MAGE Magellan Gold Corporation (PK)

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We use the terms “Magellan,” “we,” “our,” and “us” to refer to Magellan Gold Corporation.

The following discussion and analysis provides information that management believes is relevant for an assessment and understanding of our results of operations and financial condition. This information should be read in conjunction with our audited financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and our interim unaudited financial statements and notes thereto included with this report in Part I, Item 1.

Forward-Looking Statements

Some of the information presented in this Form 10-Q constitutes “forward-looking statements”.  These forward-looking statements include, but are not limited to, statements that include terms such as “may,” “will,” “intend,” “anticipate,” “estimate,” “expect,” “continue,” “believe,” “plan,” or the like, as well as all statements that are not historical facts.  Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from current expectations.  Although we believe our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from expectations.

All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

Overview

We were incorporated on September 28, 2010, in Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which we have mineral rights contain mineral reserves that are economically recoverable.

We have only had limited operations to date and we rely upon the sale of our securities and borrowings from significant investors to fund our operations, as we have not generated any revenue.

In August 2012, we entered into an option agreement and subsequently purchased the “Silver District” project consisting of 85 unpatented lode mining claims, 4 patented lode claims, a Arizona State Exploration Permit of 154.66 acres and 23 unpatented mill site claims, totaling over 2,000 acres in La Paz County, Arizona. Since our acquisition, we have increased our land position in the Silver District by staking two unpatented lode mining claims, leased two additional patented claims and have increased our Arizona State Exploration Permit to 334.85 acres.

On September 30, 2014, we formed and organized a new wholly-owned subsidiary, Gulf + Western Industries, Inc., a Nevada corporation (“Gulf+Western” or “G+W”), to own our Silver District mining interests.  On October 1, 2014 we completed the transfer of those assets from Magellan to G+W.  At the time of the transfer, Magellan owned all the outstanding common stock of G+W.   Effective December 31, 2014, Magellan pledged all its ownership interest in G+W to Mr. John D. Gibbs, a significant shareholder in the Company, as security for outstanding amounts under a line of credit

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agreement between Magellan and Mr. Gibbs.  As of September 30, 2017, the total amount owed under the credit agreement was $1,131,901, which includes $932,500 of principal and $199,401 of accrued interest.

On June 1, 2015, we transferred 15% of our ownership interest in G+W to Dr. Pierce Carson in exchange for one year of service as President, Chief Executive Officer and Director of G+W.  As a result of the transaction, Magellan’s ownership interest in G+W was reduced to 85%.  The transaction was valued at $50,000 representing deferred compensation for the one-year period June 2015, through May 2016. On June 1, 2016 Magellan entered into a one-year employment agreement with Dr. Carson in which he assumes the positions of President and Chief Executive Officer of Magellan.  As a result, Mr. John Power resigned his positions as President and Chief Executive Officer concurrent with the execution of Dr. Carson’s employment agreement. Mr. Power has retained the positions of Chief Financial Officer and Director of Magellan. Dr. Carson was appointed a Director of Magellan effective June 30, 2016.

In July 2016, the Company completed a share exchange with Dr. Carson in which Dr. Carson surrendered his 15% interest in G+W in exchange for 8,623,957 shares of Magellan Gold Corporation. As a result of this transaction, G+W became a wholly owned subsidiary of Magellan Gold Corporation.

On October 24, 2016, the Company entered into a Mining Option Agreement (“Agreement”) between and among Rio Silver Inc., a Canadian company (“Rio Silver”), Minera Rio Plata S.A.C., a Peruvian company and subsidiary of Rio Silver (“Minera”), and Magellan Gold Peru S.A.C., a Peruvian company and wholly owned subsidiary of the Company (“Magellan Peru”) pursuant to which Rio Silver through Minera, granted to the Company the sole and exclusive option to acquire an undivided 50% interest in and to property located in central Peru. Under the terms of the Agreement, the Company has the right to earn an undivided 50% interest in the Niñobamba Silver/Gold Project in central Peru. To earn its 50% interest, the Company must spend $2.0 million in exploration activities in the project over three years. The Niñobamba project is comprised of five concessions that total 36.5 square kilometers (9.026 acres).

On March 3, 2017 the Company entered into a Memorandum of Understanding (“MOU”) with Rose Petroleum plc, a multi-asset natural resource business, to purchase an operating floatation plant that also includes a precious metals leach circuit and associated assets, licenses and agreements (together, the “SDA Mill”) located in the State of Nayarit, Mexico, for a total consideration at closing of US$1.5 million, payable in $1,000,000 in cash and $500,000 in restricted common stock of Magellan. The mill has operated for ten years and has historically produced ore for its current owner or third party toll miners. Under the terms of the MOU, in consideration of a non-refundable $50,000 option payment, the Company has been granted an option to purchase the SDA Mill until June 3, 2017.  The option period was extended for an additional 60 days with another $100,000 payment made during the quarter ended June 30, 2017.  The extension payment will be credited against the purchase price if the transaction closes.

On July 31, 2017, the Company executed Amendment No. 1 to the Memorandum of Understanding dated March 3, 2017. The amendment provides that on or before August 15, 2017, the Company shall provide the seller executed irrevocable bridge loan commitments representing an aggregate of not less than $900,000 in commitments available to fund the purchase transaction. In addition, the agreement requires the Company to reimburse the seller for certain employee holding and mill

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maintenance costs for the months of August and September 2017 at a total of $25,300 for each month. The Company has paid both the August and September reimbursements as agreed upon.

On August 14, 2017, as required by Amendment No. 1, the Company provided the seller executed bridge loan commitments aggregating $900,000 available to fund the purchase transaction. The Company’s provision of the commitment letters resulted in the extension of the purchase option until either the transaction is consummated or abandoned by the parties. On September 9, 2017, the Company entered into a definitive and binding Stock Purchase Agreement (“SPA”) for purchase of the SDA Mill. A subsequent amendment to the SPA on October 17, 2017 extended the closing date to December 31, 2017. There is no assurance that we will satisfactorily complete our due diligence and/or raise the necessary capital to consummate this transaction.

Our primary focus is to complete the acquisition of the SDA Mill in Mexico and thereby transform Magellan into a production company, to continue to advance our Arizona and Peru silver projects towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities.  Our mineral lease payments, permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any revenue.

Results of Operations for the three months Ended September 30, 2017 and 2016

Operating expenses

During the three months ended September 30, 2017, our total operating expenses were $205,228 as compared to $106,365 during the three months ended September 30, 2016.

During the three months ended September 30, 2017 we incurred $10,872 of exploration costs as compared to $15,056 in 2016.  Exploration costs for the three months ended September 30, 2017 comprised of $10,872 for our lease payments and maintenance expenses associated with our Silver

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District claims and $-0- in various mining related expenses associated with our mining efforts in Peru. Exploration costs for the three months ended September 30, 2016 are comprised of $11,000 of  royalty and lease payments associated with out Silver District claims, and approximately $4,000 of professional geologic expenses, also associated with our Silver District claims.

General and administrative expenses for the three months ended September 30, 2017 totaling $194,356 as compared to $91,309 for the three months ended September 30, 2016. The $103,047 increase is primarily associated with increases in professional legal fees, accounting and audit fees, officer compensation, and other costs associated with our acquisition efforts of the SDA Mill in Mexico.  For the three months ended September 30, 2017, administrative expenses were comprised of investor relations fees of $17,758, officer compensation of $32,796, accounting and auditing fees of $20,658, legal fees of $25,010, management fees to Mr. Power of $5,000, administrative service fees of $5,391, other administrative costs including travel, office and facility rents, and other expenses associated with our acquisition efforts of the SDA Mill totaling $88,037, and a $294 gain on foreign currency translations associated with our operations in Peru.

On June 1, 2016 we executed an employment agreement with Dr. Pierce Carson in which Dr. Carson assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The term of the agreement covered the period from June 1, 2016 to May 31, 2017. On June 1, 2017, Dr. Carson and the Company agreed to extend the agreement to May 31, 2018 under the same terms and conditions. During the term of the agreement, Dr. Carson was paid a base salary in equal semi-monthly installments. Dr. Carson’s salary was set at $6,667 per month during the three-month period from June 1, 2016 through August 31, 2016, and thereafter at $10,000 per month. A total of $32,796 representing Dr. Carson’s base salary and applicable payroll taxes was expensed and is included in general and administrative expenses for the three months ended September 30, 2017.  As of September 30, 2017 all of the salary and payroll expense totaling $163,979 was unpaid and is included in accrued liabilities on the accompanying consolidated balance sheets.

General and administrative expenses for the three months ended September 30, 2016 totaling $91,309 were comprised professional fees including accounting and audit fees of $11,011, legal fees totaling $4,970, management fees to Mr. Power totaling $7,500, other professional fees including investor relations and website fees of $14,000, and other expenses totaling $28,319 mainly comprised of travel expenses, rent, licenses and BLM claim renewal fees for the Silver District of $17,050 and other administrative related expenses.

Interest expense for the three months ended September 30, 2017 and 2016 totaled $19,356 and $15,684, respectively, and is primarily attributable to our related party line of credit, which accrues interest at the rate of 6.0% per year, and our related party notes payable which accrue interest at a weighted average interest rate of 6.11%.

On October 1, 2014, we issued a convertible promissory note to a provider of legal services in the original principal amount of $51,532.  The note was issued to evidence the Company’s indebtedness for legal services previously rendered. Interest accrues quarterly on the outstanding principal and interest balance of the Note at 6% per annum. The principal plus accrued and unpaid interest was due upon five days’ written demand of the note holder.  The note is unsecured.

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The note principal and accrued interest was convertible at any time into shares of common stock at a conversion price of $0.039, which represented the closing bid price of the common stock on the OTC Bulletin Board on the date of issuance.

In April 2016 the note holder elected to convert a total of $23,400, consisting of $18,512 of principal and $4,888 of accrued interest. The conversion resulted in the issuance of 600,000 shares of the Company’s common stock.  At December 31, 2016 the remaining note balance was $33,020.

On April 14, 2017 the Company entered into a series of transactions in which the conversion rate was changed, the note holder elected to convert part of the principal and accept cash payment for part of the remaining principal and accrued interest, the sale of the remaining balance of the note to a third party, a further reduction of the conversion rate, and finally the election by the new note holder to convert part of the remaining principal to shares of the Company’s common stock.

Finally, on August 3, 2017 the new note holder converted all remaining principal and accrued interest into shares of the Company’s common stock. These transactions are discussed in detail in Note 8 – Convertible Note Payable and Derivative Liability in the accompanying consolidated financial statements.

The following table summarizes the change in the derivative liability and the loss recognized for the revaluation of the derivative upon conversion during the current quarter:

We estimate the fair value of the derivative using the Black-Scholes option pricing model, which includes assumptions for expected dividends, expected share price volatility, risk-free interest rate, and expected life of the note.  Our expected volatility assumption is based on our historical weekly closing price of our stock over a period equivalent to the expected remaining life of the note.

The following table summarizes the assumptions used to value the derivative liability on April 14 for each change in the conversion rate:

The following table summarizes the assumptions used to value the derivative liability at August 3, 2017:

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We estimated the fair value of the derivative at September 30, 2016 using the Black-Scholes option pricing model, which includes assumptions for expected dividends, expected share price volatility, risk-free interest rate, and expected life of the Note.  Our expected volatility assumption is based on our historical weekly closing price of our stock over a period equivalent to the expected remaining life of the Note.  This valuation resulted in a decrease to the liability of $70,680, which was recognized as a gain on change in derivative liability for the three months ended September 30, 2016.

The following table summarizes the assumptions used to value the derivative Note discount at September 30, 2016:

The following table summarizes the assumptions used to value the derivative liability at December 31, 2016:

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Results of Operations for the nine months Ended September 30, 2017 and 2016

Operating expenses

During the nine months ended September 30, 2017, our total operating expenses were $534,604 as compared to $266,203 during the nine months ended September 30, 2016.

During the nine months ended September 30, 2017 we incurred $53,733 of exploration costs as compared to $34,220 in 2016.  Exploration costs for the nine months ended September 30, 2017 are comprised of $24,188 for our consulting geologist, geochemical, lease payments and maintenance expenses associated with our Silver District claims and $29,545 in various mining related expenses associated with our mining efforts in Peru. Exploration costs for the nine months ended September 30, 2016 are primarily comprised of $11,860 of  royalty and lease payments and legal title work associated with our Silver District claims, as well as $22,360 of geologic related expenses including a contracted ground magnetic survey, laboratory soil analysis and geologist consulting fees associated with our Silver District project.

General and administrative expenses for the nine months ended September 30, 2017 totaling $480,871 as compared to $231,983 for the nine months ended September 30, 2016. The $248,888 increase is primarily associated with increases in officer compensation, investor relations and professional legal and accounting fees, and other costs associated with our acquisition efforts of the SDA Mill in Mexico.  For the nine months ended September 30, 2017, administrative expenses  comprised of investor relations fees of $89,095, officer compensation of $98,387, accounting and auditing fees of $60,128, legal fees of $68,901, management fees to Mr. Power of $20,000, administrative service fees of $14,810, other administrative costs including travel, office and facility rents, and other expenses associated with our acquisition efforts of the SDA Mill totaling $129,599, and a $49 gain on foreign currency translations associated with our operations in Peru.

On November 1, 2016 the Company executed a Finder’s Agreement (“Agreement”), with a third party consultant to introduce the Company to potential investors beginning with its November 2016 private placement offering. The term of the Agreement is nine months, or until the Company informs the consultant it has located investors to purchase the securities. The consultant is to be compensated for

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the services by cash payments totaling $30,000, payable at or before the termination of the Agreement. During the nine months ended September 30, 2017 the Company paid the consultant a total of $12,800, which is included in investor relations expenses for the nine months ended September 30, 2017. As of September 30, 2017 the Company had paid approximately $23,800 to the consultant pursuant to the Agreement.

On June 1, 2016 we executed an employment agreement with Dr. Pierce Carson in which Dr. Carson assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The term of the agreement covered the period from June 1, 2016 to May 31, 2017. On June 1, 2017, Dr. Carson and the Company agreed to extend the agreement to May 31, 2018 under the same terms and conditions. During the term of the agreement, Dr. Carson was paid a base salary in equal semi-monthly installments. Dr. Carson’s salary is set at $6,667 per month during the three-month period from June 1, 2016 through August 31, 2016, and thereafter at $10,000 per month. A total of $98,387 representing Dr. Carson’s base salary and applicable payroll taxes was expensed and is included in general and administrative expenses for the nine months ended September 30, 2017.  As of September 30, 2017 all of the salary and payroll expense totaling $163,979 was unpaid and is included in accrued liabilities on the accompanying consolidated balance sheets.

General and administrative expenses for the nine months ended September 30, 2016 totaling $231,983 were comprised professional fees including accounting and audit fees of $38,637, legal fees totaling $20,388, management fees to Mr. Power totaling $22,500, executive compensation expense of $53,630, other professional fees including investor relations and website fees of $55,507, and other expenses totaling $41,321 mainly comprised of travel expenses, rent, licenses, BLM renewal fees, and other administrative related expenses.

Interest expense for the nine months ended September 30, 2017 and 2016 totaled $50,349 and $46,387, respectively, and is primarily attributable to our related party line of credit, which accrues interest at the rate of 6.0% per year, and our related party notes payable which accrue interest at a weighted average interest rate of 6.11%.

On October 1, 2014, we issued a convertible promissory note to a provider of legal services in the original principal amount of $51,532.  The note was issued to evidence the Company’s indebtedness for legal services previously rendered. Interest accrues quarterly on the outstanding principal and interest balance of the Note at 6% per annum. The principal plus accrued and unpaid interest was due upon five days’ written demand of the note holder.  The note is unsecured.

The note principal and accrued interest was convertible at any time into shares of common stock at a conversion price of $0.039, which represented the closing bid price of the common stock on the OTC Bulletin Board on the date of issuance.

In April 2016 the note holder elected to convert a total of $23,400, consisting of $18,512 of principal and $4,888 of accrued interest. The conversion resulted in the issuance of 600,000 shares of the Company’s common stock.  At December 31, 2016 the remaining note balance was $33,020.

On April 14, 2017 the Company entered into a series of transactions in which the conversion rate was changed, the note holder elected to convert part of the principal and accept cash payment for part of the remaining principal and accrued interest, the sale of the remaining balance of the note to a third

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party, a further reduction of the conversion rate, and finally the election by the new note holder to convert part of the remaining principal to shares of the Company’s common stock.

Finally, on August 3, 2017 the new note holder converted all remaining principal and accrued interest into shares of the Company’s common stock. These transactions are discussed in detail in Note 8 – Convertible Note Payable and Derivative Liability in the accompanying consolidated financial statements.

The following table summarizes the changes in the derivative liability and the gains and losses recognized upon changes in valuations and the pay down of principal and accrued interest:

We estimate the fair value of the derivative using the Black-Scholes option pricing model, which includes assumptions for expected dividends, expected share price volatility, risk-free interest rate, and expected life of the note.  Our expected volatility assumption is based on our historical weekly closing price of our stock over a period equivalent to the expected remaining life of the note.

The following table summarizes the assumptions used to value the derivative liability on April 14 for each change in the conversion rate:

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The following table summarizes the assumptions used to value the derivative liability at August 3, 2017:

We estimated the fair value of the derivative at September 30, 2016 using the Black-Scholes option pricing model, which includes assumptions for expected dividends, expected share price volatility, risk-free interest rate, and expected life of the Note.  Our expected volatility assumption is based on our historical weekly closing price of our stock over a period equivalent to the expected remaining life of the Note.  The quarterly valuations performed during the nine months ended September 30, 2016 resulted in an increase to the liability of $75,854, which was recognized as a loss on change in derivative liability for the nine months ended September 30, 2016.

The following table summarizes the assumptions used to value the derivative Note discount at September 30, 2016:

The following table summarizes the assumptions used to value the derivative liability at December 31, 2016:

Liquidity and Capital Resources:

Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At September 30, 2017, we had not yet generated any revenues or achieved profitable operations and we have accumulated losses of $3,164,658.  We expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern.  Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain

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the necessary financing to meet our obligations arising from normal business operations when they come due.

On December 31, 2015 we amended our credit agreement with Mr. John Gibbs, a related party, to increase the borrowing limit to $1,000,000, which provides the Company an additional $67,500 available under the credit line at September 30, 2017.  Effective December 31, 2016 we amended the agreement to extend the maturity date to December 31, 2018.  As part of a 2014 amendment, we pledged our ownership interest in our subsidiary, G+W, which owns all our ownership interests in the Silver District properties, as security for all amounts outstanding under the credit agreement.

During the nine months ended September 30, 2017 we sold 1,250,000 units consisting of common stock and warrants and realized net proceeds of $125,000. Additionally, we realized $50,000 in net proceeds from the exercise of 500,000 warrants. The proceeds were generally used to fund certain investing activities and for general working capital.

We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock.

At September 30, 2017, we had $1,427 in cash and a $1,697,624 working capital deficit. This compares to cash of $485 and a working capital deficit of $1,413,221 at December 31, 2016.

Net cash used in operating activities during the nine months ended September 30, 2017 was $300,999 and was mainly comprised of our $1,242,729 net loss during the period, adjusted by a non-cash charge of $43,428 representing the amortization of certain service contracts, and the loss due to an increase in our derivative liability of $657,776.  In addition, it reflects an increase in prepaid expenses and other assets totaling $20,199, as well as increases in accounts payable and accrued expenses totaling $202,899, and increases in accrued interest totaling $49,964 representing accrued interest on our related party line of credit and related party and other notes payable.

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Net cash used in operating activities during the nine months ended September 30, 2016 was $199,417 and was mainly comprised of our $388,444 net loss during the period, adjusted by a non-cash charge of $20,833 representing the amortization of deferred compensation, and the loss on an increase in our derivative liability of $75,854.  In addition, it reflects a cash adjusted increase in prepaid expenses and other assets totaling $733, as well as increases in accounts payable and accrued expenses totaling $49,186, and increases in accrued interest totaling $43,887 representing accrued interest on our related party line of credit and related party and other notes payable.

During the nine months ended September 30, 2017, our net cash used in investing activities was $208,297.  During the period, the Company made two payments totaling $150,000 in connection with the option and option extension to purchase the SDA Mill in the State of Nayarit, Mexico from Rose Petroleum. Additionally during the period, we completed the second of two private placement unit financings in Rio Silver Inc. (“Rio”), associated with our mining option agreement with Rio. The private placement resulted in the Company obtaining an additional 1,250,000 units at a price of Cdn$0.06, which included one share of Rio Silver common stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.06 which expire on July 19, 2018. The cost of the units in the second private placement totaled USD $58,297.

On June 30, 2016 the Company signed a non-binding Letter of Intent (“LOI”) with Rio Silver Inc., and on October 24, 2016 the Company executed a definitive Mining Option Agreement (“Option Agreement), pursuant to which Magellan is granted the option to earn an undivided 50% interest in the Niñobamba Silver-Gold Property (“Property”), located 330 kilometers southeast of Lima in the Department of Ayacucho, Peru. As part of the agreement, the Company paid a refundable $12,000 deposit. This payment was recorded as a deposit and represents an investment activity during the nine months ended September 30, 2016.

During the nine months ended September 30, 2017, net cash provided by financing activities was $511,100. During the period, Mr. Power, an executive and director, advanced the Company a total of $78,050 of which $25,050 was repaid. Also during the period, Dr. Carson, an executive and director, advanced the Company $8,100 with no repayments. In addition, during the nine months ended September 30, 2017 we completed a private placement of equity securities with two investors in which we sold a total of 1,250,000 units priced at $0.10 per unit, resulting in total proceeds of $125,000. Each unit was comprised of one share of common stock, and one warrant entitling the holder to purchase one share of common stock at a price of $0.10 per share in cash, and expire December 30, 2017.

On July 31, 2017 a holder of 1,000,000 warrants exercisable at $0.10 exercised 500,000 warrants for $50,000 resulting in the issuance of 500,000 shares of the Company’s common stock. Upon exercise, the Company agreed to extend the expiration date on his remaining 500,000 warrants from December 30, 2017 to December 30, 2018.

During the nine months ended September 30, 2017 we issued a total of $275,000 of related party promissory notes. On May 31, 2017 we executed three short-term notes with Mr. Gibbs, significant shareholder, and our two executive officers, Dr. Carson and Mr. Power in the principal amounts of $100,000, $25,000 and $25,000, respectively. The notes bear interest at 6% and mature on November 15, 2017. In addition, on June 30, 2017 we entered into an additional secured loan for advances from Mr. Power and evidenced by a $125,000 promissory note. The promissory note bears interest at 6%

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per annum and matures on December 31, 2017.  The note is collateralized by our investment in Rio Silver shares and warrants.

During the nine months ended September 30, 2016, net cash provided by financing activities was $274,325, and included $45,000 of additional borrowings under our credit agreement with Mr. Gibbs, as well as $35,000 cash received from Mr. Power represented by a 6% note payable due December 31 2016.  In addition, we received $12,650 in advances from Mr. Power, all of which were repaid during the period.

Also, in June 2016, we completed a private placement of equity securities in which we sold 4,875,000 units priced at $0.04 per unit. Each unit was comprised of one share of common stock, one Class A warrant and one Class B warrant. Each Class A warrant entitled the holder to purchase one share of common stock at a price of $0.07 per share in cash. Each Class B warrant entitled the holder to purchase one share of common stock at a price of $0.10 per share, exercisable in either cash or pursuant to a cashless exercise. The sale was concluded on June 30, 2016 and resulted in net proceeds of $194,325, which were net of $675 of direct offering costs. As of September 30, 2017 all the Class A and Class B warrants associated with this offering were unexercised and expired.

Also, Magellan Gold Peru (“MGP”), a wholly owned subsidiary of Magellan Gold Corporation (“MGC”), maintains its operations in the Peruvian Sol, its functional currency. The accounts of MGP are translated to US dollars upon consolidation for reporting purposes. Amounts representing funds owed to MGC for operating advances resulted in a currency translation difference of $862, which was recorded as a component of the consolidated comprehensive loss at September 30, 2017.

Off Balance Sheet Arrangements

We do not have and have never had any off-balance sheet arrangements.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiaries, Gulf + Western Industries, Inc., and Magellan Gold Peru S.A.C. All intercompany transactions and balances have been eliminated.  Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the period presented.

We make our estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period

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when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

Foreign Currency Translations

The Company maintains its accounting records in US Dollars. Our operating subsidiary, Magellan Gold Peru S.A.C. is located in Peru and maintains its accounting records in the Peruvian Sol, which is its functional currency. The subsidiary’s transactions are recorded in the respective functional currencies of the Company and its subsidiaries, and are reported to the Company in Peruvian Soles. For reporting, the Company translates the subsidiary’s transactions and accounts to US Dollars at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recorded in the statements of income and comprehensive income.  Assets and liabilities of the Company and its subsidiaries are translated into the U.S. dollars at exchange rates at the balance sheet date, equity accounts are translated at historical exchange rate and revenues and expenses are translated by using the average exchange rates. Translation adjustments are reported as a separate component of other comprehensive income in the consolidated statements of operations and comprehensive loss.

Fair Value of Financial Instruments

We value our financial assets and liabilities using fair value measurements. Our financial instruments primarily consist of cash and cash equivalents, accounts payable, accrued liabilities, amounts due to related parties and notes payable to related parties.  Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount of cash and cash equivalents, accounts payable, accrued liabilities, notes payable to related parties and other amounts due to related parties approximates fair value because of the short-term nature of these financial instruments.

Concentrations of Credit Risk

Our financial instruments which potentially subject us to credit risk are our cash and cash equivalents. We maintain our cash and cash equivalents at reputable financial institutions and currently, we are not exposed to significant credit risk.

Cash and Cash Equivalents

We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less to be cash equivalents at the date of purchase.

Mineral Rights

We have determined that our mineral rights meet the definition of mineral rights, as defined by accounting standards, and are tangible assets. As a result, our direct costs to acquire or lease mineral rights are initially capitalized as tangible assets. Mineral rights include costs associated with: leasing or acquiring patented and unpatented mining claims; leasing mining rights including lease signature

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bonuses, lease rental payments and advance minimum royalty payments; and options to purchase or lease mineral properties.

If we establish proven and probable reserves for a mineral property and establish that the mineral property can be economically developed, mineral rights will be amortized over the estimated useful life of the property following the commencement of commercial production or expensed if it is determined that the mineral property has no future economic value or if the property is sold or abandoned. For mineral rights in which proven and probable reserves have not yet been established, we assess the carrying values for impairment at the end of each reporting period and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The net carrying value of our mineral rights represents the fair value at the time the mineral rights were acquired less accumulated depletion and any abandonment or impairment losses. Proven and probable reserves have not been established for mineral rights as of September 30, 2017.  At September 30, 2017 mineral rights totaling $323,200 were net of $117,857 of impairment and abandonment charges.  No impairment charges were recognized for either the three or nine months ended September 30, 2017 or 2016.

Impairment of Long-lived Assets and Mining Rights

We continually monitor events and changes in circumstances that could indicate that our carrying amounts of long-lived assets, including mineral rights, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flow. If the future undiscounted cash flow is less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Notes Payable – Related Parties

Notes payable to related parties are classified as current liabilities as the note holders have the ability to control the repayment dates of the notes.

Exploration Costs   

Mineral exploration costs are expensed as incurred. When it has been determined that it is economically feasible to extract minerals and the permitting process has been initiated, exploration costs incurred to further delineate and develop the property are considered pre-commercial production costs and will be capitalized and included as mine development costs in our balance sheets.

Income Taxes

We recognize deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements and the effect of net operating losses based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. At September 30, 2017, the Company had no uncertain tax positions.

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Net Loss per Common Share

We compute basic net loss per common share by dividing our net loss attributable to common shareholders by our weighted-average number of common shares outstanding during the period. Computation of diluted net loss per common share adds the weighted-average number of potential common shares outstanding to the weighted-average common shares outstanding, as calculated for basic net loss per share, except for instances in which there is a net loss. For the nine months ended September 30, 2017 and 2016, potential common shares associated with convertible notes payable and outstanding warrants to purchase common stock have been omitted from the net loss per common share computation as they are anti-dilutive due to the net loss for these periods.

Stock-based Compensation

The Company determines the fair value of stock option awards granted to employees in accordance with FASB ASC Topic 718 – 10 and to non-employees in accordance with FASB ASC Topic 505 – 50. Compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.

New Accounting Standards

From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our financial statements upon adoption.

In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, "Leases: Topic 842 (ASU 2016-02)", to supersede nearly all existing lease guidance under GAAP. The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for the Company in the first quarter of our fiscal year ending December 31, 2019 using a modified retrospective approach with the option to elect certain practical expedients. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements.

Recently Adopted Accounting Standards

Recently issued Financial Accounting Standards Board Accounting Standards Codification guidance has either been implemented or is not significant to us.

Subsequent Events

On October 10, 2017, the Company and Bright Star International, Inc. ("Bright Star") signed a confirmation letter mutually declaring the previously executed Consulting Agreement and Advertising Agreement between the parties null and void.  Subsequently, Brightstar returned the 1,500,000 shares of stock to the Company.

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On October 17, 2017, the Company signed an Amendment ("Amendment") to the Stock Purchase Agreement, dated September 9, 2017 by and among the Company, Magellan Acquisition Corporation ("Purchaser"), Vane Minerals (UK) Limited ("Minerals"), Rose Petroleum, plc (Minerals parent corporation) ("Rose") and Minerals' wholly-owned subsidiaries Minerales Vane, S.A. de C.V. ("Vane") and Minerales Vane 2, S.A. de C.V. ("Vane 2"). Rose and Minerals are together the "Seller".  Under the terms of the Amendment, the Purchaser shall purchase all of the shares of Vane 2 from Seller. The Amendment provides that the closing date of the Stock Purchase Agreement shall be extended from November 30, 2017 to December 31, 2017.

Effective October 26, 2017, the Company granted stock options to four persons pursuant to the Company's 2017 Equity Incentive Plan.  The Company granted options to purchase an aggregate of 3,600,000 shares having an exercise price of $.04 per share.  The options have a term of ten years from the date of grant and are immediately exercisable on the date of grant.

Effective October 26, 2017, the Company's CEO agreed to waive payment of accrued but unpaid salary obligations from June 1, 2016 through September 30, 2017 in the aggregate amount of $150,000. On the same date, the Company issued the CEO 4,000,000 sharees of restricted common stock.

On October 24, 2017, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to increase the number of authorized shares of the Company to 1,000,000,000 shares of common stock and 25,000,000 shares of preferred stock.

On November 1, 2017, the Company entered into a Consulting Agreement with Life Sciences Journeys, Inc. ("Life Sciences"). Pursuant to the terms of the Agreement, the Company agreed to issue to Life Sciences, as its sole compensation, an aggregate of 3,000,000 shares of the Company's restricted common stock.

On November 1, 2017, the Company sold a 10% Convertible Promissory Note ("Note") in a principal amount of $170,000 for a purchase price equal to the principal amount of the Note pursuant to the terms a of Securities Purchase Agreement dated November 1, 2017. After deducting the investor's discount and legal fees, net proceeds to the Company were $153,650. The Note matures on November 1, 2018 and becomes convertible into the Company's common stock after 180 days from the date the Note is issued.

On November 2, 2017, the Company sold a 10% Convertible Promissory Note ("Note") in principal amount of $125,000 for a purchase price equal to the principal amount of the Note pursuant to the terms of a of Securities Purchase Agreement dated November 2, 2017. After deducting the investor's discount and legal fees, net proceeds to the Company were $113,500. The Note matures on November 2, 2018 and becomes convertible into the Company's common stock after 180 days from the date the Note is issued.

On November 7, 2017 the Company and Rose executed an Interim Milling Agreement (the "Agreement"), with an effective date of November 1, 2017, whereby, pending closing of the SPA transaction, Rose shall cause its subsidiary, Minerales Vane S.A. de C.V., a Mexico corporation ("Vane"), to reopen the SDA Mill and recommence operations. The Company provided working capital funding in the amount of $50,000 and will provide additional working capital if required, and

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is entitled to receive all positive cash flow generated under the Agreement pending closing of the SPA.

On November 16, 2017, the Company funded $900,000 into an escrow account as partial consideration to purchase the SDA Mill. Per the Stock Purchase Agreement executed on September 9, 2017, the total consideration for the purchase price is US$1,500,000, payable as to $1,000,000 in cash and $500,000 in restricted common stock of the Company. The escrow funding of $900,000 together with the June 2017 option payment of $100,000, comprise the $1,000,000 cash component of the purchase price. Subsequent to September 30, 2017, related parties have advanced $735,000 to Magellan for working capital and the purchase escrow account.  These advances will be secured with the stock of the Mexican subsidiary that will hold the SDA mill at closing.

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