Notes
to Condensed Consolidated Financial Statements (Unaudited)
September
30, 2020
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) change its name to Silver America, Inc. and (2) increase
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 were then focused on the ownership and operation of the mine acquired from Inception Resources and
the Company then ceased to be a shell company as it no longer has nominal operations. On
February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange
for $250,000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian
company.
On
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 240,225,901 shares of common stock
of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger agreement,
there was a change in control, and it has been treated for accounting purposes as a reverse recapitalization with Clavo Rico,
Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early Mayan
and Spanish occupation.
The
Company’s primary mine is located on the 200-hectare Clavo Rico Concession, located in southern Honduras. This mine was
originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía
Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest
and later increased its ownership to 99.9%.
COVID-19
- The challenges posed by the COVID-19 pandemic on the global economy increased significantly as the first quarter of 2020
progressed. COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide. In response to COVID-19,
national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group
events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social
distancing. Based on management’s assessment as of September 30, 2020, the ultimate impact of COVID-19 on the Company’s
business, results of operations, financial condition and cash flows is dependent on future developments, including the duration
of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this
time.
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 had a net loss of $2,983,072 during the period ended September 30, 2020 and had a working
capital deficit of $33,166,886 as of September 30, 2020. 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, 2020, the
results of its consolidated statements of operations and comprehensive loss for the nine month period ended September 30, 2020,
and its consolidated cash flows for the nine month period ended September 30, 2020. 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, 2020 and December 31, 2019, the Company had $0 and $0 in cash equivalents,
respectively. 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.
Settlement
of Contracts in Company’s Equity – In accordance with ASC 815-40-25, the Company must meet certain requirements
in order to report contracts as equity versus liabilities. These requirements must be met by the Company or the contracts need
to be reported as liabilities. The Company has adopted the sequencing approach as guidance on contracts that permit partial net
share settlement. The Company evaluates the contracts based on the earliest issuance date. Currently, the Company doesn’t
have any items that are reported as equity instead of liabilities.
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
fair value of financial instruments on September 30, 2020 are summarized below:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Marketable securities
|
|
$
|
342,600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
342,600
|
|
Total Assets
|
|
$
|
342,600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
342,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
92,771
|
|
|
$
|
92,771
|
|
Debt derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
14,054,880
|
|
|
|
14,054,880
|
|
Total Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,147,651
|
|
|
$
|
14,147,651
|
|
The
fair value of financial instruments on December 31, 2019 are summarized below:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Marketable securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
254,632
|
|
|
$
|
254,632
|
|
Debt derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
13,967,303
|
|
|
|
13,967,303
|
|
Total Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,221,935
|
|
|
$
|
14,221,935
|
|
The
Company recognizes its marketable securities as level 1 and values its marketable securities 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
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.
Marketable
Securities - We measure the fair value of marketable securities in accordance with ASC 825-10 – Financial Instruments.
Any change in the fair value is recognized in net income in the period being reported.
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 - 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.
11,153,299 and 483,378,221 common share equivalents have been excluded from the diluted loss per share calculation for the three
and nine-month periods ended September 30, 2020, respectively, because it would be anti-dilutive.
The
following tables summaries the changes in the net earnings per common share for the three and nine-month periods ended September
30, 2020 and 2019:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
Numerator
|
|
9/30/2020
|
|
|
9/30/2019
|
|
|
9/30/2020
|
|
|
9/30/2019
|
|
Net Income (Loss) - Controlling Interest
|
|
$
|
1,900,283
|
|
|
$
|
2,337,377
|
|
|
$
|
(2,982,147
|
)
|
|
$
|
(16,638,222
|
)
|
Amortization of Debt Discounts
|
|
|
497,131
|
|
|
|
699,707
|
|
|
|
-
|
|
|
|
-
|
|
Interest Expense
|
|
|
187,525
|
|
|
|
191,243
|
|
|
|
-
|
|
|
|
-
|
|
Change in Derivative Liabilities
|
|
|
(2,682,677
|
)
|
|
|
(3,079,105
|
)
|
|
|
-
|
|
|
|
-
|
|
Adjusted Net Loss - Controlling Interest
|
|
$
|
(97,738)
|
|
|
$
|
149,222
|
|
|
$
|
(2,982,147
|
)
|
|
$
|
(16,638,222
|
)
|
Denominator
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
Basic Weighted Average Number of Shares Outstanding during Period
|
|
|
69,339,611
|
|
|
|
58,284,979
|
|
|
|
66,637,872
|
|
|
|
56,122,353
|
|
Dilutive Shares
|
|
|
466,902,589
|
|
|
|
93,331,979
|
|
|
|
-
|
|
|
|
-
|
|
Diluted Weighted Average Number of Shares Outstanding during Period
|
|
|
536,242,200
|
|
|
|
151,616,958
|
|
|
|
66,637,872
|
|
|
|
56,122,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Loss per Share
|
|
$
|
(0.00)
|
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.30
|
)
|
Other
Comprehensive Loss – Other Comprehensive loss is made up of the exchange differences arising on translating foreign
operations, unrealized losses on marketable securities and the net loss for the nine months ending September 30, 2020 and the
year ended December 31, 2019.
Derivative
Liabilities - Derivative 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.
Income
Taxes - The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment
of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income
tax expense.
Deferred
income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating
the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent
financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state
and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent
with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance
for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than
not.
Changes
in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of
any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
Business
Segments – The Company operates in one segment and therefore segment information is not presented.
Use
of Estimates – In preparing financial statements in conformity with generally accepted accounting principles, we are
required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and expenditures during the reported periods. Actual
results could differ materially from those estimates. Estimates may include those pertaining to valuation of inventories and mineralized
material on leach pads, the estimated useful lives and valuation of properties, plant and equipment, mineral rights and properties,
deferred tax assets, convertible preferred stock, derivative assets and liabilities, reclamation liabilities, stock-based compensation
and payments, and contingent liabilities.
Non-Controlling
Interest Policy – Non-controlling interest (NCI) is the portion of equity ownership in a subsidiary not attributable
to the parent company, who has a controlling interest and consolidates the subsidiary’s financial results with its own.
The amount of equity relating to the non-controlling interest is separately identified in the equity section of the balance sheet
and the amount of the net income (loss) relating to the non-controlling interest is separately identified on the statement of
operations.
Recently
Issued Accounting Pronouncements – From time to time, new accounting pronouncements are issued by FASB that are adopted
by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards,
which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In
August 2018, FASB issued Accounting Standards Update 2018-13, Topic 820 – Fair Value Measurement. The Company has adopted
this standard and determined that it does not have a material impact on the Company’s financial statements.
3.
Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories,
stockpiles and mineralized materials on leach pads at September 30, 2020 and December 31, 2019 consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Supplies
|
|
$
|
42,964
|
|
|
$
|
62,912
|
|
Mineralized Material on Leach Pads
|
|
|
37,914
|
|
|
|
201,407
|
|
ADR Plant
|
|
|
121,084
|
|
|
|
92,404
|
|
Finished Ore
|
|
|
214,357
|
|
|
|
498,346
|
|
Total Inventories
|
|
$
|
416,319
|
|
|
$
|
855,069
|
|
There
were no stockpiles at September 30, 2020 and December 31, 2019.
4.
Marketable Securities 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 1 financial assets as of September 30,
2020:
|
|
|
Marketable
Securities
|
|
Balance, December 31, 2019
|
|
$
|
-
|
|
Transfers in upon initial fair value of marketable securities
|
|
|
222,307
|
|
Change in fair value of marketable securities
|
|
|
(226,144
|
)
|
Gain on sale of marketable securities
|
|
|
346,437
|
|
Balance, September 30, 2020
|
|
$
|
342,600
|
|
5.
Derivative Financial Instruments
The
Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets
and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market
in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such
as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September
30, 2020:
|
|
|
Derivative
Liabilities
|
|
Balance, December 31, 2019
|
|
$
|
14,221,935
|
|
Change in fair value of derivative liabilities and warrant liability
|
|
|
(74,284
|
)
|
Balance, September 30, 2020
|
|
$
|
14,147,651
|
|
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, 2020, the Company marked to market the fair value of the debt derivatives and determined a fair value of $14,054,880.
The Company recorded a loss from change in fair value of debt derivatives of $87,577 for the period ended September
30, 2020. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model and the Monte Carlo Valuation
Model. The Binomial Option Pricing Model was based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of
168.70%, (3) weighted average risk-free interest rate of 0.12% (4) expected life of 1.28 years, and (5) the quoted market price of the
Company’s common stock at each valuation date. The Monte Carlo Valuation Model was based on the following assumptions: (1) expected
volatility of 203.6%, (2) weighted average risk-free interest rate of 0.16% and (3) expected life of 1.64 years.
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, 2019, the Company issued warrants in conjunction with the issuance
of three Crown Bridge Convertible Notes and a Convertible Note with an investor. 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, 2020, the Company had a warrant liability of $92,771. The Company recorded a gain from change in fair value of warrant
liability of $161,861 for the period ended September 30, 2020. The fair value of the embedded derivatives was determined using
the Binomial Option Pricing Model and the Monte Carlo Valuation Model. The Binomial Option Pricing Model was based on the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of 195.87% to 213.32%, (3) weighted average risk-free interest
rate of 0.13% to 0.16% (4) expected life of 1.86 to 3.07 years, and (5) the quoted market price of the Company’s common
stock at each valuation date. The Monte Carlo Valuation Model was based on the following assumptions: (1) expected volatility
of 203.6%, (2) weighted average risk-free interest rate of 0.13% and (3) expected life of 1.64 years.
6.
Properties, Plant and Equipment, Net
Properties,
plant and equipment at September 30, 2020 and December 31, 2019 consisted of the following:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Land
|
|
$
|
309,820
|
|
|
$
|
267,471
|
|
Buildings
|
|
|
2,355,637
|
|
|
|
2,337,775
|
|
Machinery and Equipment
|
|
|
955,833
|
|
|
|
946,777
|
|
Office Equipment and Furniture
|
|
|
48,182
|
|
|
|
42,191
|
|
Vehicles
|
|
|
84,747
|
|
|
|
84,105
|
|
Construction in Process
|
|
|
8,430
|
|
|
|
7,487
|
|
|
|
|
3,762,649
|
|
|
|
3,685,806
|
|
Less Accumulated Depreciation
|
|
|
(3,305,371
|
)
|
|
|
(3,242,458
|
)
|
Total Property, Plant and Equipment
|
|
$
|
457,278
|
|
|
$
|
443,348
|
|
During
the nine months ended September 30, 2020 and 2019, the Company recognized depreciation expense of $38,423 and $162,947, respectively.
The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative
expenses.
|
|
September 30, 2020
|
|
|
June 30,
2019
|
|
Depreciation Allocation
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
$
|
32,185
|
|
|
$
|
135,734
|
|
General and Administrative
|
|
|
6,238
|
|
|
|
27,213
|
|
Total
|
|
$
|
38,423
|
|
|
$
|
162,947
|
|
7.
Mineral Properties
On
February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the U.P. and Burlington Gold Mine (“UP & Burlington” or the “Mine”) pursuant to that certain
asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its
wholly owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the
other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). UP & Burlington contains two Federal patented
mining claims which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40
acres which comprises UP & Burlington. The property was recorded at cost and the Company recognized $950,160 impairment expense
on the property as of July 31, 2015. On February 21, 2020, the Company sold the Up & Burlington property and mineral rights
to Ounces High Exploration, Inc. in exchange for $249,660 in cash consideration and 66,974,252 shares of common stock of Hawkstone
Mining Limited, a publicly-trade Australian company that was valued at $221,424, for a net gain of $471,084 on the sale of the
mine property.
8.
Mine Reclamation Obligation
The
Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and revegetating 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 $555,538 and $513,051 as of September 30, 2020 and December 31, 2019, 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,
2020
|
|
|
December 31,
2019
|
|
Balance, Beginning of Year
|
|
$
|
513,051
|
|
|
$
|
341,845
|
|
Liabilities incurred
|
|
|
38,151
|
|
|
|
171,206
|
|
Change due to foreign currency translation
|
|
|
4,336
|
|
|
|
-
|
|
Balance, End of Year
|
|
$
|
555,538
|
|
|
$
|
513,051
|
|
9.
Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities at September 30, 2020 and December 31, 2019 consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Accounts Payable
|
|
$
|
780,313
|
|
|
$
|
750,529
|
|
Accrued Liabilities
|
|
|
1,414,078
|
|
|
|
530,779
|
|
Accrued Salaries and Benefits
|
|
|
626,893
|
|
|
|
507,043
|
|
Advances Payable
|
|
|
208,827
|
|
|
|
403,995
|
|
Total Accrued Liabilities
|
|
$
|
3,030,111
|
|
|
$
|
2,192,346
|
|
10.
Secured Borrowings
On
June 26, 2019, the Company entered into four new financing arrangements with third parties for a combined principal amount of
$247,571. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of
no less than 10 percent, or $24,757, for a total expected remittance of $272,328. The maturity date of the notes is June 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. The Company reached agreements with the third parties
to settle the financing arrangements as of June 25, 2020. The Company liquidated the gold held to satisfy the debt obligations.
Two debt holders agreed to rollover all of their funds into new financing agreements and two debt holders chose to liquidate their
agreements. The debt obligation of $224,702 that was being liquidated was paid in full in July 2020.
On
June 25, 2020, the Company entered into two new financing arrangements with third parties for a combined principal amount of $172,663.
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 $17,266, for a total expected remittance of $189,929. The maturity date of the notes is December 26, 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, 2020, the Company held 64.501 ounces of
gold, valued at a cost of $117,176, to satisfy the liabilities upon maturity leaving a net obligation of $64,589, which is recorded
on the Company’s balance sheet as secured borrowings.
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Secured Borrowings
|
|
|
|
|
|
|
Secured obligations
|
|
$
|
172,663
|
|
|
$
|
247,571
|
|
Guaranteed interest
|
|
|
17,266
|
|
|
|
24,757
|
|
Deferred interest
|
|
|
(8,164
|
)
|
|
|
(12,005
|
)
|
|
|
|
181,765
|
|
|
|
260,323
|
|
Gold held as security
|
|
|
(117,176
|
)
|
|
|
(49,257
|
)
|
Secured Borrowings, net
|
|
$
|
64,589
|
|
|
$
|
211,066
|
|
11.
Notes Payable
Notes
payable were comprised of the following as of September 30, 2020 and December 31, 2019:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Notes Payable
|
|
|
|
|
|
|
Phil Zobrist
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Small Business Administration
|
|
|
100,000
|
|
|
|
-
|
|
Total Notes Payable
|
|
|
160,000
|
|
|
|
60,000
|
|
Less Short-Term Notes Payable
|
|
|
(60,000
|
)
|
|
|
(60,000
|
)
|
Total Long-Term Notes Payable
|
|
$
|
100,000
|
|
|
$
|
-
|
|
Phil
Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount
of $60,000 (the “Note”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received
was $60,000. On October 2, 2015, the Company entered into a new convertible note with Phil Zobrist that matures on December 31,
2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $29,412
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed, and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment
of debt of $121,337 for the remaining derivative liability and of $11,842 for the remaining debt discount. As of September 30,
2020, the gross balance of the note was $60,000 and accrued interest was $83,412.
Small
Business Administration – On April 17, 2020, the Company issued an unsecured Promissory Note to the Small Business Administration
in the principal amount of $100,000 (the “Note”) that matures on April 16, 2022 and bearing 1.00% per annum interest
as part of the Covid-19 Cares Act. The total net proceeds the Company received was $100,000. As of September 30, 2020, the gross
balance of the note was $100,000 and accrued interest was $455.
12.
Notes Payable – Related Parties
Notes
payable – related parties were comprised of the following as of September 30, 2020 and December 31, 2019:
Notes Payable - Related Parties
|
|
Relationship
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Clavo Rico, Incorporated
|
|
|
Affiliate - Controlled by Director
|
|
|
$
|
3,377,980
|
|
|
$
|
3,377,980
|
|
Claymore Management
|
|
|
Affiliate - Controlled by Director
|
|
|
|
185,000
|
|
|
|
185,000
|
|
Debra D’Ambrosio
|
|
|
Immediate Family Member
|
|
|
|
150,000
|
|
|
|
57,000
|
|
Francis E. Rich IRA
|
|
|
Immediate Family Member
|
|
|
|
-
|
|
|
|
100,000
|
|
Legends Capital
|
|
|
Affiliate - Controlled by Director
|
|
|
|
715,000
|
|
|
|
755,000
|
|
LWB Irrev Trust
|
|
|
Affiliate - Controlled by Director
|
|
|
|
1,101,000
|
|
|
|
1,101,000
|
|
MDL Ventures
|
|
|
Affiliate - Controlled by Director
|
|
|
|
1,427,863
|
|
|
|
1,305,236
|
|
WOC Energy LLC
|
|
|
Affiliate - Controlled by Director
|
|
|
|
-
|
|
|
|
40,000
|
|
Total Notes Payable - Related Parties
|
|
|
|
|
|
$
|
6,956,843
|
|
|
$
|
6,921,216
|
|
Clavo
Rico, Incorporated – Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to
GAIA Ltd. for a total principal amount of $1,150,000 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $1,150,000. On October 2, 2015, the Company entered into a new convertible note
with GAIA Ltd. that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from
inception of these Notes in the amount of $724,463 and charged this amount to interest expense during the year ended December
31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount
to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2,
2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December
31, 2019. The Company recognized a gain on the extinguishment of debt of $2,524,747 for the remaining derivative liability and
of $226,974 for the remaining debt discount. On April 5, 2019, the entire outstanding balance of $1,150,000 and accrued interest
was assigned to Clavo Rico, Incorporated.
Between
March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook Corporation for a total principal
amount of $2,227,980 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company
received was $2,227,980. On October 2, 2015, the Company entered into a new convertible note with Silverbrook Corporation that
matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes
in the amount of $1,209,606 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible
into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three
lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated
the note payable. The convertible feature was removed, and the note was extended until December 31, 2019. The Company recognized
a gain on the extinguishment of debt of $4,656,189 for the remaining derivative liability and of $439,733 for the remaining debt
discount. On April 5, 2019, the entire outstanding balance of $2,227,980 and accrued interest was assigned to Clavo Rico, Incorporated.
On
April 5, 2019, GAIA Ltd and Silverbrook Corporation assigned 100% of the outstanding principal balance of their notes and all
accrued interest to Clavo Rico, Incorporated. The GAIA Ltd and Silverbrook Corporation notes had been extended until December
31, 2019 and bear 18% per annum interest. As of September 30, 2020, the gross balance of the notes was $3,377,980 and accrued
interest was $4,974,251.
Claymore
Management – On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management in the principal
amount of $185,000 (the “Note”) due on demand and bore 0% per annum interest. The total net proceeds the Company received
was $185,000. On October 2, 2015, the Company entered into a new convertible note with Claymore Management that matures on December
31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from March 18, 2011 in the amount of $151,355
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed, and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment
of debt of $448,369 for the remaining derivative liability and of $36,513 for the remaining debt discount. As of September 30,
2020, the gross balance of the note was $185,000 and accrued interest was $317,855.
D.
D’Ambrosio – On December 30, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $57,000 (the “Note”) due on January 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $59,850 towards the principal balance and accrued interest of $2,850 on January 13, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On January 2, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $70,000 (the “Note”) due on January 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $73,500 towards the principal balance and accrued interest of $3,500 on January 13, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On January 16, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $165,000 (the “Note”) due on January 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $173,250 towards the principal balance and accrued interest of $8,250 on January 29, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On February 10, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $187,000 (the “Note”) due on February 29, 2020 and bears a 5.00% interest rate. The Company
made a payment of $196,350 towards the principal balance and accrued interest of $9,350 on February 24, 2020. As of September
30, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On February 28, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $125,000 (the “Note”) due on March 30, 2020 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 March 18, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On March 24, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $58,500 (the “Note”) due on April 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $61,425 towards the principal balance and accrued interest of $2,925 on March 26, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On April 1, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $161,000 (the “Note”) due on April 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $169,050 towards the principal balance and accrued interest of $8,050 on May 21, 2020. As of September 30, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On May 27, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $153,000 (the “Note”) due on July 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $160,650 towards the principal balance and accrued interest of $7,650 on July 14, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On June 15, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $40,000 (the “Note”) due on July 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on June 18, 2020. As of September 30, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On July 16, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $27,000 (the “Note”) due on August 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $28,350 towards the principal balance and accrued interest of $1,350 on July 22, 2020. As of September 30, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On July 16, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $27,000 (the “Note”) due on August 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $28,350 towards the principal balance and accrued interest of $1,350 on July 22, 2020. As of September 30, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On July 17, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $50,000 (the “Note”) due on January 15, 2021 and bears a 5.00% interest rate. As of September
30, 2020, the outstanding balance of the Note was $50,000 and accrued interest was $2,500.
D.
D’Ambrosio – On August 3, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $90,000 (the “Note”) due on September 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $94,500 towards the principal balance and accrued interest of $4,500 on August 12, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On August 18, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $80,000 (the “Note”) due on September 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $84,000 towards the principal balance and accrued interest of $4,000 on August 26, 2020. As of September 30,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On August 31, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $116,100 (the “Note”) due on September 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $121,905 towards the principal balance and accrued interest of $5,805 on September 10, 2020. As of September
30, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On September 15, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $100,000 (the “Note”) due on October 15, 2020 and bears a 5.00% interest rate. As of September
30, 2020, the outstanding balance of the Note was $100,000 and accrued interest was $5,000.
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, 2019 and bears a 7.0% interest rate. The Company made a payment
of $1,075 towards the principal balance of $1,000 and accrued interest of $75 on September 30, 2018. The Company made a payment
of $49,000 towards the principal balance on May 21, 2019. As of September 30, 2020, the outstanding balance of the Note was $0
and accrued interest was $14,200.
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. The Company
made a payment of $115,000 towards the principal balance and accrued interest of $15,000 on February 24, 2020. As of September
30, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
Legends
Capital Group – Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends
Capital Group for a total principal amount of $765,000 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $765,000. On October 2, 2015, the Company entered into a new convertible note
with Legends Capital Group that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest
from inception of these Notes in the amount of $504,806 and charged this amount to interest expense during the year ended December
31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount
to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2,
2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December
31, 2019. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and
of $150,987 for the remaining debt discount. As of September 30, 2020, the gross balance of the note was $715,000 and accrued
interest was $1,188,572.
LW
Briggs Irrevocable Trust – Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes
to LW Briggs Irrevocable Trust for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing
0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into
a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The
Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest
expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price
of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading
day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed,
and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment of debt of $2,564,130 for
the remaining derivative liability and of $217,303 for the remaining debt discount. As of September 30, 2020, the gross balance
of the note was $1,101,000 and accrued interest was $1,805,684.
MDL
Ventures – The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is
100% owned by a Company officer, effective October 1, 2014, due on December 31, 2016 and bears 18% per annum interest, due at
maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of the lower
of $0.99 (0.18 pre-split) or 50% of the lowest three daily volume weighted average prices of the Company’s common stock
during the 20 consecutive days prior to the date of conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed, and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment
of debt of $1,487,158 for the remaining derivative liability. As of September 30, 2020, the gross balance of the note was $1,427,863
and accrued interest was $0.
WOC
Energy, LLC – On November 6, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $40,000 (the “Note”) due on September 30, 2019 and bears a 4.0% interest rate. On January
1, 2020, this note was replaced with a new note. The new note is due on June 30, 2020 and bears a 5.0% interest rate. The Company
made a payment of $2,000 towards the interest on January 2, 2020. The Company made a payment of $2,000 towards the interest on
February 10, 2020. The Company made a payment of $2,000 towards the interest on March 13, 2020. The Company made a payment of
$20,000 towards the principal on March 24, 2020. The Company made a payment of $10,000 towards the principal on May 12, 2020.
The Company made a payment of $10,500 towards the principal balance and accrued interest of $500 on July 9, 2020. As of September
30, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On February 10, 2020, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $50,000 (the “Note”) due on December 15, 2020 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 July 17, 2020. As of September 30, 2020,
the outstanding balance of the Note was $00 and accrued interest was $0.
13.
Convertible Notes Payable
Convertible
notes payable were comprised of the following as of September 30, 2020 and December 31, 2019:
Convertible Notes Payable
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Antczak Polich Law LLC
|
|
$
|
330,980
|
|
|
$
|
355,980
|
|
Investor
|
|
|
3,684,286
|
|
|
|
3,985,000
|
|
Scotia International
|
|
|
400,000
|
|
|
|
400,000
|
|
Total Convertible Notes Payable
|
|
|
4,415,266
|
|
|
|
4,740,980
|
|
Less Unamortized Discount
|
|
|
(1,285,298
|
)
|
|
|
(2,818,373
|
)
|
Total Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
|
3,129,968
|
|
|
|
1,922,607
|
|
Less Short-Term Convertible Notes Payable
|
|
|
(1,531,336
|
)
|
|
|
(355,980
|
)
|
Total Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
1,598,632
|
|
|
$
|
1,566,627
|
|
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, 2020, the gross balance of the note was $300,000 and
accrued interest was $54,049.
Antczak
Polich Law, LLC – On December 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $130,000 (the “Note”) due on December
1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $130,000 in legal fees due to Antczak for its
services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s
option, at a fixed conversion price of $0.75 per share. During the year ended December 31, 2019, the Company made several payments
amounting to $42,020. During the nine months ended September 30, 2020, the Company made five payments amounting to $25,000. As
of September 30, 2020, the gross balance of the note was $30,980 and accrued interest was $12,743.
Investor
– On May 20, 2019, the Company issued a secured Convertible Promissory Note (“Note”) to Investor, in the
principal amount of $4,250,000 (the “Note”) due on May 20, 2021 and bears 10% (24% default) per annum interest, due
at maturity. The total net proceeds the Company received was $3,000,000. The Note is convertible into common stock, at holder’s
option, at 100% of market price less $0.01 per share. Market price means the mathematical average of the five lowest individually
daily volume weighted average prices of the common stock from the period beginning on the issuance date and ending on the maturity
date. The conversion price has a floor price of $0.01 per share of common stock, provided there has not been an event of default.
If an event of default occurs, the floor price no longer applies. 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. These warrants were valued at $1,711,394 and recorded by the Company as debt discount interest expense. The note
has an early payoff penalty of 140% of the then outstanding face value. On July 29, 2019, the investor converted $265,000 of the
principal balance into an estimated 2,986,597 shares of common stock valued at $0.11 per share and recognized a loss on the extinguishment
of debt of $303,149. On January 14, 2020, the investor submitted a true-up conversion notice from the July 29, 2019 conversion
and was issued another estimated 1,645,000 shares of common stock valued at $0.055 per share and recognized a loss on the extinguishment
of debt of $90,475. On February 11, 2020, the investor submitted a true-up conversion notice from the July 29, 2019 conversion
and was issued another estimated 1,000,000 shares of common stock valued at $0.0295 per share and recognized a loss on the extinguishment
of debt of $29,500. On February 27, 2020, the investor submitted a true-up conversion notice from the July 29, 2019 conversion
and was issued another estimated 1,415,500 shares of common stock valued at $0.038 per share and recognized a loss on the extinguishment
of debt of $53,789. On March 31, 2020, the investor submitted a true-up conversion notice from the July 29, 2019 conversion and
was issued another estimated 1,279,500 shares of common stock valued at $0.035 per share and recognized a loss on the extinguishment
of debt of $44,783. On April 13, 2020, the investor converted $15,000 of the principal balance into an estimated 1,083,500 shares
of common stock valued at $0.106 per share and recognized a loss on the extinguishment of debt of $57,737. On April 28, 2020,
the investor submitted a true-up conversion notice from the April 13, 2020 conversion and was issued another estimated 228,690
shares of common stock valued at $0.052 per share and recognized a loss on the extinguishment of debt of $11,892. On April 30,
2020, the Company made a payment of $35,714 towards the principal balance and $14,286 in prepayment interest. On May 22, 2020,
the investor submitted a true-up conversion notice from previous conversions and was issued another estimated 962,275 shares of
common stock valued at $0.106 per share and recognized a loss on the extinguishment of debt of $37,815. On June 1, 2020, the Company
made a payment of $35,714 towards the principal balance and $14,286 in prepayment interest. On July 2, 2020, the Company made
a payment of $17,857 towards the principal balance and $7,143 in prepayment interest. On July 8, 2020, the Company made a payment
of $53,571 towards the principal balance and $21,429 in prepayment interest. On August 3, 2020, the Company made a payment of
$71,429 towards the principal balance and $28,571 in prepayment interest. On August 7, 2020, the investor submitted a true-up
conversion notice from previous conversions and was issued another estimated 1,007,588 shares of common stock valued at $0.0235
per share and recognized a loss on the extinguishment of debt of $27,681. On September 1, 2020, the Company made a payment of
$71,429 towards the principal balance and $28,571 in prepayment interest. On September 9, 2020, the investor submitted a true-up
conversion notice from previous conversions and was issued another estimated 1,311,017 shares of common stock valued at $0.204
per share and recognized a loss on the extinguishment of debt of $30,275. For the nine months ended September 30, 2020, the Company
amortized $1,490,078 of debt discount to current period operations as interest expense. As of September 30, 2020, the gross balance
of the note was $3,684,286 and accrued interest was $1,086,270.
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, 2020, the Company amortized $22,640 of debt discount to current period operations as interest expense. As of September 30,
2020, the gross balance of the note was $400,000 and accrued interest was $41,389.
14.
Stockholders’ Deficit
Common
Stock
On
January 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.05 per share for a value of $10,000.
On
January 14, 2020, the Company issued to an Investor 1,645,000 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.055 per share for a total value of $90,475. The Company recognized a loss of extinguishment of debt
of $90,475 on this conversion.
On
February 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.045 per share for a value of $9,000.
On
February 11, 2020, the Company issued to an Investor 1,000,000 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.0295 per share for a total value of $29,500. The Company recognized a loss of extinguishment of debt
of $29,500 on this conversion.
On
February 27, 2020, the Company issued to an Investor 1,415,500 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.038 per share for a total value of $53,789. The Company recognized a loss of extinguishment of debt
of $53,789 on this conversion.
On
March 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.05 per share for a value of $10,000.
On
March 31, 2020, the Company issued to an Investor 1,279,500 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.035 per share for a total value of $44,783. The Company recognized a loss of extinguishment of debt
of $44,783 on this conversion.
On
April 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.0298 per share for a value of $5,960.
On
April 13, 2020, the Company issued to an Investor 1,083,500 shares of its common stock under a conversion notice. The conversion
was for $15,000 in principal. The shares were valued at $0.06 per share for a total value of $65,010. The Company recognized a
loss of extinguishment of debt of $57,737 on this conversion.
On
April 28, 2020, the Company issued to an Investor 228,694 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of April 13, 2020, so no additional note value was converted.
The shares were valued at $0.052 per share for a total value of $11,892. The Company recognized a loss of extinguishment of debt
of $11,892 on this conversion.
On
May 22, 2020, the Company issued to an Investor 962,275 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on previous original conversion notices, so no additional note value was converted. The shares
were valued at $0.034 per share for a total value of $32,717. The Company recognized a loss of extinguishment of debt of $37,815
on this conversion.
On
May 26, 2020, a shareholder returned 624 shares of common stock to the Company and were immediately cancelled. There was no compensation
paid by the Company.
On
August 7, 2020, the Company issued to an Investor 1,007,588 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on previous original conversion notices, so no additional note value was converted. The shares
were valued at $0.0235 per share for a total value of $23.678. The Company recognized a loss of extinguishment of debt of $27,681
on this conversion.
On
September 9, 2020, the Company issued to an Investor 1,311,017 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on previous original conversion notices, so no additional note value was converted. The shares
were valued at $0.0204 per share for a total value of $26,745. The Company recognized a loss of extinguishment of debt of $30,275
on this conversion.
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 $1,711,394, which has been recorded
warrant derivative liabilities. The Company re-valued the warrants at September 30, 2020 for $87,807 and recorded a gain
on the change in derivative liabilities of $155,199.
The
following tables summarize the warrant activity during the nine months ended September 30, 2020 and the year ended December 31,
2019:
Stock Warrants
|
|
Number of Warrants
|
|
|
Weighted Average Exercise
Price
|
|
Balance at December 31, 2018
|
|
|
1,043,637
|
|
|
$
|
1.12
|
|
Granted
|
|
|
9,250,000
|
|
|
|
0.49
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(680,000
|
)
|
|
|
0.90
|
|
Balance at December 31, 2019
|
|
|
9,613,637
|
|
|
|
1.12
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(63,637
|
)
|
|
|
5.23
|
|
Balance at September 30, 2020
|
|
|
9,550,000
|
|
|
$
|
0.49
|
|
2020 Outstanding Warrants
|
|
|
Warrants Exercisable
|
|
Range of Exercise Price
|
|
|
Number Outstanding at September 30, 2020
|
|
|
Weighted Average Remaining Contractual
Life
|
|
Weighted Average
Exercise Price
|
|
|
Number Exercisable at September 30, 2020
|
|
|
Weighted Average
Exercise Price
|
|
$
|
0.40 - 0.75
|
|
|
|
9,550,000
|
|
|
1.66 years
|
|
$
|
0.49
|
|
|
|
9,550,000
|
|
|
$
|
0.49
|
|
15.
Related Party Transactions
Consulting
Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company
agreed to pay $18,000 per month for twelve months. This agreement was renegotiated in October 2017 and the Company agreed to pay
the stockholder/director $25,000 per month starting in October 2017. This agreement was superseded by an Employment Agreement
as of July 1, 2018 (see Employment Agreements below). As of September 30, 2020, 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, 2020. 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.
16.
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.
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.
17.
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, 2020, one hundred percent (100%) of our consolidated product revenues were attributable to A-Mark Precious
Metals and to Asahi Refining, Inc., our current and only two customers as of September 30, 2020. We are not dependent upon any
one purchaser and have alternative purchasers readily available at competitive market prices if there is a disruption in services
or other events that cause us to search for other ways to sell our production.
The
Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s
fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine
was disrupted or closed.
18.
Subsequent Events
Management has evaluated
subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through November 16, 2020, the date which
the financial statements were available to be issued and there are no material subsequent events, except as noted below:
On October 6, 2020, the
Company issued to an Investor 1,258,480 shares of its common stock under a conversion notice.
On October 30, 2020, the Company issued to an
Investor 1,372,750 shares of its common stock under a conversion notice.
19.
Restatement
The
Company has restated the September 30, 2020 financial statements as originally presented in its 10-Q filed on November 16, 2020.
This
Form 10-Q/A is being filed to:
|
(a)
|
Restate
the consolidated financial statements for the three and nine-month periods ended September
30, 2020 to reflect revised principal balance outstanding, accrued interest, change in
loss on extinguishment of debt and valuations of derivative liabilities on a long-term
convertible note;
|
|
(b)
|
Restate
results disclosed for the above noted changes to the consolidated financial statements;
|
The
restatements are being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure
provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have
been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and
any per share amount affected for each prior period presented, and the cumulative effect on retained earnings (deficit) in the
statement of financial position as of the beginning of each period presented.
The
changes and explanation of such are as follows:
Consolidated
balance sheet as of September 30, 2020:
|
|
Originally Reported
|
|
|
Restatement Adjustment
|
|
|
As Restated
|
|
Accounts payable and accrued liabilities
|
|
$
|
2,474,789
|
|
|
$
|
555,322
|
|
|
$
|
3,030,111
|
|
Convertible notes payable, net
|
|
|
330,980
|
|
|
|
1,200,356
|
|
|
|
1,531,336
|
|
Derivative liabilities
|
|
|
9,120,848
|
|
|
|
5,026,803
|
|
|
|
14,147,651
|
|
Total current liabilities
|
|
|
27,321,111
|
|
|
|
6,782,481
|
|
|
|
34,103,592
|
|
Convertible notes payable, net of current portion
|
|
|
2,765,988
|
|
|
|
(1,167,356
|
)
|
|
|
1,598,632
|
|
Total liabilities
|
|
|
30,742,637
|
|
|
|
5,615,125
|
|
|
|
36,357,762
|
|
Accumulated deficit
|
|
|
(34,378,105
|
)
|
|
|
(5,615,125
|
)
|
|
|
(39,993,230
|
)
|
Total controlling interest
|
|
|
(29,302,808
|
)
|
|
|
(5,615,125
|
)
|
|
|
(34,917,933
|
)
|
Total stockholders’ deficit
|
|
$
|
(29,311,686
|
)
|
|
$
|
(5,615,125
|
)
|
|
$
|
(34,926,811
|
)
|
Consolidated
Statement of Operations and Comprehensive Loss for the nine-month period ended September 30, 2020:
|
|
Originally Reported
|
|
|
Restatement Adjustment
|
|
|
As Restated
|
|
Change in derivative liability
|
|
$
|
5,101,087
|
|
|
$
|
(5,026,803
|
)
|
|
$
|
74,284
|
|
Loss on extinguishment of debt
|
|
|
(350,946
|
)
|
|
|
(33,000
|
)
|
|
|
(383,946
|
)
|
Interest expense
|
|
|
(3,053,136
|
)
|
|
|
(555,322
|
)
|
|
|
(3,608,458
|
)
|
Total other income (expense)
|
|
|
2,728,959
|
|
|
|
(5,615,125
|
)
|
|
|
(2,886,166
|
)
|
Income (loss) before income taxes
|
|
|
2,632,053
|
|
|
|
(5,615,125
|
)
|
|
|
(2,983,072
|
)
|
Net income (loss)
|
|
|
2,632,053
|
|
|
|
(5,615,125
|
)
|
|
|
(2,983,072
|
)
|
Net income (loss) - controlling interest
|
|
|
2,632,978
|
|
|
|
(5,615,125
|
)
|
|
|
(2,982,147
|
)
|
Net loss per share - basic
|
|
|
0.04
|
|
|
|
(0.08
|
)
|
|
|
(0.04
|
)
|
Net loss per share - diluted
|
|
|
(0.00
|
)
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
Weighted average number of shares outstanding during the period - Diluted
|
|
|
458,914,326
|
|
|
|
(392,276,454
|
)
|
|
|
66,637,872
|
|
Total comprehensive income (loss)
|
|
|
2,509,608
|
|
|
|
(5,615,125
|
)
|
|
|
(3,105,517
|
)
|
Total comprehensive income (loss) - controlling interest
|
|
$
|
2,509,450
|
|
|
$
|
(5,615,125
|
)
|
|
$
|
(3.105,675
|
)
|
Consolidated
Statement of Operations and Comprehensive Loss for the three-month period ended September 30, 2020:
|
|
Originally Reported
|
|
|
Restatement Adjustment
|
|
|
As Restated
|
|
Change in derivative liability
|
|
$
|
1,829,468
|
|
|
$
|
943,064
|
|
|
$
|
2,772,532
|
|
Loss on extinguishment of debt
|
|
|
(35,956
|
)
|
|
|
6,572
|
|
|
|
(29,384
|
)
|
Interest expense
|
|
|
(1,079,967
|
)
|
|
|
(101,215
|
)
|
|
|
(1,181,182
|
)
|
Total other income (expense)
|
|
|
876,982
|
|
|
|
848,421
|
|
|
|
1,725,403
|
|
Income before income taxes
|
|
|
1,052,148
|
|
|
|
848,421
|
|
|
|
1,900,569
|
|
Net income
|
|
|
1,052,148
|
|
|
|
848,421
|
|
|
|
1,900,569
|
|
Net income - controlling interest
|
|
|
1,051,862
|
|
|
|
848,421
|
|
|
|
1,900,283
|
|
Net income per share - basic
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
Net loss per share - diluted
|
|
|
(0.00
|
)
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
Weighted average number of shares outstanding during the period - Diluted
|
|
|
461,616,065
|
|
|
|
74,626,135
|
|
|
|
536,242,200
|
|
Total comprehensive income (loss)
|
|
|
1,022,008
|
|
|
|
848,421
|
|
|
|
1,870,429
|
|
Total comprehensive income (loss) - controlling interest
|
|
$
|
1,021,927
|
|
|
$
|
848,421
|
|
|
$
|
1,870,348
|
|
The adjustments above reflect restatement due to
revised balance of principal, accrued interest, change in the loss on extinguishment of debt and valuation of derivative liabilities
on a long-term convertible note payable during the nine-month period, together with the change in the derivative liability during the
three and six-month periods.