Notes
to Condensed Consolidated Financial Statements (Unaudited)
September
30, 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
November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder
canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was
effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse
stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock
split as if it occurred on the first day of the first period presented.
On
February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly-owned
subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset
Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to
which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception,
the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an
entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under
common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell
company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior
to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the
Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently,
the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.
On
May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception”
or the “Company”).
On
October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held
Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession
through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico,
S.A. de C.V. and holds other mining concessions. Pursuant to the agreement, the Company issued of 240,225,901 shares of common
stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger
agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo
Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early
Mayan and Spanish occupation.
The
Company’s primary mine is located on the 200-hectare Clavo Rico Concession, located in southern Honduras. This mine was
originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compa ñí
a Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest
and later increased its ownership to 99.9%.
2.
Summary of Significant Accounting Policies
Going
Concern - The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated
financial statements, the Company incurred a net loss of $7,192,890 during the period ended September 30, 2019, and had a working
capital deficit of $22,401,620 as of September 30, 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 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.
Condensed
Financial Statements - The interim consolidated financial statements included herein have been prepared by Inception Mining
Inc. (“Inception Mining” or the “Company”) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosure normally included
in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial
statements should be read in conjunction with the financial statements and notes thereto included in this filing.
In
the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries,
necessary to present fairly the consolidated financial position of the Company and subsidiaries as of September 30, 2019, the
results of its consolidated statements of operations and comprehensive loss for the three and nine-month periods ended September
30, 2019, and its consolidated cash flows for the three and nine-month periods ended September 30, 2019. The results of consolidated
operations for the interim periods are not necessarily indicative of the results for the full year.
Cash
and Cash Equivalents - The Company considers all highly liquid temporary cash investments with an original maturity of three
months or less to be cash equivalents. At September 30, 2019 and December 31, 2018, the Company had no cash equivalents. The aggregate
cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company
has never experienced any losses in such accounts.
Inventories,
Stockpiles and Mineralized Material on Leach Pads - Inventories, including stockpiles and mineralized material on leach pads
are carried at the lower of cost or net realizable value. Net realizable value represents the estimated future sales price of
the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product
to sale. Write-downs of stockpiles, mineralized material on leach pads and inventories to net realizable value are reported as
a component of costs applicable to mining revenue. Cost is comprised of production costs for mineralized material produced and
processed. Production costs include the costs of materials, costs of processing, direct labor, mine site and processing facility
overhead costs and depreciation, amortization and depletion.
Stockpiles
- Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing.
Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified
by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current
mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion
relating to mining operations, and removed at each stockpile’s average cost per ton.
Mineralized
Material on Leach Pads - The Company utilizes a heap leaching process to recover gold from its mineralized material.
Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution that dissolves
the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered.
Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation
relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages
of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material
on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad.
The
estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured
tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage.
Although
the quantities of recoverable gold placed on the leach pads are reconciled by comparing the quantities and grades of material
placed on leach pads to the quantities and grades quantities of gold actually recovered (metallurgical balancing), the nature
of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing
process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated
quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted
for on a prospective basis.
In-process
Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted
to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured
based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued
at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles
and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred
to that point in the process.
Finished
Goods Inventories - Finished goods inventories include gold that has been processed through the Company’s ADR
facility and are valued at the average cost of their production.
Exploration
and Development Costs - Costs of acquiring mining properties and any exploration and development costs are expensed as incurred
unless proven and probable reserves exist and the property is a commercially mineable property in accordance with FASB ASC 930,
Extractive Activities- Mining. Mine development costs incurred either to develop new gold and silver deposits, expand the
capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred
to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects
are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining
costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable
value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any
related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.
The
Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the
prospects for economic productions are reasonably certain.
Capitalized
costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.
Mineral
Rights and Properties - We defer acquisition costs until we determine the viability of the property. Since we do not have
proven and probable reserves as defined by Securities and Exchange Commission (“SEC”) Industry Guide 7, exploration
expenditures are expensed as incurred. We expense care and maintenance costs as incurred.
We
review the carrying value of our mineral rights and properties for impairment whenever there are negative indicators of impairment.
Our estimate of the gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties
affecting the recoverability of our investment in the mineral claims and properties. Although we have made our best, most current
estimate of these factors, it is possible that near term changes could adversely affect estimated net cash flows from our mineral
claims and properties and possibly require future asset impairment write-downs.
Where
estimates of future net operating cash flows are not available and where other conditions suggest impairment, we assess recoverability
of carrying value from other means, including net cash flows generated by the sale of the asset. We use the units-of-production
method to deplete the mineral rights and properties.
Fair
Value Measurements - The fair value of a financial instrument is the amount that could be received upon the sale of an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets
are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions
that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition,
the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.
Fair
value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability
of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level
of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level
3: Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The
carrying value of the Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and
other current assets and liabilities approximate fair value because of their short-term maturity.
The
Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the
Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that
the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values
using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.
Long-Lived
Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment.
An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event
the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally
determined based on discounted future cash flows.
Properties,
Plant and Equipment - We record properties, plant and equipment at historical cost. We provide depreciation and amortization
in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value.
We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for
maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful
lives as follows:
Building
|
|
7
to 15 years
|
Vehicles
and equipment
|
|
3
to 7 years
|
Processing
and laboratory
|
|
5
to 15 years
|
Furniture
and fixtures
|
|
2
to 3 years
|
Reclamation
Liabilities and Asset Retirement Obligations - Minimum standards for site reclamation and closure have been established for
us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair
value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized
and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated
present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation
and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation
at each mine site.
Revenue
Recognition - Effective January 1, 2018 we adopted the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Subtopic 606-10, Revenue from Contracts with Customers (“ASC 606-10”).
The adoption of ASC 606-10 had no impact on prior year or previously disclosed amounts. In accordance with ASC 606-10, revenue
is measured based on a consideration specified in a contract with a customer and recognized when we satisfy the performance obligation
specified in each contract.
The
Company generates revenue by selling gold and silver produced from its mining operations. The majority of the Company’s
sales come from the sale of refined gold; however, the end product at the Company’s gold operations is generally doré
bars. Doré is an alloy consisting primarily of gold but also containing silver and other metals. Doré is sent to
refiners to produce bullion that meets the required market standard of 99.95% gold. Under the terms of the Company’s refining
agreements, the doré bars are refined for a fee, and the Company’s share of the refined gold and silver is credited
to its bullion account.
The
Company recognizes revenue for gold and silver from doré production when it satisfies the performance obligation of transferring
gold and silver inventory to the customer, which generally occurs upon transfer of gold and silver bullion credits as this is
the point at which the customer obtains the ability to direct the use and obtain substantially all of the remaining benefits of
ownership of the asset.
The
Company generally recognizes the sale of gold bullion credits at the prevailing market price when gold bullion credits are delivered
to the customer. The transaction price is determined based on the agreed upon market price and the number of ounces delivered.
Payment is due upon delivery of gold bullion credits to the customer’s account.
As
gold can be sold through numerous gold market traders worldwide, the Company is not economically dependent on a limited number
of customers for the sale of its product.
Stock
Issued For Goods and Services - Common and preferred shares issued for goods and services are valued based upon the fair market
value of our common stock or the goods and services received, whichever is the most reliably measurable on the date of issue.
Stock-Based
Compensation - For stock-based transactions, compensation expense is recognized over the requisite service period, which is
generally the vesting period, based on the estimated fair value on the grant date of the award.
Income
(Loss) per Common Share - Basic net income (loss) per common share is computed by dividing net income (loss), less the preferred
stock dividends, by the weighted average number of common shares outstanding. Dilutive income (loss) per share includes any additional
dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not
antidilutive. 103,217,945 common share equivalents have been excluded from the diluted loss per share calculation for the period
ended September 30, 2019 because it would be anti-dilutive.
Other
Comprehensive Loss – Other Comprehensive loss is made up of the exchange differences arising on translating foreign
operations and the net loss for the six months ending September 30, 2019 and the year ended December 31, 2018.
Derivative
Liabilities - Derivatives liabilities are recorded at fair value when issued and the subsequent change in fair value each
period is recorded in other income (expense) in the consolidated statements of operations. We do not hold or issue any derivative
financial instruments for speculative trading purposes.
Income
Taxes - The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment
of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income
tax expense.
Deferred
income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating
the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent
financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state
and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent
with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance
for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than
not.
Changes
in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of
any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
Business
Segments – The Company operates in one segment and therefore segment information is not presented.
Use
of Estimates – In preparing financial statements in conformity with generally accepted accounting principles, we are
required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and expenditures during the reported periods. Actual
results could differ materially from those estimates. Estimates may include those pertaining to valuation of inventories and mineralized
material on leach pads, the estimated useful lives and valuation of properties, plant and equipment, mineral rights and properties,
deferred tax assets, convertible preferred stock, derivative assets and liabilities, reclamation liabilities, stock-based compensation
and payments, and contingent liabilities.
Non-Controlling
Interest Policy – Non-controlling interest (NCI) is the portion of equity ownership in a subsidiary not attributable
to the parent company, who has a controlling interest and consolidates the subsidiary’s financial results with its own.
The amount of equity relating to the non-controlling interest is separately identified in the equity section of the balance sheet
and the amount of the net income (loss) relating to the non-controlling interest is separately identified on the statement of
operations.
Recently
Issued Accounting Pronouncements – From time to time, new accounting pronouncements are issued by FASB that are adopted
by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards,
which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
3.
Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories,
stockpiles and mineralized materials on leach pads at September 30, 2019 and December 31, 2018 consisted of the following:
|
|
September 30, 2019
|
|
|
December
31, 2018
|
|
Supplies
|
|
$
|
25,903
|
|
|
$
|
87,230
|
|
Mineralized
Material on Leach Pads
|
|
|
163,310
|
|
|
|
247,213
|
|
ADR
Plant
|
|
|
308,401
|
|
|
|
40,642
|
|
Finished
Ore
|
|
|
583,785
|
|
|
|
195,528
|
|
Total
Inventories
|
|
$
|
1,081,399
|
|
|
$
|
570,613
|
|
There
were no stockpiles at September 30, 2019 and December 31, 2018.
4.
Derivative Financial Instruments
The
Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets
and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market
in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such
as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September
30, 2019 and December 31, 2018:
|
|
Debt
Derivative
Liabilities
|
|
Balance,
December 31, 2017
|
|
$
|
647,807
|
|
Transfers
in upon initial fair value of derivative liabilities
|
|
|
2,879,560
|
|
Change
in fair value of derivative liabilities and warrant liability
|
|
|
(979,561
|
)
|
Transfers
to permanent equity upon exercise of warrants
|
|
|
-
|
|
Balance, December
31, 2018
|
|
$
|
2,547,806
|
|
Transfers
in upon initial fair value of derivative liabilities
|
|
|
5,095,391
|
|
Change
in fair value of derivative liabilities and warrant liability
|
|
|
(687,140
|
)
|
Transfers
to permanent equity upon conversions
|
|
|
(262,800
|
)
|
Balance,
September 30, 2019
|
|
$
|
6,693,257
|
|
Net
gain for the period included in earnings relating to the liabilities held at September 30, 2019
|
|
$
|
687,140
|
|
Net
gain for the period included in earnings relating to the liabilities held at December 31, 2018
|
|
$
|
979,561
|
|
Debt
derivatives – The Company issued convertible promissory notes which are convertible into common stock, at holders’
option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives
related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion
features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives
as of the inception date of debenture and to fair value as of each subsequent reporting date.
At
September 30, 2019, the Company marked to market the fair value of the debt derivatives and determined a fair value of $6,673,163.The
Company recorded a gain from change in fair value of debt derivatives of $670,654 for the period ended September 30, 2019. The
fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions:
(1) dividend yield of 0%, (2) expected volatility of 244.93% through 274.69%, (3) weighted average risk-free interest rate of
1.63% through 1.88% (4) expected life of 0.34 through 1.64 years, and (5) the quoted market price of the Company’s common
stock at each valuation date.
At
December 31, 2018, the Company marked to market the fair value of the debt derivatives and determined a fair value of $2,511,226.
The Company recorded a gain from change in fair value of debt derivatives of $953,390 for the year ended December 31, 2018. The
fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions:
(1) dividend yield of 0%, (2) expected volatility of 203.03% to 306.25%, (3) weighted average risk-free interest rate of 2.45%
to 2.63% (4) expected life of 0.27 to 1.59 years, and (5) the quoted market price of the Company’s common stock at each
valuation date.
Based
upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of
ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based
upon earliest issuance date.
Warrant
liabilities – During the year ended December 31, 2018, the Company issued warrants in conjunction with the issuance
of three Crown Bridge Convertible Notes. These warrants contained certain reset provisions. The accounting treatment of derivative
financial instruments required that the Company record fair value of the derivatives as of the inception date (issuance date)
and to fair value as of each subsequent reporting date.
At
September 30, 2019, the Company had a warrant liability of $20,094. The Company recorded a gain from change in fair value of warrant
liability of $16,486 for the period ended September 30, 2019. The fair value of the embedded derivatives was determined using
Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 210.75%
to 226.32%, (3) weighted average risk-free interest rate of 1.55% to 1.56% (4) expected life of 2.86 to 4.07 years, and (5) the
quoted market price of the Company’s common stock at each valuation date.
At
December 31, 2018, the Company had a warrant liability of $36,580. The Company recorded a gain from change in fair value of warrant
liability of $26,171 for the year ended December 31, 2018.
5.
Properties, Plant and Equipment, Net
Properties,
plant and equipment at September 30, 2019 and December 31, 2018 consisted of the following:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Land
|
|
$
|
267,601
|
|
|
$
|
270,736
|
|
Buildings
|
|
|
2,338,914
|
|
|
|
2,366,323
|
|
Machinery
and Equipment
|
|
|
945,882
|
|
|
|
956,669
|
|
Office
Equipment and Furniture
|
|
|
41,840
|
|
|
|
42,311
|
|
Vehicles
|
|
|
84,146
|
|
|
|
85,132
|
|
Construction
in Process
|
|
|
7,491
|
|
|
|
11,277
|
|
|
|
|
3,685,874
|
|
|
|
3,732,448
|
|
Less
Accumulated Depreciation
|
|
|
(3,194,916
|
)
|
|
|
(3,068,407
|
)
|
Total
Property, Plant and Equipment
|
|
$
|
490,958
|
|
|
$
|
664,041
|
|
During
the nine months ended September 30, 2019 and 2018, the Company recognized depreciation expense of $162,947 and $169,768, respectively.
The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative
expenses.
Depreciation
Allocation
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
Cost
of Goods Sold
|
|
$
|
135,734
|
|
|
$
|
140,798
|
|
General
and Administrative
|
|
|
27,213
|
|
|
|
28,970
|
|
Total
|
|
$
|
162,947
|
|
|
$
|
169,768
|
|
6.
Mine Reclamation Obligation
The
Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and re-vegetating various
portions of our site after mining and mineral processing operations are completed. These reclamation efforts are conducted in
accordance with plans reviewed and approved by the appropriate regulatory agencies.
The
fair value of the long-term liability of $337,886 and $341,845 as of September 30, 2019 and December 31, 2018, respectively, for
our obligation to reclaim our mine facility is based on our most recent reclamation plan, as revised, submitted and approved by
the Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA). Such costs
are based on management’s current estimate of then expected amounts for the remediation work, assuming the work is performed
in accordance with current laws and regulations and using a credit adjusted risk free rate of 18.00% and an inflation rate of
5.3%. It is reasonably possible that, due to uncertainties associated with the application of laws and regulations by regulatory
authorities and changes in reclamation or remediation technology, the ultimate cost of reclamation and remediation could change
in the future. We periodically review the accrued reclamation obligation for information indicating that our assumptions should
change.
Changes
to the asset retirement obligation were as follows:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Balance,
Beginning of Year
|
|
$
|
341,845
|
|
|
$
|
352,713
|
|
Liabilities
incurred
|
|
|
-
|
|
|
|
-
|
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
Change
due to foreign currency translation
|
|
|
(3,959
|
)
|
|
|
(10,868
|
)
|
Balance,
End of Year
|
|
$
|
337,886
|
|
|
$
|
341,845
|
|
7.
Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities at September 30, 2019 and December 31, 2018 consisted of the following:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Accounts
Payable
|
|
$
|
681,096
|
|
|
$
|
558,749
|
|
Accrued
Liabilities
|
|
|
415,394
|
|
|
|
394,017
|
|
Accrued
Salaries and Benefits
|
|
|
551,590
|
|
|
|
410,930
|
|
Advances
Payable
|
|
|
455,812
|
|
|
|
268,301
|
|
Total
Accrued Liabilities
|
|
$
|
2,103,892
|
|
|
$
|
1,631,997
|
|
8.
Secured Borrowings
On
June 25, 2018, the Company entered into four new financing arrangements with third parties for a combined principal amount of
$195,720. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of
no less than 10 percent, or $19,572, for a total expected remittance of $215,292. The maturity date of the notes is June 26, 2019.
The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the
Company expects to liquidate gold held and satisfy the liability in cash. The Company reached agreements with the third parties
to settle the financing arrangements as of June 26, 2019. The Company liquidated the gold held to satisfy the debt obligations.
All four debt holders agreed to rollover all or portion of their funds into new financing agreements. The debt obligation of $36,532
that was being liquidated was paid in full in July 2019.
On
June 26, 2019, the Company entered into four new financing arrangements with third parties for a combined principal amount of
$247,571. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of
no less than 10 percent, or $24,757, for a total expected remittance of $272,328. The maturity date of the notes is June 27, 2020.
The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the
Company expects to liquidate gold held and satisfy the liability in cash. As of September 30, 2019, the Company held 60 ounces
of gold, valued at a cost of $82,478, to satisfy the liabilities upon maturity leaving a net obligation of $171,605, which is
recorded on the Company’s balance sheet as secured borrowings.
Secured
Borrowings
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Secured
obligations
|
|
$
|
247,571
|
|
|
$
|
225,005
|
|
Guaranteed
interest
|
|
|
24,757
|
|
|
|
22,500
|
|
Deferred
interest
|
|
|
(18,245
|
)
|
|
|
(10,881
|
)
|
|
|
|
254,083
|
|
|
|
236,624
|
|
Gold
held as security
|
|
|
(82,478
|
)
|
|
|
(19,401
|
)
|
Secured
Borrowings, net
|
|
$
|
171,605
|
|
|
$
|
217,223
|
|
9.
Notes Payable
Notes
payable were comprised of the following as of September 30, 2019 and December 31, 2018:
Notes
Payable
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Phil
Zobrist
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Total
Notes Payable
|
|
|
60,000
|
|
|
|
60,000
|
|
Less
Unamortized Discount
|
|
|
-
|
|
|
|
-
|
|
Total
Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Phil
Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount
of $60,000 (the “Note”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received
was $60,000. On October 2, 2015, the Company entered into a new convertible note with Phil Zobrist that matures on December 31,
2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $29,412
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2018. The Company recognized a gain on the extinguishment
of debt of $121,337 for the remaining derivative liability and of $11,842 for the remaining debt discount. As of September 30,
2019, the gross balance of the note was $60,000 and accrued interest was $72,582.
10.
Notes Payable – Related Parties
Notes
payable – related parties were comprised of the following as of September 30, 2019 and December 31, 2018:
Notes
Payable - Related Parties
|
|
Relationship
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Claymore
Management
|
|
Affiliate
- Controlled by Director
|
|
$
|
185,000
|
|
|
$
|
185,000
|
|
Diamond
80, LLC
|
|
Immediate
Family Member
|
|
|
-
|
|
|
|
49,000
|
|
Francis
E. Rich IRA
|
|
Immediate
Family Member
|
|
|
100,000
|
|
|
|
100,000
|
|
GAIA
Ltd
|
|
Affiliate
- Controlled by Director
|
|
|
1,150,000
|
|
|
|
1,150,000
|
|
Legends
Capital
|
|
Affiliate
- Controlled by Director
|
|
|
765,000
|
|
|
|
765,000
|
|
LWB
Irrev Trust
|
|
Affiliate
- Controlled by Director
|
|
|
1,101,000
|
|
|
|
1,101,000
|
|
MDL
Ventures
|
|
Affiliate
- Controlled by Director
|
|
|
1,260,661
|
|
|
|
1,204,677
|
|
Silverbrook
Corporation
|
|
Affiliate
- Controlled by Director
|
|
|
2,227,980
|
|
|
|
2,227,980
|
|
WOC
Energy LLC
|
|
Affiliate
- Controlled by Director
|
|
|
40,000
|
|
|
|
40,000
|
|
Total
Notes Payable - Related Parties
|
|
|
|
$
|
6,829,641
|
|
|
$
|
6,822,657
|
|
Claymore
Management – On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management in the principal
amount of $185,000 (the “Note”) due on demand and bore 0% per annum interest. The total net proceeds the Company received
was $185,000. On October 2, 2015, the Company entered into a new convertible note with Claymore Management that matures on December
31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from March 18, 2011 in the amount of $151,355
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2018. The Company recognized a gain on the extinguishment
of debt of $448,369 for the remaining derivative liability and of $36,513 for the remaining debt discount. As of September 30,
2019, the gross balance of the note was $185,000 and accrued interest was $284,464.
D.
D’Ambrosio – On January 4, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $125,000 (the “Note”) due on February 5, 2019 and bears a 5.00% interest rate. The Company
made a payment of $131,250 towards the principal balance and accrued interest of $6,250 on February 13, 2019. As of September
30, 2019, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On February 19, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $100,000 (the “Note”) due on March 19, 2019 and bears a 5.00% interest rate. The Company
made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on March 8, 2019. As of September 30,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On March 14, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $100,000 (the “Note”) due on April 30, 2019 and bears a 5.00% interest rate. The Company
made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on April 5, 2019. As of September 30,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On April 9, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $122,000 (the “Note”) due on May 30, 2019 and bears a 5.00% interest rate. The Company
made a payment of $128,100 towards the principal balance and accrued interest of $6,100 on May 21, 2019. As of September 30, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On June 14, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $182,000 (the “Note”) due on July 5, 2019 and bears a 5.00% interest rate. The Company
made a payment of $191,100 towards the principal balance and accrued interest of $9,100 on May 21, 2019. As of September 30, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On July 12, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $150,000 (the “Note”) due on August 12, 2019 and bears a 5.00% interest rate. The Company
made a payment of $157,500 towards the principal balance and accrued interest of $7,500 on July 25, 2019. As of September 30,
2019, the outstanding balance of the Note was $0 and accrued interest was $0.
Diamond
80, LLC – On April 3, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal
amount of $50,000 (the “Note”) due on December 31, 2018 and bears a 7.0% interest rate. The Company made a payment
of $1,075 towards the principal balance of $1,000 and accrued interest of $75 on September 30, 2018. The Company made a payment
of $49,000 towards the principal balance on May 21, 2019. As of September 30, 2019, the outstanding balance of the Note was $0
and accrued interest was $44,700.
Francis
E. Rich IRA – On February 14, 2013, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA
in the principal amount of 100,000 (the “Note”) due on February 14, 2020 and bears a 15.0% interest rate. As
of September 30, 2019, the outstanding balance of the Note was $100,000 and accrued interest was $18,740.
GAIA
Ltd. – Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to GAIA Ltd. for
a total principal amount of $1,150,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net
proceeds the Company received was $1,150,000. On October 2, 2015, the Company entered into a new convertible note with GAIA Ltd.
that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these
Notes in the amount of $724,463 and charged this amount to interest expense during the year ended December 31, 2015. The Note
is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average
of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company
renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2018. The Company
recognized a gain on the extinguishment of debt of $2,524,747 for the remaining derivative liability and of $226,974 for the remaining
debt discount. As of September 30, 2019, the gross balance of the note was $1,150,000 and accrued interest was $1,551,896.
Legends
Capital Group – Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends
Capital Group for a total principal amount of $765,000 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $765,000. On October 2, 2015, the Company entered into a new convertible note
with Legends Capital Group that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest
from inception of these Notes in the amount of $504,806 and charged this amount to interest expense during the year ended December
31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount
to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2,
2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December
31, 2018. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and
of $150,987 for the remaining debt discount. As of September 30, 2019, the gross balance of the note was $765,000 and accrued
interest was $1,055,229.
Legends
Capital Group – On May 16, 2017, the Company issued an unsecured Short-Term Promissory Note to Legends Capital Group
in the principal amount of $100,000 (the “Note”) due on September 15, 2018 and bears a 7.0% interest rate. The Company
made a payment of $50,000 towards the principal balance and accrued interest of $0 on June 27, 2018. The Company made a payment
of $40,000 towards the principal balance on February 28, 2019. As of September 30, 2019, the outstanding balance of the Note was
$0 and accrued interest was $0.
LW
Briggs Irrevocable Trust – Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes
to LW Briggs Irrevocable Trust for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing
0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into
a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The
Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest
expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price
of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading
day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed
and the note was extended until December 31, 2018. The Company recognized a gain on the extinguishment of debt of $2,564,130 for
the remaining derivative liability and of $217,303 for the remaining debt discount. As of September 30, 2019, the gross balance
of the note was $1,101,000 and accrued interest was $1,606,961.
MDL
Ventures – The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is
100% owned by a Company officer, effective October 1, 2014, due on December 31, 2016 and bears 18% per annum interest, due at
maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of the lower
of $0.99 (0.18 pre-split) or 50% of the lowest three daily volume weighted average prices of the Company’s common stock
during the 20 consecutive days prior to the date of conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2018. The Company recognized a gain on the extinguishment
of debt of $1,487,158 for the remaining derivative liability. As of September 30, 2019, the gross balance of the note was $1,260,661
and accrued interest was $0.
Pine
Valley Investments, LLC – On May 7, 2019, the Company issued an unsecured Short-Term Promissory Note to Pine Valley
Investments, LLC in the principal amount of $100,000 (the “Note”) due on May 21, 2019 and bears a 5.0% interest rate.
The Company made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on May 21, 2019. As of September
30, 2019, the outstanding balance of the Note was $0 and accrued interest was $0.
Silverbrook
Corporation – Between March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook
Corporation for a total principal amount of $2,227,980 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $2,227,980. On October 2, 2015, the Company entered into a new convertible note
with Silverbrook Corporation that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue
interest from inception of these Notes in the amount of $1,209,606 and charged this amount to interest expense during the year
ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split)
or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion.
On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until
December 31, 2018. The Company recognized a gain on the extinguishment of debt of $4,656,189 for the remaining derivative liability
and of $439,733 for the remaining debt discount. As of September 30, 2019, the gross balance of the note was $2,227,980 and accrued
interest was $2,812,653.
WOC
Energy, LLC – On November 6, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $40,000 (the “Note”) due on September 30, 2019 and bears a 4.0% interest rate. As of September
30, 2019, the outstanding balance of the Note was $40,000 and accrued interest was $0.
WOC
Energy, LLC – On January 8, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $75,000 (the “Note”) due on January 11, 2019 and bears a 5.0% interest rate. The Company made
a payment of $78,750 towards the principal balance and accrued interest of $3,750 on February 19, 2019. As of September 30, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On February 22, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $50,000 (the “Note”) due on March 31, 2019 and bears a 5.0% interest rate. The Company made
a payment of $52,500 towards the principal balance and accrued interest of $2,500 on March 26, 2019. As of September 30, 2019,
the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On April 3, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $60,000 (the “Note”) due on May 10, 2019 and bears a 5.0% interest rate. The Company made a payment
of $63,000 towards the principal balance and accrued interest of $3,000 on May 21, 2019. As of September 30, 2019, the outstanding
balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On April 16, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the
principal amount of $55,000 (the “Note”) due on May 31, 2019 and bears a 5.0% interest rate. The Company made a payment
of $57,750 towards the principal balance and accrued interest of $2,750 on May 21, 2019. As of September 30, 2019, the outstanding
balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On May 1, 2019, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the principal
amount of $40,000 (the “Note”) due on May 31, 2019 and bears a 5.0% interest rate. This note was a conversion of accounts
payable due to the lender of $40,000. The Company made a payment of $12,000 towards the principal balance and accrued interest
of $2,000 on July 10, 2019. The Company made a payment of $10,000 towards the principal balance on July 15, 2019. The Company
made a payment of $11,000 towards the principal balance and accrued interest of $1,000 on August 28, 2019. The Company made a
payment of $10,000 towards the principal balance on September 5, 2019. As of September 30, 2019, the outstanding balance of the
Note was $0 and accrued interest was $0.
11.
Convertible Notes Payable
Convertible
notes payable were comprised of the following as of September 30, 2019 and December 31, 2018:
Convertible
Notes Payable
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Adar
Alef LLC
|
|
$
|
-
|
|
|
$
|
105,000
|
|
Antczak
Polich Law LLC
|
|
|
387,980
|
|
|
|
430,000
|
|
Auctus Fund
|
|
|
-
|
|
|
|
125,000
|
|
Coolidge
Capital
|
|
|
100,000
|
|
|
|
75,000
|
|
Crossover
Capital
|
|
|
-
|
|
|
|
82,894
|
|
Crown
Bridge Partners
|
|
|
55,000
|
|
|
|
55,000
|
|
Discover Growth (”Investor”)
|
|
|
3,985,000
|
|
|
|
150,000
|
|
Eagle
Equities
|
|
|
-
|
|
|
|
103,000
|
|
Ema
Financial
|
|
|
75,000
|
|
|
|
75,000
|
|
GS
Capital Partners
|
|
|
-
|
|
|
|
300,000
|
|
JS
Investments
|
|
|
-
|
|
|
|
100,000
|
|
Labrys
Funding
|
|
|
-
|
|
|
|
300,000
|
|
LG
Capital Funding
|
|
|
-
|
|
|
|
100,000
|
|
Morningview
Financial
|
|
|
-
|
|
|
|
55,000
|
|
Odyssey
Funding
|
|
|
105,000
|
|
|
|
-
|
|
Power
Up Lending
|
|
|
-
|
|
|
|
116,000
|
|
SBI
Investments
|
|
|
-
|
|
|
|
110,000
|
|
Scotia
International
|
|
|
400,000
|
|
|
|
-
|
|
Total
Convertible Notes Payable
|
|
|
5,107,980
|
|
|
|
2,281,894
|
|
Less
Unamortized Discount
|
|
|
(3,459,986
|
)
|
|
|
(1,112,499
|
)
|
Total
Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
|
1,647,994
|
|
|
|
1,169,395
|
|
Less
Short-Term Convertible Notes Payable
|
|
|
(591,260
|
)
|
|
|
(1,169,395
|
)
|
Total
Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
1,056,734
|
|
|
$
|
-
|
|
Adar
Alef, LLC – On November 19, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Adar Alef, LLC (“Adar Alef”), in the principal amount of $105,000 (the “Note”) due on November 19, 2019
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue
discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. On May 22, 2019, the Company paid $146,137 to pay off the principal balance of $105,000
and $41,137 in accrued interest and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $92,918
of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was
$0 and accrued interest was $0.
Antczak
Polich Law, LLC – On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $300,000 (the “Note”) due on August
1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $300,000 in legal fees due to Antczak for its
services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s
option, at a fixed conversion price of $0.75 per share. As of September 30, 2019, the gross balance of the note was $300,000 and
accrued interest was $29,984.
Antczak
Polich Law, LLC – On December 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $130,000 (the “Note”) due on December
1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $130,000 in legal fees due to Antczak for its
services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s
option, at a fixed conversion price of $0.75 per share. During the nine months ended September 30, 2019, the Company made several
payments amounting to $42,020. As of September 30, 2019, the gross balance of the note was $87,980 and accrued interest was $8,633.
Auctus
Fund – On December 4, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Auctus
Fund (“Auctus”), in the principal amount of $125,000 (the “Note”) due on September 4, 2019 and bears 12%
per annum interest, due at maturity. The total net proceeds the Company received was $112,250 (less an original issue discount
(“OID”) of $12,750). The Note is convertible into common stock, at holder’s option, at a 50% discount of the
lowest trading price of the common stock during the 25 trading day period prior to conversion. At any time after the closing date,
if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions
on this note. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased
an additional 15% discount while the “Chill” is in effect. On May 23, 2019, the Company paid $171,475 to pay off the
principal balance of $125,000 and $46,475 in accrued interest and prepayment penalty. For the nine months ended September 30,
2019, the Company amortized $111,240 of debt discount to current period operations as interest expense. As of September 30, 2019,
the gross balance of the note was $0 and accrued interest was $0.
Coolidge
Capital, LLC – On November 7, 2018, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to
the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $75,000. The total net proceeds
the Company received was $70,500 (less an original issue discount (“OID”) of $4,500). The Note has a maturity date
of August 7, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided
that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note
(if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the
date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the
“Common Stock”) at a conversion price of variable conversion price is 61% (39% discount) of the market price. Market
price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount
on this note of $4,500 which will be amortized over the life of the note. On May 3, 2019, the Company paid $105,000 to pay off
the principal balance of $75,000 and $30,000 in accrued interest and prepayment penalty. For the nine months ended September 30,
2019, the Company amortized $3,610 of debt discount to current period operations as interest expense. As of September 30, 2019,
the gross balance of the note was $0 and accrued interest was $0.
Coolidge
Capital, LLC – On May 10, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase
Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to the Purchaser
a Convertible Promissory Note (the “Note”) in the aggregate amount of $100,000. The total net proceeds the Company
received was $95,000 (less an original issue discount (“OID”) of $5,000). The Note has a maturity date of February
10, 2020 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent
(12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that
the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any)
is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that
is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common
Stock”) at a conversion price of variable conversion price is 61% (39% discount) of the market price. Market price is the
average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this
note of $5,000 which will be amortized over the life of the note. For the nine months ended September 30, 2019, the Company amortized
$2,554 of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the note
was $100,000 and accrued interest was $4,701.
Coventry
Enterprises, LLC – On February 12, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Coventry Enterprises, LLC (“Coventry”), in the principal amount of $50,000 (the “Note”) due on February
12, 2020 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $47,500 (less an original
issue discount (“OID”) of $2,500). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. On May 23, 2019, the Company paid $68,750 to pay off the principal balance of $50,000 and
$18,750 in accrued interest and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $50,000
of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was
$0 and accrued interest was $0.
Crossover
Capital Fund II, LLC – On July 10, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $82,894 (the “Note”)
due on April 10, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $75,000
(less an original issue discount (“OID”) of $7,894). The Note is convertible into common stock, at holder’s
option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion.
In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional
10% discount while the “Chill” is in effect. On January 4, 2019, the Company paid $118,750 to pay off the principal
balance of $82,894 and $35,856 in accrued interest and prepayment penalty. For the nine months ended September 30, 2019, the Company
amortized $30,253 of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance
of the note was $0 and accrued interest was $0.
Crossover
Capital Fund II, LLC – On May 3, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $80,500 (the “Note”)
due on February 3, 2020 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $70,975
(less an original issue discount (“OID”) of $9,525). The Note is convertible into common stock, at holder’s
option, at a 50% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion.
In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional
10% discount while the “Chill” is in effect. On May 22, 2019, the Company paid $93,161 to pay off the principal balance
of $80,500 and $12,661 in accrued interest and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized
$80,500 of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the
note was $0 and accrued interest was $0.
Crown
Bridge Partners – On October 25, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $55,000 (the “Note”) due on May
11, 2019 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $47,000 (less an original
issue discount (“OID”) of $8,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. If the conversion price
drops below $0.15 per share, then the conversion price will be 50% of the trading price. The Company issued 100,000 warrants to
purchase shares of common stock.in connection with this note. The warrants have a five year life and an exercise price of $0.75
per share. On April 18, 2019, the Company paid $83,738 to pay off the principal balance of $55,000 and $28,738 in accrued interest
and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $44,904 of debt discount to current
period operations as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest was
$0.
Crown
Bridge Partners – On April 18, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $55,000 (the “Note”) due on April
18, 2020 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $47,000 (less an original
issue discount (“OID”) of $8,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. If the conversion price
drops below $0.15 per share, then the conversion price will be 50% of the trading price. For the nine months ended September 30,
2019, the Company amortized $24,795 of debt discount to current period operations as interest expense. As of September 30, 2019,
the gross balance of the note was $55,000 and accrued interest was $1,243.
Investor
– On August 2, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Investor, in
the principal amount of $150,000 (the “Note”) due on August 2, 2020 and bears 10% (24% default) per annum interest,
due at maturity. The total net proceeds the Company received was $150,000. The Note is convertible into common stock, at holder’s
option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion.
If at any time while the note is outstanding, an event of default occurs, then an additional discount of 10% shall be factored
into the variable conversion price until the note is no longer outstanding. On January 23, 2019, the Company paid $210,000 to
pay off the principal balance of $150,000 and $60,000 in accrued interest and prepayment penalty. For the nine months ended September
30, 2019, the Company amortized $119,015 of debt discount to current period operations as interest expense. As of September 30,
2019, the gross balance of the note was $0 and accrued interest was $0.
Investor
– On May 20, 2019, the Company issued a secured Convertible Promissory Note (“Note”) to Investor, in the
principal amount of $4,250,000 (the “Note”) due on May 20, 2021 and bears 10% (24% default) per annum interest, due
at maturity. The total net proceeds the Company received was $3,000,000. The Note is convertible into common stock, at holder’s
option, at 100% of market price less $0.01 per share. Market price means the mathematical average of the five lowest individually
daily volume weighted average prices of the common stock from the period beginning on the issuance date and ending on the maturity
date. The conversion price has a floor price of $0.01 per share of common stock. The Company issued 9,250,000 warrants to purchase
shares of common stock in connection with this note. The warrants have a three year life and an exercise price as follows: 3,750,000
at an exercise price of $0.40 per share, 3,000,000 at an exercise price of $0.50 per share and 2,500,000 at an exercise price
of $0.60 per share. The proceeds were allocated between the note for $1,788,038 and the warrants for $1,211,962. The note has
an early payoff penalty of 140% of the then outstanding face value. For the nine months ended September 30, 2019, the Company
amortized $238,372 of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance
of the note was $3,985,000 and accrued interest was $145,207.
Eagle
Equities, LLC – On December 12, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $103,000 (the “Note”) due on December
12, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original
issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. On May 22, 2019, the Company paid $147,812 to pay off the principal balance of $103,000
and $44,812 in accrued interest and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $97,638
of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was
$0 and accrued interest was $0.
EMA
Financial – On October 23, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
EMA Financial, in the principal amount of $75,000 (the “Note”) due on July 23, 2019 and bears 12% per annum interest,
due at maturity. The total net proceeds the Company received was $67,500 (less an original issue discount (“OID”)
of $7,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price
of the common stock during the 20 trading day period prior to conversion. However, if the Company’s share price at any time
loses the bid, then the conversion price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion
price of $0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the conversion
shares to the Holder, or any date thereafter while conversion shares are held by the Holder, the closing bid price per share of
common stock on the principal market on the trading day on which the common shares are traded is less than the sale price used
to calculate the conversion price, then such conversion price shall be automatically reduced using the new low closing bid price
and additional shares issued to the Holder. In the event the Company experiences a DTC “Chill” on its shares, or if
the closing sale price at any time falls below $0.047, then the conversion price shall be decreased an additional 15% discount.
At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 15% discount
will apply to all future conversions on this note. On April 25, 2019, the Company paid $107,308 to pay off the principal balance
of $75,000 and $32,308 in accrued interest and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized
$56,044 of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the
note was $0 and accrued interest was $0.
EMA
Financial – On May 1, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to EMA
Financial, in the principal amount of $75,000 (the “Note”) due on February 1, 2020 and bears 12% per annum interest,
due at maturity. The total net proceeds the Company received was $67,500 (less an original issue discount (“OID”)
of $7,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price
of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill”
on its shares, or if the closing sale price at any time falls below $0.15, then the conversion price shall be decreased an additional
15% discount. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional
15% discount will apply to all future conversions on this note. For the nine months ended September 30, 2019, the Company amortized
$40,761 of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the
note was $75,000 and accrued interest was $3,748.
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 nine months ended September 30, 2019, the Company amortized $57,515
of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was
$0 and accrued interest was $0.
GS
Capital Partners – On November 28, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $200,000 (the “Note”) due on November
28, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $190,000 (less an original
issue discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 42%
discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the
Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount
while the “Chill” is in effect. On May 23, 2019, the Company paid $267,890 to pay off the principal balance of $200,000
and $67,890 in accrued interest and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $181,918
of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was
$0 and accrued interest was $0.
GS
Capital Partners – On January 23, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on February
23, 2020 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original
issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount
of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company
experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while
the “Chill” is in effect. For the nine months ended September 30, 2019, the Company amortized $100,000 of debt discount
to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest
was $0.
JSJ
Investments – On November 9, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to JSJ Investments (“JSJ”), in the principal amount of $100,000 (the “Note”) due on November 9, 2019 and
bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $98,000 (less an original issue
discount (“OID”) of $2,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 10, 2019, the Company
paid $145,961 to pay off the principal balance of $100,000 and $45,961 in accrued interest and prepayment penalty. For the nine
months ended September 30, 2019, the Company amortized $85,753 of debt discount to current period operations as interest expense.
As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
JSJ
Investments – On February 5, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to JSJ Investments (“JSJ”), in the principal amount of $100,000 (the “Note”) due on February 5, 2020 and
bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $98,000 (less an original issue
discount (“OID”) of $2,000). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 23, 2019, the Company
paid $138,452 to pay off the principal balance of $100,000 and $38,452 in accrued interest and prepayment penalty. For the nine
months ended September 30, 2019, the Company amortized $100,000 of debt discount to current period operations as interest expense.
As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
Labrys
Fund LP – On October 26, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase
Agreement”) with LABRYS FUND, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser a
Convertible Promissory Note (the “Note”) in the aggregate principal amount of $300,000. The Note has a maturity date
of April 26, 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. On May 22, 2019, the Company paid $319,510 to pay off the principal balance of $300,000 and $19,510 in accrued interest
and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $54,477 of debt discount to current
period operations as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest was
$0.
Labrys
Fund LP – On January 14, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase
Agreement”) with LABRYS FUND, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser a
Convertible Promissory Note (the “Note”) in the aggregate principal amount of $282,000. The Note has a maturity date
of July 14, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or otherwise. The total net proceeds the Company received was
$250,000 (less an original issue discount (“OID”) of $32,000). The Company has the right to prepay the Note, provided
it makes a payment to the Purchaser as set forth in the Note within 180 days of its Issue Date. The transactions described above
closed on January 14, 2019. In connection with the issuance of the Note, the Company issued to the Purchaser 1,000,000 shares
of its common stock (the “Returnable Shares”) that shall be returned to the Company’s treasury if the Note is
fully repaid and satisfied. The outstanding principal amount of the Note (if any) is convertible at any time and from time to
time at the election of the Purchaser during the period beginning on the Issue Date into shares of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.11 as set forth in the Note, subject
to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest
trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a
DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions.
The Company issued 130,000 shares of common stock in connection with this note, which were valued at $17,550 and recorded as part
of the debt discount. The Company recognized a debt discount on this note of $113,641 which will be amortized over the life of
the note. On May 22, 2019, the Company paid $293,867 to pay off the principal balance of $282,000 and $11,867 in accrued interest
and prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $113,641 of debt discount to current
period operations as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest was
$0.
LG
Capital Funding – On December 7, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to LG Capital Funding (“LG Cap”), in the principal amount of $100,000 (the “Note”) due on December 7,
2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $85,000 (less an original
issue discount (“OID”) of $15,000). The Note is convertible into common stock, at holder’s option, for the first
6 months at a fixed price of $0.18 per share and after that date at a 40% discount of the lowest trading price of the common stock
during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares,
the conversion price shall be decreased an additional 10% discount on all future conversions. The Company issued 39,473 shares
of common stock in connection with this note, which were valued at $7,500 and recorded as part of the debt discount. The Company
recognized a debt discount on this note of $22,500 which will be amortized over the life of the note. On May 23, 2019, the Company
paid $146,252 to pay off the principal balance of $100,000 and $46,252 in accrued interest and prepayment penalty. For the nine
months ended September 30, 2019, the Company amortized $21,020 of debt discount to current period operations as interest expense.
As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
Morningview
Financial – On November 26, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to
Morningview Financial (“Morningview”), in the principal amount of $55,000 (the “Note”) due on November
26, 2019 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $47,500 (less an original
issue discount (“OID”) of $7,500). The Note is convertible into common stock, at holder’s option, at a 40% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 23, 2019, the Company
paid $78,546 to pay off the principal balance of $55,000 and $23,546 in accrued interest and prepayment penalty. For the nine
months ended September 30, 2019, the Company amortized $49,726 of debt discount to current period operations as interest expense.
As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
Odyssey
Capital Funding, LLC – On May 15, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Odyssey Capital Funding, LLC (“Odyssey Capital”), in the principal amount of $105,000 (the “Note”)
due on May 15, 2020 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $100,000
(less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s
option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion.
In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional
10% discount while the “Chill” is in effect. For the nine months ended September 30, 2019, the Company amortized $39,590
of debt discount to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was
$105,000 and accrued interest was $3,970.
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 nine months ended September 30, 2019, the Company amortized $100,000 of debt discount
to current period operations as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest
was $0.
Power
Up Lending Group – On July 12, 2018, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $53,000. The total net proceeds
the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date
of April 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”)
until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may
prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding
principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during
the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of
or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price
is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look
back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note.
On January 14, 2019, the Company paid $75,855 to pay off the principal balance of $53,000 and $22,855 in accrued interest and
prepayment penalty. For the nine months ended September 30, 2019, the Company amortized $1,233 of debt discount to current period
operations as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
Power
Up Lending Group – On October 22, 2018, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds
the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date
of July 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”)
until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may
prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding
principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during
the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of
or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price
is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look
back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note.
On April 16, 2019, the Company paid $90,083 to pay off the principal balance of $63,000 and $27,083 in accrued interest and prepayment
penalty. For the nine months ended September 30, 2019, the Company amortized $2,253 of debt discount to current period operations
as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
Power
Up Lending Group – On January 11, 2019, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $53,000. The total net proceeds
the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date
of October 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”)
until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may
prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding
principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during
the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of
or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price
is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look
back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note.
On May 22, 2019, the Company paid $67,353 to pay off the principal balance of $53,000 and $14,353 in accrued interest and prepayment
penalty. For the nine months ended September 30, 2019, the Company amortized $3,000 of debt discount to current period operations
as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
Power
Up Lending Group – On April 16, 2019, the Company entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued
to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds
the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date
of February 28, 2020 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve
percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”)
until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may
prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding
principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during
the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of
or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price
is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look
back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note.
On May 22, 2019, the Company paid $80,062 to pay off the principal balance of $63,000 and $17,062 in accrued interest and prepayment
penalty. For the nine months ended September 30, 2019, the Company amortized $3,000 of debt discount to current period operations
as interest expense. As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
SBI
Investments – On December 17, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to SBI Investments, LLC (“SBI”), in the principal amount of $110,000 (the “Note”) due on June 17, 2019
and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue
discount (“OID”) of $10,000). The Note is convertible into common stock, at holder’s option, at a 50% discount
of the lowest trading price of the common stock during the 20 trading day period prior to conversion. At any time after the closing
date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future
conversions on this note. If at any time while the note is outstanding, an event of default occurs, then an additional discount
of 15% shall be factored into the variable conversion price until the note is no longer outstanding. On May 23, 2019, the Company
paid $147,827 to pay off the principal balance of $110,000 and $37,827 in accrued interest and prepayment penalty. For the nine
months ended September 30, 2019, the Company amortized $101,538 of debt discount to current period operations as interest expense.
As of September 30, 2019, the gross balance of the note was $0 and accrued interest was $0.
Scotia
International of Nevada, Inc. – On January 10, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Scotia International of Nevada, Inc. (“Scotia”), in the principal amount of $400,000 (the “Note”) due
on January 10, 2022 and bears 6% per annum interest, due at maturity. The Note was issued as part of a buyout agreement on the
net smelter royalty due Scotia on the precious metals mined from the Company’s mining operation in Honduras. The Note is
convertible into common stock, at holder’s option, at $0.50 per share as long as the Company’s common stock’s
bid price is less than $0.75 per share. If the bid price is more than $0.75 per share, then Scotia may elect to convert at the
average bid price of the common stock during the 10 trading day period prior to conversion. For the nine months ended September
30, 2019, the Company amortized $21,731 of debt discount to current period operations as interest expense. As of September 30,
2019, the gross balance of the note was $400,000 and accrued interest was $17,293.
12.
Stockholders’ Deficit
Common
Stock
On
January 14, 2019, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 130,000
shares of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.135 per share for
a total value of $17,550.
On
February 5, 2019, 100,000 shares of common stock were issued to a member of the board of directors of the Company as part of a
conversion agreement for consulting services. These shares were valued at $0.12 per share for a value of $12,000. The Company
recognized a loss on this settlement of $5,000 and reduced payables by $7,000.
On
March 12, 2019, 650,000 shares of common stock were issued to officers, former officers and members of the board of directors
of the Company as payment for consulting services performed. These shares were valued at $0.189 per share for a value of $122,850.
On
March 28, 2019, the Company issued 375,000 shares of common stock to Richard Bass Jr. for $48,750 in cash. These shares were valued
at $0.13 per share.
On
April 26, 2019, in connection with an extension of a Note to Labrys Fund LP, the Company issued to the Note Purchaser 300,000
shares of its common stock as an extension fee for the extension of the note. These shares were valued at $0.3399 per share for
a total value of $101,970.
On
June 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. Per this agreement, the Company
will issue 200,000 shares of common stock each month for 11 months. This stock was valued at $0.11 per share for a value of $22,000.
On
July 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at $0.15
per share for a value of $30,000.
On
July 29, 2019, the Company issued to a Note Holder 2,986,597 shares of its common stock under a conversion notice. The conversion
was for $265,000 in principle. The shares were valued at $0.11 per share for a total value of $328,526. The Company recognized
a loss of extinguishment of debt of $40,350 on this conversion.
On
August 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.08 per share for a value of $16,000.
On
September 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.08 per share for a value of $16,000.
Warrants
On
May 20, 2019, the Company entered into a Note Purchase Agreement (the “Agreement”) with an investor (the “Investor”)
through which the Investor purchased (i) a Senior Secured Redeemable Convertible Note (“Note”) with a face value of
$4,250,000 that is convertible into shares of common stock of the Company and (ii) a warrant (“Warrant”) to purchase
9,250,000 shares of common stock of the Company. The warrant has a life of three years. The warrant is exercisable at the following
prices – 3,750,000 shares of common stock at $0.40 per share, 3,000,000 shares of common stock at $0.50 per share and 2,500,000
shares of common stock at $0.60 per share. These warrants’ relative fair value, based on cash proceeds allocation,
was $1,211,962, which has been recorded in additional paid-in capital.
The
following tables summarize the warrant activity during the nine months ended September 30, 2019 and the year ended December 31,
2018:
Stock
Warrants
|
|
Number
of Warrants
|
|
|
Weighted
Average Exercise Price
|
|
Balance
at December 31, 2017
|
|
|
743,637
|
|
|
$
|
1.27
|
|
Granted
|
|
|
300,000
|
|
|
|
0.75
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at
December 31, 2018
|
|
|
1,043,637
|
|
|
|
1.12
|
|
Granted
|
|
|
9,250,000
|
|
|
|
0.49
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(680,000
|
)
|
|
|
0.90
|
|
Balance
at September 30, 2019
|
|
|
9,613,637
|
|
|
$
|
0.53
|
|
2019
Outstanding Warrants
|
|
|
Warrants
Exercisable
|
|
Range
of
Exercise Price
|
|
|
Number
Outstanding at September 30, 2019
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable at September 30, 2019
|
|
|
Weighted
Average Exercise Price
|
|
$
|
0.40
- 2.00
|
|
|
|
9,613,637
|
|
|
|
2.65
years
|
|
|
$
|
0.53
|
|
|
|
9,613,637
|
|
|
$
|
0.53
|
|
13.
Related Party Transactions
Consulting
Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company
agreed to pay $18,000 per month for twelve months. This agreement was renegotiated in October 2017 and the Company agreed to pay
the stockholder/director $25,000 per month starting in October 2017. This agreement was superseded by an Employment Agreement
as of July 1, 2018 (see Employment Agreements below). As of September 30, 2019, the Company owed $1,035,000 to the stockholder/director
in accrued consulting fees.
Mr.
Cluff currently serves as a director of the Company and has a separate agreement as a consultant of the Company effective as of
October 2, 2015.
Employment
Agreements – The Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The employment
agreement was effective as of April 1, 2019 and provides for compensation of $300,000 annually.
Notes
Payable – The Company took several short-term notes payable from related parties during the nine months ended September
30, 2019. The Company received $1,119,000 in cash from related parties and paid out $1,634,412 in cash to related parties on notes
payable.
14.
Commitments and Contingencies
Litigation
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to
time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal
proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On
January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami
(“Bertolami”) in the United States District Court for the Western District of North Carolina, Statesville Division.
This matter was dismissed for lack of personal jurisdiction in an Order and Judgment dated March 28, 2018.
On
June 12, 2017, Danzig Ltd, filed an arbitration in Boston, Massachusetts, with the American Arbitration Association (AAA) against
the Company and two if its officers and directors (Trent D’ Ambrosio and Michael Ahlin). Messrs. D’ Ambrosio and Ahlin
were dismissed on the ground that they were not proper parties to the Arbitration. A hearing occurred the week of April 9, 2018.
On October 24, 2018, a Final Award was issued dismissing all claims asserted by Danzig against Inception and awarding Inception
$361,710.74 in fees and costs.
On
July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and two if its officers
and directors (Trent D’ Ambrosio and Michael Ahlin). On November 16, 2018, Order No. 7 Dismissing Claims of Claimant [Foxcroft]
with Prejudice Under AAA Rule 57, and Granting Motion to Dismiss [Inception’s] Counterclaims without Prejudice was entered.
This concluded this arbitration as the claims asserted by Foxcroft against Inception were dismissed with prejudice, and Inception’s
claims were dismissed without prejudice.
On
August 22, 2017, the Company and two of its officers and directors (Trent D’ Ambrosio and Michael Ahlin) filed a complaint
against Danzig Ltd., Elliott Foxcroft, and Brett Bertolami in the United States District Court, District of Utah, Central Division.
On November 29, 2018 the United States District Court for the District of Utah entered an order denying Inception’s motion
to dismiss Defendants’ Counterclaim but required the Defendants (Danzig, ltd, Bertalomi, and Foxcroft) to file a more definite
statement of their claims by December 14, 2018. The ordered filing was not made and Inception filed another motion to dismiss.
The dismissal of the counterclaim with prejudice was entered on January 15, 2019. A final Amended Judgment in a Civil Case was
entered in the case on February 13, 2019 which also included confirmation of the order and award entered in the Boston and Salt
Lake arbitrations, respectively.
One
of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., has been served with notice of a
labor dispute brought in Honduras by one of the Company’s former employees. The complaint alleges that the former employee
was terminated from his position with the Company’s subsidiary and is entitled to certain statutory compensation. The Company
has responded with its assertion that the employee voluntarily resigned and was not involuntarily terminated. The case was heard
in Honduras by a labor judge and the Company has appealed the ruling in this case.
15.
Concentrations
We
generally sell a significant portion of our mineral production to a relatively small number of customers. For the nine months
ended September 30, 2019, 100 percent of our consolidated product revenues were attributable to Cobra Oro de Honduras, A-Mark
Precious Metals and to Asahi Refining, Inc., our current and only three customers as of September 30, 2019. We are not dependent
upon any one purchaser and have alternative purchasers readily available at competitive market prices if there is a disruption
in services or other events that cause us to search for other ways to sell our production.
The
Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s
fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine
was disrupted or closed.
16.
Subsequent Events
Management
has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through November 14,
2019, the date which the financial statements were available to be issued and there are no material subsequent events, except
as noted below:
From
October 1, 2019 through the date of this filing, the Company issued an additional 400,000 shares per a consulting agreement.
On
September 27, 2019, the Company entered into an Agreement for the acquisition of the UP-Burlington Project. Pursuant to the
Agreement, the potential acquirer paid a nonrefundable amount of $25,000 for access to the asset and the right to conduct due
diligence for sixty days. Once the due diligence is completed, the potential acquirer has the option to purchase the
UP-Burlington project for $475,000.