.

 

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 June 30, 2023. The Company has engaged in preliminary drilling of this area.

 

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Recent Developments

 

On April 3, 2019, the Company issued a secured promissory note with WOC Energy, LLC for $60,000 with an interest rate of 5.00 % and matures on May 10, 2019. The Company received $60,000 in cash. This note was collateralized by a specific lot of precious metals being shipped from the mining operation in Honduras to the US for refining.

 

On April 9, 2019, the Company issued a secured promissory note with Debra D’ambrosio for $100,000 with an interest rate of 5.00 % and matures on May 15, 2019. The Company received $100,000 in cash. This note was collateralized by all open lots of precious metals being shipped from the mining operation in Honduras to the US for refining.

 

On April 16, 2019, the Company issued a secured promissory note with WOC Energy, LLC for $57,750 with an interest rate of 5.00 % and matures on May 23, 2019. The Company received $57,750 in cash. This note was collateralized by a specific lot of precious metals being shipped from the mining operation in Honduras to the US for refining.

 

On April 16, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of February 20, 2020 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The accounting for this note is still being determined by the Company.

 

On April 18, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $55,000 (the “Note”) due on April 18, 2020 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $47,000 (less an original issue discount (“OID”) of $8,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. If the conversion price drops below $0.15 per share, then the conversion price will be 50% of the trading price. The accounting for this note is still being determined by the Company.

 

On May 20, 2019, we entered into a Note Purchase Agreement (“NPA”) with the Selling Stockholder, pursuant to which we issued (i) a Senior Secured Redeemable Convertible Note (the “Note”) with an aggregate face value of $4,250,000 (of which $1,250,000 was retained by the Selling Stockholder as an original issue discount) and (ii) a common stock purchase warrant (the “Warrant”) to purchase 9,250,000 shares of common stock in exchange for $3,000,000 cash consideration. As long as a Trigger Event (as defined in the Note) has not occurred, the Note is subject to interest at a rate of 10.0% per annum and may be converted into shares of the Company’s common stock at a price equal to 100% of the average of the five lowest individual daily volume weighted average prices of the shares of common stock, less $0.01 per share, during the period beginning on the issuance date of the Note and ending on the maturity date of the Note. For each Trigger Event that occurs, the interest rate of the Note will increase by 10% and the discount to the conversion price will increase by 10%. The Conversion Price shall not be less than $0.01 per share of common stock (the “Floor Price”), unless an event of default has occurred, in which case the Floor Price is not applicable. In no event will the Conversion Price be less than the par value of the Company’s common stock per share. The Selling Stockholder transaction closed on May 20, 2019. “Trigger Events” that will result in less favorable financial terms for the Company include delays in receiving the conversion shares, the issuance of restricted shares if investor provides a legal opinion that shares may be issued without a restrictive legend, the issuance of a certificate if investor requests electronic delivery via DTC, the failure to timely perform obligations in the Transaction Documents, inaccurate representations in the NPA, events of default over $250,000, bankruptcy, insolvency, or reorganization, a lapse in the effectiveness of a registration statement, the suspension from trading on the trading market, the failure to meet the listing requirements of the trading market, notice that the Company intends not to comply with a conversion notice, the admission of the Company of its inability to pay its debts as they become due or appointment of a custodian or receiver, a judgment or judgments in excess of $250,000, delays in filing public reports, the initiation of an administrative or enforcement proceeding, and the Company’s common stock is under chill or freeze by DTC.

 

Results of Operations

 

Three months ended March 31, 2019 compared to the Three months ended March 31, 2018

 

We incurred a net loss of $3,786,821 for the three-month period ended March 31, 2019, and a net loss of $1,485,706 for the three-month period ended March 31, 2018. This change in our results over the two periods is primarily the result of the change in derivative liabilities. The following table summarizes key items of comparison and their related increase (decrease) for the three-month periods ended March 31, 2019 and 2018:

 

    Three Months Ended March 31,     Increase/  
    2019     2018     (Decrease)  
Revenues   $ 921,442     $ 1,179,440     $ (257,998 )
Cost of Sales     1,228,511       1,687,599       (459,088 )
General and Administrative     620,321       477,811       142,510  
Depreciation and Amortization Expenses     9,088       10,275       (1,187 )
Total Operating Expenses     1,857,920       2,175,685       (317,765 )
Income (Loss) from Operations     (936,478 )     (996,245 )     (59,767 )
Other Income (expense)     (16 )     131       147  
Change in Derivative Liabilities     (1,494,989 )     301,974       1,796,963  
Loss on Extinguishment of Debt     (5,000 )     -       5,000  
Interest Expense     (1,350,338 )     (791,566 )     558,772  
Income (Loss) from Operations Before Taxes     (3,786,821 )     (1,485,706 )     2,301,115  
Net Income (Loss)   $ (3,786,821 )   $ (1,485,706 )   $ 2,301,115  

 

Revenues decreased because of the crusher problems that the mine has been working on fixing since the end of 2018. Crushing production has been using a backup crusher so the mine is currently not putting as much material on the leach pad as capacity allows.

 

Cost of sales decreased because the write-down of the inventory in process during 2018.

 

General and administrative expenses increased for the following reasons: Legal fees decreased by $48,640. Accounting and auditor fees increased by $75,340. Sales tax and income tax in Honduras increased by $80,527. Consulting expense decreased by $140,051, of which stock based compensation decreased by $99,138. Salaries and wages expense increased by $112,996. And finally, investor relations expense increased by $54,598.

 

Changes in derivative liabilities increased because of the valuation of these derivatives and the relation to the Company’s stock price increasing.

 

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Interest expense increased because of the number of convertible notes that have been paid off during the prepayment penalty periods to avoid conversion of these notes by the Company.

 

Liquidity and Capital Resources

 

Our balance sheet as of March 31, 2019 reflects assets of $1,238,477. We had cash in the amount of $40,939 and working capital deficit in the amount of $21,659,235 as of March 31, 2019. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.

 

Working Capital

 

    March 31, 2019     December 31, 2018  
Current assets   $ 490,818     $ 653,395  
Current liabilities     22,150,053       19,096,378  
Working capital deficit   $ (21,659,235 )   $ (18,442,983 )

 

We anticipate generating losses and, therefore, may be unable to continue operations in the future, if we don’t acquire additional capital and issue debt or equity or enter into a strategic arrangement with a third party.

 

Going Concern Consideration

 

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company and has an accumulated deficit of $25,795,942. In addition, there is a working capital deficit of $21,659,235 as of March 31, 2019. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

    Three Months Ended March 31,  
    March 31, 2019     March 31, 2018  
Net Cash Provided by (Used in) Operating Activities   $ (218,074 )   $ 285,091  
Net Cash Used in Investing Activities     (104,459 )     (6,471 )
Net Cash Provided by (Used in) Financing Activities     312,646       (239,221 )
Effects of Exchange Rate Changes on Cash     (31 )     (3,915 )
Net Increase (Decrease) in Cash   $ (9,918 )   $ 35,484  

 

Operating Activities

 

Net cash flow used in operating activities during the three months ended March 31, 2019 was $218,074, a decrease of $503,165 from the $285,091 net cash provided during the three months ended March 31, 2018. This decrease in the cash provided by operating activities was primarily due to lower precious metal sales and increased interest expense paid out in cash.

 

Investing Activities

 

Investing activities during the three months ended March 31, 2019 used $104,459, an increase of $97,988 from the $6,471 used by activities during the three months ended March 31, 2018. During the three months ended March 31, 2019, the Company purchased $104,459 in fixed assets.

 

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Financing Activities

 

Financing activities during the three months ended March 31, 2019 provided $312,646, an increase of $551,867 from the $239,221 used in financing activities during the three months ended March 31, 2018. During the three months ended March 31, 2019, the Company received $450,000 in proceeds from notes payable - related parties, $635,500 in proceeds from convertible notes payable and $48,750 in proceeds from the sale of common stock. The Company made $453,260 in payments on notes payable – related parties and $385,894 in payments on convertible notes payable.

 

Year ended December 31, 2018 compared to the year ended December 31, 2017

 

We had a net loss of $5,627,050 for the year ended December 31, 2018, which was $2,242,523 more than the net loss of $3,384,527 for the year ended December 31, 2017. This change in our results over the two periods is primarily the result of an increase in interest expense from the debt discounts from convertible notes the associated derivative liabilities of $2,629,246 and that is offset with the increase of $557,835 in the change of derivative liabilities, an increase in interest expense paid in cash of $675,574 and the write-down of metals in process on the leach pad of $1,058,812. The following table summarizes key items of comparison and their related increase (decrease) for the years ended December 31, 2018 and 2017.

 

    Year Ended December 31,     Increase/  
    2018     2017     (Decrease)  
Revenues   $ 3,967,869     $ 3,631,759     $ 336,110  
Cost of Sales     3,740,708       3,754,072       (13,364 )
General and Administrative     2,035,203       1,449,735       585,468  
Depreciation and Amortization Expenses     38,237       115,929       (77,692 )
Total Operating Expenses     5,814,148       5,319,736       494,412  
Income (Loss) from Operations     (1,846,279 )     (1,687,977 )     158,302  
Other Income (expense)     4,942       12,567       7,625  
Change in Derivative Liabilities     979,561       421,726       557,835  
Loss on Extinguishment of Debt     (8,510 )     (3,325 )     5,185  
Interest Expense     (4,756,764 )     (2,127,518 )     2,629,246  
Income (Loss) from Operations Before Taxes     (5,627,050 )     (3,384,527 )     2,242,523  
Net Income (Loss)   $ (5,627,050 )   $ (3,384,527 )   $ 2,242,523  

 

Liquidity and Capital Resources

 

Our balance sheet as of December 31, 2018, reflects assets of $1,354,295. As we had cash in the amount of $50,857 and a working capital deficit in the amount of $18,442,983 as of December 31, 2018, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.

 

Working Capital

 

    December 31, 2018     December 31, 2017  
Current assets   $ 653,395     $ 1,528,591  
Current liabilities     19,096,378       15,037,381  
Working capital deficit   $ (18,442,983 )   $ (13,508,790 )

 

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We anticipate generating losses and, therefore, may be unable to continue operations in the future. If we require additional capital, we would have to issue debt or equity or enter into a strategic arrangement with a third party.

 

Going Concern Consideration

 

As reflected in the accompanying financial statements, the Company has a net loss since inception of $22,009,285. In addition, there is a working capital deficiency of $18,442,983 and a stockholder’s deficiency of $18,075,011 as of December 31, 2018. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

On March 5, 2010, the Company changed its intended business purpose to that of precious metals mineral exploration, development and production. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

 

Cash Flows

 

    Year Ended December 31,  
    2018     2017  
Net Cash Provided by (Used in) Operating Activities   $ (175,029 )   $ (39,922 )
Net Cash Used in Investing Activities     (30,499 )     (287,501 )
Net Cash Provided by (Used in) Financing Activities     199,650       184,608  
Effects of Exchange Rate Changes on Cash     4,933       (35 )
Net Increase (Decrease) in Cash   $ (945 )   $ (142,850 )

 

Operating Activities

 

Net cash flow used in operating activities during the year ended December 31, 2018 was $175,029, an increase of $135,107 from the $39,923 net cash used in operating activities during the year ended December 31, 2017. This increase is mostly due to a decrease in inventory and an increase in accounts payable and accrued liabilities (related and non-related parties).

 

Investing Activities

 

Cash used in investing activities during the year ended December 31, 2018 was $30,499, a decrease of $257,002 from the $287,501 net cash outflow during the year ended December 31, 2017. This decrease was due to fewer purchases of fixed assets.

 

Financing Activities

 

Financing activities during the year ended December 31, 2018, provided $199,650 to us, an increase of $15,042 from the $184,608 provided by financing activities during the year ended December 31, 2017. During the year ended December 31, 2018, the company received $0 from notes payable, $1,813,200 in notes payable from related parties, $2,637,500 in convertible notes payable, made payments of $120,000 in cash on notes payable, $2,550,006 in cash on notes payable – related parties and $1,688,500 in cash on convertible notes.

 

Critical 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 the three months ended March 31, 2019, the Company recorded a net loss of $3,786,821 and used $200,524 in cash from operating activities. The Company has a net loss since inception of $25,795,942. In addition, there is a working capital deficiency of $21,659,235 and a stockholder’s deficiency of $21,568,161 as of March 31, 2019. 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 financials statements.

 

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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.

 

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

 

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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.

 

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.

 

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 $2,193 and $13,891 for the three months ended March 31, 2019 and the year ended December 31, 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.

 

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Recent Accounting Pronouncements

 

For recent accounting pronouncements, please refer to the notes to the financial statements section of this registration statement.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Contractual Obligations

 

Not applicable to smaller reporting companies.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, or capital resources.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Identification of Directors and Executive Officers

 

Our Bylaws state that our authorized number of directors shall be one or more and shall be set by resolution of our Board of Directors. We currently have two directors.

 

Our current directors and officers are as follows:

 

Name and Business Address   Age   Position
Trent D/Ambrosio   54   CEO, CFO and Director
Whit Cluff   68   Director

 

Our directors will serve in that capacity until our next annual shareholder meeting or until a successor is elected and qualified. Officers hold their positions at the will of our Board of Directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.

 

Trent D’Ambrosio, Chief Executive Officer, Chief Financial Officer, and Director

 

Mr. D’Ambrosio has been a Director of Inception Mining Inc. since February 28, 2013. From October 2011 through March 2013, Mr. D’Ambrosio held the positions of Interim Chief Executive Officer and Chief Financial Officer of Inception Holdings LLC, a resource exploration company, and was the responsible for the overall strategic direction for the organization. His professional record includes 25 years of management and financial services experience with companies ranging from Fortune 500 companies to start ups.

 

Whit Cluff, Director

 

Mr. Cluff has over 35 years of experience in the commercial real estate industry. Mr. Cluff has been involved in all disciplines of real estate land development, mixed-use development, retail tenant representation, developer representation, industrial property procurement and asset management. Mr. Cluff has an extensive background in public and private businesses giving him strong analytical, planning, and organization ability with effective negotiation skills. From 2003 through the present, Mr. Cluff has served as Vice President and Associate Broker at Coldwell Banker Commercial, NRT in Salt Lake City, Utah. Mr. Cluff attended the University of Utah and served in the United States Army.

 

Other Directorships

 

Other than as set forth above, none of our directors hold any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.

 

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Board of Directors and Director Nominees

 

Since our Board of Directors does not include a majority of independent directors, the decisions of the Board regarding director nominees are made by persons who have an interest in the outcome of the determination. The Board will consider candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, at any time not less than 90 days prior to the next annual Board meeting at which a slate of director nominees is adopted, the Board will accept written submissions from proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as a director; and a statement as to why the security holder submitting the proposed nominee believes that the nomination would be in the best interests of our security holders. If the proposed nominee is not the same person as the security holder submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the nominee’s qualifications to serve on the Board, as well as a list of references.

 

The Board identifies director nominees through a combination of referrals from different people, including management, existing Board members and security holders. Once a candidate has been identified, the Board reviews the individual’s experience and background and may discuss the proposed nominee with the source of the recommendation. If the Board believes it to be appropriate, Board members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of the slate of director nominees submitted to security holders for election to the Board.

 

Some of the factors, which the Board considers when evaluating proposed nominees, include their knowledge of and experience in business matters, finance, capital markets and mergers and acquisitions. The Board may request additional information from each candidate prior to reaching a determination, and it is under no obligation to formally respond to all recommendations, although as a matter of practice, it will endeavor to do so.

 

Conflicts of Interest

 

Our directors are not obligated to commit their full time and attention to our business and, accordingly, they may encounter a conflict of interest in allocating their time between our operations and those of other businesses. In the course of their other business activities, they may become aware of investment and business opportunities which may be appropriate for presentation to us as well as other entities to which they owe a fiduciary duty. As a result, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. They may also in the future become affiliated with entities that are engaged in business activities similar to those we intend to conduct.

 

In general, officers and directors of a corporation are required to present business opportunities to the corporation if:

 

the corporation could financially undertake the opportunity;
   
the opportunity is within the corporation’s line of business; and
   
it would be unfair to the corporation and its stockholders not to bring the opportunity to the attention of the corporation.

 

We plan to adopt a code of ethics that obligates our directors, officers and employees to disclose potential conflicts of interest and prohibits those persons from engaging in such transactions without our consent.

 

Significant Employees

 

Other than as described herein, we do not expect any other individuals to make a significant contribution to our business.

 

Legal Proceedings

 

None of our directors, executive officers or control persons has been involved in any of the following events during the past five years:

 

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
   
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
   
being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, where the judgment has not been reversed, suspended, or vacated.

 

  42  

 

 

No Audit Committee or Financial Expert

 

The Company does not have an audit committee or a financial expert serving on the Board of Directors. The Company plans to form and implement an audit committee as soon as practicable.

 

Family Relationships

 

There are no family relationships among our officers, directors, or persons nominated for such positions.

 

Code of Ethics

 

We have not yet adopted a code of ethics that applies to our principal executive officer and principal accounting officer but intend to do so this year.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act of 1934, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash only rights) and any changes in that ownership with the Securities and Exchange Commission. The Company has evaluated all relevant Section 16(a) filings and has determined that the company is compliant with this section to the best of its knowledge.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table lists, as of May 29, 2019, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using beneficial ownership‚ concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.

 

The percentages below are calculated based on 57,848,505 shares of our common stock issued and outstanding as of May 29, 2019. We do not have any outstanding options, or other securities exercisable for or convertible into shares of our common stock. Unless otherwise indicated, the address of each person listed is c/o Inception Mining, Inc., 5330 South 900 East, Suite 280, Murray, UT 84117.

 

Security Ownership of Certain Beneficial Owners

 

Title of Class   Name and Address of
Beneficial Owner
  Amount and
Nature of
Beneficial
Ownership
    Percent of Class  
                 
Common Stock   Legends Capital Group, LLC (1)     11,685,874       20.20 %
    4049 S. Highland Drive                
    Salt Lake City, Utah 84124                
                     
Common Stock   Madison, LLC (1)     2,495,855       4.31 %
    4049 S. Highland Drive                
    Salt Lake City, Utah 84124                
                     
Common Stock   Jason Briggs (2)
4049 S. Highland Drive
Salt Lake City, Utah 84124
    1,341,523       2.32 %
                     
All 5% beneficial owners as a group         15,523,252       26.83 %

 

  (1) Beneficially controlled by Jason Briggs.
  (2) Includes additional shares beneficially owned by Jason Briggs including 311,982 shares owned personally and 1,029,541 shares owned by two separate irrevocable trust for which Jason Briggs serves as trustee.

 

  43  

 

 

Security Ownership of Officers and Directors

 

Title of Class   Name and Address of
Beneficial Owner
  Amount and
Nature of
Beneficial
Ownership
    Percent of Class  
                 
Common Stock   Trent D’Ambrosio (1)     3,902,101       6.75 %
    c/o Inception Mining, Inc.                
    5330 South 900 East, Suite 280                
    Murray, UT 84107                
                     
Common Stock   Whit Cluff (1)     711,597       1.23 %
    c/o Inception Mining, Inc.                
    5330 South 900 East, Suite 280                
    Murray, UT 84107                
                     
All Officers and Directors as a Group         4,613,698       7.98 %

 

  (1) Executive officer and/or director of the Company.

 

SEC Rule 13d-3 generally provides that beneficial owners of securities include any person who, directly or indirectly, has or shares voting power and/or investment power with respect to such securities, and any person who has the right to acquire beneficial ownership of such security within 60 days. Any securities not outstanding which are subject to such options, warrants or conversion privileges exercisable within 60 days are treated as outstanding for the purpose of computing the percentage of outstanding securities owned by that person. Such securities are not treated as outstanding for the purpose of computing the percentage of the class owned by any other person. At the present time there are no outstanding options or warrants held by directors or officers of the Company.

 

EXECUTIVE COMPENSATION

 

Our Board of Directors has not established a separate compensation committee. Instead, the Board of Directors reviews and approves executive compensation policies and practices, reviews salaries and bonuses for our officer(s), decides on benefit plans, and considers other matters as may, from time to time, be referred to it. We do not currently have a Compensation Committee Charter. Our Board continues to emphasize the important link between our performance, which ultimately benefits all shareholders, and the compensation of our executives. Therefore, the primary goal of our executive compensation policy is to closely align the interests of the shareholders with the interests of the executive officer(s). In order to achieve this goal, we attempt to (i) offer compensation opportunities that attract and retain executives whose abilities and skills are critical to our long-term success and reward them for their efforts in ensuring our success and (ii) encourage executives to manage from the perspective of owners with an equity stake in us.

 

Compensation Table for Executives

 

Name &

Principal

Position

  Year     Salary
($)
    Bonus     Stock
Awards
($)
    Non-Equity
Incentive Plan
Compensation
    Nonqualified
Deferred
Compensation
Earnings
    All Other
Compensation
    Total
($)
 
                                                 
Trent D’Ambrosio,     2018       0       0       265,304       0       0       0       265,304  
CEO, CFO and Director     2017       0       100,000       2,995,703       0       0       0       3,095,703  
                                                                 
Whit Cluff,     2018       0       0       18,958       0       0       8,000       26,958  
Director     2017       0       10,000       4,353       0       0       18,500       32,853  

 

Employment Agreements

 

The Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The employment agreement was restated as of April 1, 2019 and provides for compensation of $300,000 annually.

 

  44  

 

 

Outstanding Equity Awards at Fiscal Year-End

 

None.

 

Compensation of Directors

 

We have no formal plan for compensating our directors for their services, and they have historically received shares for their service. We have no formal plan to compensating our directors in the future in their capacity as directors, although such directors are expected in the future to receive options to purchase shares of our common stock as awarded by our Board of Directors or by any compensation committee that may be established.

 

Pension, Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.

 

Compensation Committee

 

We do not currently have a compensation committee of the Board of Directors or a committee performing similar functions. All members of the Board of Directors participate in the consideration of executive officer and director compensation.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

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 and April 1, 2019. As of December 31, 2018, the Company owed $1,035,000 to the stockholder/director in accrued consulting fees.

 

The Company took several short-term notes payable from related parties. During the three months ended March 31, 2019, the Company received $450,000 in cash from related parties and paid out $453,260 in cash to related parties on notes payable. During 2018, the Company received $1,813,000 in cash from related parties and paid out $2,550,006 in cash to related parties on notes payable.

 

Mr. Cluff currently serves as a director of the Company and has a separate agreement as a consultant of the Company effective as of October 2, 2015.

 

The Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The employment agreement was effective as of July 1, 2018 and provides for compensation of $450,000 annually. Additionally, the employment agreement provides for equity compensation to be issued valued at $5,000 per month and an optional annual bonus of up to $4,500,000 to be determined by the Board of Directors. This employment agreement was restated as of April 1, 2019 and provides for compensation of $300,000 annually.

 

Director Independence

 

Our securities are quoted on the OTC Markets, which does not have any director independence requirements. Once we engage further directors and officers, we plan to develop a definition of independence and scrutinize our Board of Directors with regard to this definition.

 

Parents of the Smaller Reporting Company

 

We have no parents.

 

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.

 

On January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami (“Bertolami”) in the United States District Court for the Western District of North Carolina, Statesville Division. This matter was dismissed for lack of personal jurisdiction in an Order and Judgment dated March 28, 2018.

 

  45  

 

 

On June 12, 2017, Danzig Ltd, filed an arbitration in Boston, Massachusetts, with the American Arbitration Association (AAA) against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). Messrs. D’Ambrosio and Ahlin were dismissed on the ground that they were not proper parties to the Arbitration. A hearing occurred the week of April 9, 2018. On October 24, 2018, a Final Award was issued dismissing all claims asserted by Danzig against Inception and awarding Inception $361,710.74 in fees and costs.

 

On July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). On November 16, 2018, Order No. 7 Dismissing Claims of Claimant [Foxcroft] with Prejudice Under AAA Rule 57, and Granting Motion to Dismiss [Inception’s] Counterclaims without Prejudice was entered. This concluded this arbitration as the claims asserted by Foxcroft against Inception were dismissed with prejudice, and Inception’s claims were dismissed without prejudice.

 

On August 22, 2017, the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin) filed a complaint against Danzig Ltd., Elliott Foxcroft, and Brett Bertolami in the United States District Court, District of Utah, Central Division. On November 29, 2018 the United States District Court for the District of Utah entered an order denying Inception’s motion to dismiss Defendants’ Counterclaim but required the Defendants (Danzig, ltd, Bertalomi, and Foxcroft) to file a more definite statement of their claims by December 14, 2018. The ordered filing was not made and Inception filed another motion to dismiss. The dismissal of the counterclaim with prejudice was entered on January 15, 2019. A final Amended Judgment in a Civil Case was entered in the case on February 13, 2019 which also included confirmation of the order and award entered in the Boston and Salt Lake arbitrations, respectively.

 

One of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., has been served with notice of a labor dispute brought in Honduras by one of the Company’s former employees. The complaint alleges that the former employee was terminated from his position with the Company’s subsidiary and is entitled to certain statutory compensation. The Company has responded with its assertion that the employee voluntarily resigned and was not involuntarily terminated. The case was heard in Honduras by a labor judge and the Company has appealed the ruling in this case.

 

MARKET PRICE AND DIVIDENDS ON OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock is not traded on any exchange. Our common stock is listed for quotation on the OTCQB tier of the OTC Link, LLC alternative trading system operated by OTC Markets Group, Inc. under the symbol “IMII.” We cannot assure you that there will be a market in the future for our common stock.

 

OTC securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC securities transactions are conducted through a telephone and computer network connecting dealers. OTCQB issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a national or regional stock exchange.

 

Classes of Stock

 

We have two classes of stock: common stock and Series A Preferred Stock. On August 30, 2016, the Board of Directors of the Company, pursuant to Article II of the Company’s Articles of Incorporation, approved the designation of fifty-one (51) shares of its authorized capital stock as “Series A Preferred Stock”. The Certificate of Designation for the Series A Preferred Stock was filed on August 31, 2016. These shares have preferential voting rights and no conversion rights.

 

Holders

 

As of May 29, 2019, there were 1,476 holders of record of our common stock and one holder of record for our preferred stock.

 

Dividends

 

To date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Directors.

 

Equity Compensation Plans

 

As of the date of this registration statement, we have an equity compensation plan: the 2013 Incentive Stock Plan.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

 

  46  

 

 

FINANCIAL STATEMENTS

 

C O N T E N T S

 

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018 48
   
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED) 49
   
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED) 50
   
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED) 51
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2019 (UNAUDITED) 52

 

  47  

 

 

Inception Mining, Inc.

Consolidated Balance Sheets

 

    March 31, 2019     December 31, 2018  
    (Unaudited)        
ASSETS                
Current Assets                
Cash and cash equivalents   $ 40,939     $ 50,857  
Accounts receivable     16,479       5,548  
Inventories     412,804       570,614  
Prepaid expenses and other current assets     20,596       26,376  
Total Current Assets     490,818       653,395  
                 
Property, plant and equipment, net     710,967       664,041  
Other assets     36,692       36,859  
Total Assets   $ 1,238,477     $ 1,354,295  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities                
Accounts payable and accrued liabilities   $ 1,829,342     $ 1,631,997  
Accrued interest - related parties     6,906,655       6,647,300  
Secured borrowings, net     166,697       217,223  
Notes payable, net of debt discounts     60,000       60,000  
Notes payable - related parties     6,937,178       6,822,657  
Convertible notes payable, net of debt discounts     1,636,365       1,169,395  
Derivative liabilities     4,613,816       2,547,806  
Total Current Liabilities     22,150,053       19,096,378  
                 
Long-term convertible note payable, net of debt discounts     316,052       -  
Mine reclamation obligation     340,533       341,845  
Total Liabilities     22,806,638       19,438,223  
                 
Commitments and Contingencies     -       -  
                 
Stockholders’ Deficit                
Preferred stock, $0.00001 par value; 10,000,000 shares authorized, 51 shares issued and outstanding     1       1  
Common stock, $0.00001 par value; 500,000,000 shares authorized, 55,348,505 and 54,093,505 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively     553       541  
Additional paid-in capital     4,756,095       4,490,866  
Accumulated Deficit     (25,795,942 )     (22,009,285 )
Other comprehensive loss - foreign currency translation     (519,787 )     (557,134 )
Total Controlling Interest     (21,559,080 )     (18,075,011 )
Non-Controlling Interest     (9,081 )     (8,917 )
Total Stockholders’ Deficit     (21,568,161 )     (18,083,928 )
Total Liabilities and Stockholders’ Deficit   $ 1,238,477     $ 1,354,295  

 

See accompanying notes to the consolidated financial statements.

 

  48  

 

 

Inception Mining, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

    For the Three Months Ended  
    March 31, 2019     March 31, 2018  
Precious Metals Income   $ 921,442     $ 1,179,440  
                 
Operating Expenses                
Cost of sales     1,228,511       1,687,599  
General and administrative     620,321       477,811  
Depreciation and amortization     9,088       10,275  
Total Operating Expenses     1,857,920       2,175,685  
Loss from Operations     (936,478 )     (996,245 )
                 
Other Income/(Expenses)                
Other income (expense)     (16 )     131  
Change in derivative liability     (1,494,989 )     301,974  
Loss on extinguishment of debt     (5,000 )     -  
Interest expense     (1,350,338 )     (791,566 )
Total Other Income/(Expenses)     (2,850,343 )     (489,461 )
                 
Net Loss from Operations before Income Taxes     (3,786,821 )     (1,485,706 )
Provision for Income Taxes     -       -  
NET LOSS     (3,786,821 )     (1,485,706 )
NET LOSS - Non-Controlling Interest     164       1,234  
NET LOSS - Controlling Interest   $ (3,786,657 )   $ (1,484,472 )
                 
Net loss per share - Basic   $ (0.07 )   $ (0.03 )
Net loss per share - Diluted   $ (0.07 )   $ (0.03 )
Weighted average number of shares outstanding during the period - Basic     54,413,005       53,122,165  
Weighted average number of shares outstanding during the period - Diluted     54,413,005       53,122,165  
                 
Other Comprehensive Loss                
Exchange differences arising on translating foreign operations     37,347       5,214  
Total Comprehensive Loss     (3,749,474 )     (1,480,492 )
Total Comprehensive Loss - Non-Controlling Interest     (55 )     (561 )
Total Comprehensive Loss - Controlling Interest   $ (3,749,529 )   $ (1,481,053 )

 

See accompanying notes to the unaudited consolidated financial statements.

 

  49  

 

 

Inception Mining, Inc.

Consolidated Statement of Changes in Stockholders’ Deficit

(Unaudited)

 

    Preferred stock     Common stock     Additional           Other     Non-       Total  
    ($0.00001 Par)     ($0.00001 Par)     Paid-in     Accumulated     Comprehensive     Controlling     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Income     Interest     Deficiency  
Balance, December 31, 2018     51     $ 1       54,093,505       541     $ 4,490,866     $ (22,009,285 )   $ (557,134 )   $ (8,917 )   $ (18,083,928 )
Shares issued for services     -       -       650,000       6       122,844       -       -       -       122,850  
Shares issued for cash     -       -       375,000       4       48,746       -       -       -       48,750  
Shares issued with note payable     -       -       130,000       1       81,640       -       -       -       81,641  
Shares issued with settlement of A/P     -       -       100,000       1       11,999       -       -       -       12,000  
Foreign currency translation adjustment     -       -       -       -       -       -       37,347       -       37,347  
Net loss for the period     -       -       -       -       -       (3,786,657 )     -       (164 )     (3,786,821 )
Balance, March 31, 2019     51     $ 1       55,348,505     $ 553     $ 4,756,095     $ (25,795,942 )   $ (519,787 )   $ (9,081 )   $ (21,568,161 )
                                                                         
Balance, December 31, 2017     51     $ 1       52,183,761     $ 522     $ 3,992,407     $ (16,383,271 )   $ (555,635 )   $ (7,881 )   $ (12,953,857 )
Shares issued for services     -       -       816,385       8       221,980       -       -       -       221,988  
Shares issued for cash     -       -       250,000       3       27,497       -       -       -       27,500  
Foreign currency translation adjustment     -       -       -       -       -       -       5,214       -       5,214  
Net loss for the period     -       -       -       -       -       (1,484,472 )     -       (1,234 )     (1,485,706 )
Balance, March 31, 2018     51     $ 1       53,250,146     $ 533     $ 4,241,884     $ (17,867,743 )   $ (550,421 )   $ (9,115 )   $ (14,184,861 )

 

See accompanying notes to the unaudited consolidated financial statements.

 

  50  

 

 

Inception Mining, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

    For the Three Months Ended  
    March 31, 2019     March 31, 2018  
Cash Flows From Operating Activities:                
Net Loss   $ (3,786,821 )   $ (1,485,706 )
Adjustments to reconcile net loss to net cash used in operations                
Depreciation and amortization expense     54,938       57,674  
Common stock issued for services     122,850       216,296  
Common stock issued for settlement     -       5,692  
Loss on extinguishment of debt     5,000       -  
Change in derivative liability     1,494,989       (301,974 )
Amortization of debt discount     786,078       303,968  
Changes in operating assets and liabilities:                
Decr (incr) in trade receivables     (10,975 )     (7,935 )
Decr (incr) inventories     593,477       924,377  
Decr (incr) prepaid expenses and other current assets     5,778       (7,250 )
Incr (decr) accounts payable and accrued liabilities     325,332       340,747  
Incr (decr) accounts payable and accrued liabilities - related parties     259,355       244,207  
Incr (decr) secured borrowings     (50,525 )     (5,005 )
Net Cash Provided By (Used In) Operating Activities     (200,524 )     285,091  
                 
Cash Flows From Investing Activities:                
Purchase of property, plant and equipment     (104,459 )     (6,471 )
Net Cash Used In Investing Activities     (104,459 )     (6,471 )
                 
Cash Flows From Financing Activities:                
Repayment of notes payable     -       (120,000 )
Repayment of notes payable-related parties     (453,260 )     (208,221 )
Repayment of convertible notes payable     (385,894 )     (300,500 )
Proceeds from notes payable-related parties     450,000       188,000  
Proceeds from convertible notes payable     635,500       174,000  
Proceeds from issuance of common stock     48,750       27,500  
Net Cash Provided by (Used In) Financing Activities     295,096       (239,221 )
Effects of exchange rate changes on cash     (31 )     (3,915 )
Net Increase / (Decrease) in Cash     (9,918 )     35,484  
Cash at Beginning of Period     50,857       51,802  
Cash at End of Period   $ 40,939     $ 87,286  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 249,679     $ 237,604  
Cash paid for taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Common stock issued for extinguishment of debt and accounts payable   $ 12,000     $ -  
Common stock issued for note commitment fee   $ 17,550     $ -  
Assets held to satisfy secured borrowings   $ 75,460     $ 129,180  
Recognition of debt discounts on convertible notes payable   $ 144,963     $ -  

 

See accompanying notes to the unaudited consolidated financial statements.

 

  51  

 

 

Inception Mining, Inc.

Notes to Consolidated Financial Statements

As of March 31, 2019

 

1. Nature of Business

 

Inception Mining, Inc. (formerly known as Gold American Mining Corp.) was incorporated under the name of Golf Alliance Corporation and under the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. is a precious metal mineral acquisition, exploration and development company. Inception Development, Inc., its wholly owned subsidiary, was incorporated under the laws of the State of Idaho on January 28, 2013.

 

Golf Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided to redirect its business focus toward precious metal mineral acquisition and exploration.

 

On March 5, 2010, the Company amended its articles of incorporation to (1) to change its name to Silver America, Inc. and (2) increased its authorized common stock from 100,000,000 to 500,000,000.

 

On June 23, 2010 the Company amended its articles of incorporation to change its name to Gold American Mining Corp.

 

On February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently, the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.

 

On May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception” or the “Company”).

 

On October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. and holds other mining concessions. Pursuant to the agreement, the Company issued of 240,225,901 shares of common stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early Mayan and Spanish occupation.

 

The Company’s primary mine is located on the 200 hectare Clavo Rico Concession, located in southern Honduras. This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compa ñí a Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest and later increased its ownership to 99.9%.

 

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2. Summary of Significant Accounting Policies

 

Going Concern - The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $3,786,821 during the period ended March 31, 2019, and had a working capital deficit of $21,659,235 as of March 31, 2019. These factors among others indicate that the Company may be unable to continue as a going concern for a period of one year from the issuance of these financial statements.

 

The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

Management is currently working to make changes that will result in profitable operations and to obtain additional funding sources to meet the Company’s need for cash during the next twelve months and beyond.

 

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Inception Mining, Inc. and its wholly owned subsidiaries, Inception Development, Corp., Clavo Rico Development Corp., Clavo Rico, Ltd. and Compa ñí a Minera Cerros del R í o, S.A. de C.V., and its controlling interest subsidiaries, Compa ñí a Minera Cerros del Sur, S.A. de C.V. and Compa ñía Minera Clavo Rico, S.A. de C.V. (collectively, the “Company”). All intercompany accounts have been eliminated upon consolidation.

 

Basis of Presentation - The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

 

Cash and Cash Equivalents - The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At March 31, 2019 and December 31, 2018, the Company had no cash equivalents. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has never experienced any losses in such accounts.

 

Inventories, Stockpiles and Mineralized Material on Leach Pads - Inventories, including stockpiles and mineralized material on leach pads are carried at the lower of cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, mineralized material on leach pads and inventories to net realizable value are reported as a component of costs applicable to mining revenue. Cost is comprised of production costs for mineralized material produced and processed. Production costs include the costs of materials, costs of processing, direct labor, mine site and processing facility overhead costs and depreciation, amortization and depletion.

 

Stockpiles - Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion relating to mining operations, and removed at each stockpile’s average cost per ton.

 

Mineralized Material on Leach Pads - The Company utilizes a heap leaching process to recover gold from its mineralized material. Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution that dissolves the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered. Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad.

 

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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.

 

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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

 

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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 obtain