Table of Contents
Filed Pursuant to Rule 424(b)(3)
Commission File No. 333-228932
PROSPECTUS
MAGELLAN GOLD CORPORATION
1,075,000 Shares of Common Stock
This prospectus relates to the resale,
from time to time by certain selling securityholders (each a “Selling Securityholder” and collectively, the “Selling
Securityholders”), of: (i) 150,000 shares of common stock, $0.001 par value (“Common Stock”) issued to the Selling
Securityholders in connection with (a) a private offering of Common Stock and Warrants, (ii) 600,000 shares of Common Stock issuable
upon the exercise of the Warrants sold in that private placement, and (iii) 325,000 shares of Common Stock issuable upon conversion
of convertible notes sold in two separate private placements (collectively the “Offerings” (collectively, the “Securities”)).
We will not receive any of the proceeds
from the resale of the Common Stock by the Selling Securityholders. However, upon exercise of the Warrants, we will receive the
cash exercise price.
The Selling Securityholders may be
deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act of 1933, as amended. The
Selling Securityholders may sell or otherwise dispose of the Common Stock and Warrant Stock covered by this prospectus on any
stock exchange, market or trading facility on which the Common Stock are traded or in private transactions. These
dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing
market price, at varying prices determined at the time of sale or at negotiated prices. Additional information about the
Selling Securityholders and the times and manner in which they may offer and sell shares of Common Stock under this
prospectus is provided in the sections entitled “Selling Securityholders” and “Plan of Distribution”
of this prospectus. Our Common Stock is quoted on the OTCQB under the symbol “MAGE”. The closing price of our
Common Stock as quoted on the OTCQB on April 23, 2019 was $2.05 per share. There is no public trading market for the Warrants
and we do not expect a public trading market to develop for the Warrants in the future.
In the Offerings, we issued an aggregate
of 150,000 shares of Common Stock, Warrants exercisable to purchase an aggregate of 600,000 shares of Common Stock and (iii) Convertible
Notes convertible into an aggregate of 325,000 shares of Common Stock covered by this prospectus. Additional information about
the Offerings is provided in the section entitled “Description of Private Placements” of this prospectus.
We
are an “emerging growth company,” as defined under the federal securities laws and, as such, we have elected to comply
with certain reduced public company reporting requirements for this prospectus and future filings.
You should consider carefully the
risks that we have described in the section entitled “
Risk Factors
” beginning on Page 8 of this prospectus
before deciding whether to invest in the Securities.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy
of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is April
30, 2019
About this Prospectus
You should rely only on the information
contained in this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We believe that the information contained in this prospectus
is accurate as of the date on the cover. Changes may occur after that date; and we may not update this information except as required
by applicable law.
Explanatory Note Regarding Per Share
Information
Effective September 1, 2017, shareholders
of the Company, by majority written consent signed by shareholders owning, in the aggregate, approximately 75% of our issued and
outstanding shares of Common Stock, authorized our Board of Directors to approve and undertake a reverse split (the “Reverse
Split”) of our issued and outstanding shares of Common Stock by a factor of up to one-for-fifty (1 for 50), at such time
and in such a ratio, subject to the foregoing parameters, as the Board of Directors so determines (the “Shareholder Action”).
That Shareholder Action became effective on October 19, 2017 in accordance with Regulation 14C. Effective November 26, 2018, our
Board of Directors approved and authorized the Company to undertake a Reverse Split in the ratio of one-for-fifty (1 for 50).
By action of FINRA, the Reverse Split
became effective on January 7, 2019. The Reverse Split resulted, in all issued and outstanding shares of Common Stock being condensed
on a one for fifty (1-for-50) basis, and the number of shares issuable upon exercise of outstanding options, warrants and convertible
securities being adjusted (condensed) on a one for fifty (1-for-50) basis.
Unless otherwise stated, all share and
per share information contained in this prospectus gives retroactive effect to the implementation of the Reverse Split.
Prospectus Summary
Information
Please note that throughout this prospectus
the words "we," "our," or "us" refers to Magellan Gold Corporation, a Nevada corporation (“Magellan”
or the “Company”).
About Our Company
Magellan Gold Corporation was formed and
organized effective September 28, 2010 under the laws of the State of Nevada. We are an exploration stage company and our principal
business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which
we have mining rights contain mineral reserves that are economically recoverable. We were formed and organized by Athena Silver
Corporation (“Athena”) a Delaware corporation, and by two of the control persons and principal shareholders of Athena.
Athena is engaged in the exploration of minerals at its principal project known as the Langtry Properties located in San Bernardino
County, California.
Our Properties
Our focus is on projects in Arizona and
Mexico.
Silver District, La Paz County, Arizona
In August 2012, we entered into an Option
Agreement with Columbus Silver (US) Corporation (“Columbus”) to purchase “The Silver District Claims” consisting
of 85 unpatented lode mining claims, 4 patented lode claims, an Arizona State Exploration Permit of 154.66 acres and 23 unpatented
mill site claims, totaling over 2,000 acres in La Paz County, Arizona. The underlying claims are subject to third party lease and
or purchase obligations and net smelter royalties of varying percentages. In June and July 2013, Magellan staked 9 additional unpatented
lode mining claims in the Silver District adjacent to the land package under option from Columbus; the Company currently retains
2 of these original 9 claims. Effective September 29, 2014, we entered into a Purchase Agreement with Columbus Silver (US) Corporation,
a wholly-owned subsidiary of Columbus Exploration Corporation (TSXV:CLX) to purchase the patented and unpatented mining claims
that had been covered by the Option Agreement. The Purchase Agreement superseded the Option Agreement and conveyed the Silver District
Claims to the Company. In consideration of the Silver District Claims, we made a one-time payment to Columbus in the amount of
$100,000. Following our purchase of the Silver District Claims, we formed a new wholly-owned subsidiary “Gulf + Western Industries,
Inc.” (“Gulf + Western”) and transferred our interest in the Silver District Claims to Gulf + Western.
In November 2015 we were granted a new
Arizona State Exploration Permit that effectively increases the size of our exploration permit in the Silver District from 154.66
acres to 334.85 acres.
SDA Mill Acquisition
On November 30, 2017, the Company purchased
from Rose Petroleum plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA
Mill”) as well as its associated assets, licenses and agreements. Magellan previously had paid a $50,000 option payment,
and an additional $100,000 option-to-purchase extension. The $100,000 option extension payment was applied against the cash portion
of the purchase price.
The purchase price for the SDA Mill consisted
of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 option-to-purchase payment,
and 284,017 shares of common stock (the “Shares”) with a fair value of $426,025 on the date of acquisition. The note
was non-interest bearing and has been paid in full. The Shares will be held in escrow for a period of 12 months and the Company
has the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months and $550,000 in months seven
to twelve.
Prior to closing, all of the assets and
operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales
Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition
Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2.
On October 17, 2017, the Company amended
the agreement to include the acquisition of Minerales VANE Operaciones (“MVO”) (the entity that provides labor to the
SDA Mill) for $2,500 as soon as practicable following the Closing Date, rather than prior to the Closing Date. Magellan acquired
control of MVO in January 2018 and paid for it in April 2018.
El Dorado
In August, 2018, the Company entered into
an agreement giving it the right to acquire the El Dorado Gold-Silver Property, a 50 hectare mining concession located near the
village of Las Minitas, which lies 50 kilometers south of Magellan’s SDA Flotation Plant at Acaponeta, Nayarit State. Magellan
intends to advance El Dorado towards production as a matter of priority. The Company has initiated permitting and is in the process
of selecting an underground mining contractor.
Magellan concluded the agreement with Ingenieros
Mineros, S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making
staged six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable.
Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of
$50,000 (plus 16% IVA). In addition, Magellan has agreed with a TSX.V-listed company to purchase a comprehensive El Dorado data
package including diamond drill core and technical information for a price of $120,000, payable in cash and Magellan common stock.
Commencement of mining will depend on a
number of preconditions, the most important of which include obtaining environmental and blasting permits, selecting and mobilizing
a mining contractor and procuring financing. An access and land use agreement with the local ejido already is in place. Once development
begins, ore will be accessible with a minimal amount of underground development. Ore will be sourced initially from the shallow,
upper portions of the mineralized veins.
Our primary focus with the acquisition
of the SDA Mill in Mexico is to transform Magellan into a production company, to continue to advance our Arizona silver project
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 significant revenue.
Our principal executive offices are located
at 500 Marquette Avenue NW, Ste. 1200, Albuquerque, New Mexico 87102. Our telephone number is (707) 884-3766, and our Internet
website is www.magellangoldcorp.com.
Summary Financial
Data
The following summary financial data is
derived from our audited financial statements as of and for the years ended December 31, 2018 and 2017. The summary financial data
is incomplete and is qualified in its entirety by, and should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related
notes included herein.
The following Summary Financial Data
is presented for informational purposes only and is qualified in its entirety by reference to the complete financial
statements contained elsewhere in this prospectus. Our historical operating information may not be indicative of our future
operating results.
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Year Ended
December 31, 2018
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Year Ended
December 31, 2017
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Statement of Operations Data:
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|
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Total Revenues
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$
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123,995
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$
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–
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Operating Expenses
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$
|
1,786,538
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$
|
1,383,703
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Net loss
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$
|
(2,314,326
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)
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$
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(2,137,959
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)
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Net Comprehensive loss
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$
|
(2,344,132
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)
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$
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(2,225,529
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)
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Basic and diluted weighted average shares outstanding
|
|
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2,388,807
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|
|
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1,465,243
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December 31, 2018
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December 31, 2017
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Balance Sheet Data:
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Working capital
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$
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(3,788,972
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)
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$
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(2,827,255
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)
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Total assets
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$
|
1,523,920
|
|
|
$
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1,953,545
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Total liabilities
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$
|
4,025,338
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|
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$
|
3,201,552
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Stockholders’ deficit
|
|
$
|
(2,501,418
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)
|
|
$
|
(1,248,007
|
)
|
Forward-looking Statements
In General
This report contains statements that plan
for or anticipate the future. In this report, forward-looking statements are generally identified by the words "anticipate,"
"plan," "believe," "expect," "estimate," and the like.
With respect to our mineral exploration
business, these forward-looking statements include, but are not limited to, statements regarding the following:
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*
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the risk factors set forth below under “Risk Factors”;
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*
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risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions);
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*
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uncertainties inherent in our exploratory and developmental activities, including risks relating to permitting and regulatory delays;
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*
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our future business plans and strategies;
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*
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our ability to commercially develop our mining interests.;
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*
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changes that could result from our future acquisition of new mining properties or businesses;
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*
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expectations regarding competition from other companies;
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*
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effects of environmental and other governmental regulations;
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*
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the worldwide economic downturn and difficult conditions in the global capital and credit markets; and
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*
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our ability to raise additional financing necessary to conduct our business.
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Forward looking statements may include
estimated mineral reserves and resources which could differ materially from those projected in the forward-looking statements.
The factors that could cause actual results to differ materially from those projected in the forward-looking statements include:
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*
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the risk factors set forth below under “Risk Factors”;
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*
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changes in the market prices of precious minerals, including gold; and
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*
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uncertainties inherent in the estimation of ore reserves.
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Readers are cautioned not to put undue
reliance on forward-looking statements. We disclaim any intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
In light of the significant uncertainties
inherent in the forward-looking statements made in this Report, the inclusion of this information should not be regarded as a representation
by us or any other person that our objectives and plans will be achieved.
The Offering
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Securities Offered by the Selling Securityholders:
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150,000 shares of Common Stock issued to the Selling Securityholders in connection with the Offerings; and
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600,000 shares of Common Stock issuable upon the exercise of outstanding Warrants issued to the Selling Securityholders in connection with the Offerings.
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325,000 shares of Common Stock issuable upon the conversion of outstanding convertible notes sold to the Selling Securityholders in connection with the Offerings.
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Offering Price:
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Determined at the time of sale by the Selling Securityholders.
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Use of Proceeds:
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We will not receive any proceeds from the resale of the Common Stock by the Selling Securityholders. However, upon exercise we will receive the cash exercise price of the Warrants.
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Common Stock outstanding
prior to the Offering:
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3,529,003
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Shares of Common Stock outstanding after this Offering (assuming full exercise of the Warrants and conversion of Notes):
(1)
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4,454,003
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Risk Factors
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See “
Risk Factors
” beginning on
page 8 and other information in this prospectus for a discussion of the factors you should consider before you decide to
invest in our securities.
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OTCQB Ticker Symbol for Common Stock:
______________________________
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MAGE
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(1)
The number of shares
of Common Stock shown above to be outstanding after this offering is based on 3,529,003 shares outstanding as of April 23, 2019
and excludes:
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•
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72,000 shares of Common Stock issuable upon exercise of outstanding stock options, at a weighted average exercise price of $2.00 per share;
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•
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200,000 additional shares of Common Stock reserved for future issuance under our 2017 Equity Incentive Plan.
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Description of Private Placements
Unit Offering
1
In November and December, 2018, the Company
completed a private offering with certain investors (collectively, the “Investors”) for the issuance and sale of 150,000
units (the “Units”) at a subscription price of $1.00 per Unit for gross proceeds of $150,000 (the “Offering”).
Subscription proceeds with respect to 30,000 Units were received subsequent to December 31, 2018. The Company intends to use the
proceeds of the Offering for general working capital purposes. The Company will not receive any proceeds from any sales by the
Investors under this prospectus; however, upon exercise of the Warrants (as defined below), we will receive the cash exercise price.
The Units were sold by the Company’s
officers and directors and no placement agents were utilized or any fees or commissions paid in connection with the Offering.
Each Unit consisted of (i) one share
of Common Stock, (ii) One Class A Warrants each exercisable to purchase two additional shares of Common Stock at an initial
exercise price of $2.00 per share and (iii) One Class B Warrants each exercisable to purchase two additional shares of Common
Stock at an exercise price of $3.00 per share. The exercise price of the Class A Warrants
was subsequently reduced to $1.00 per share. The Class A Warrants are exercisable for a three (3) month period following
the effective date of the registration statement of which this prospectus forms a part; and the Class B Warrants are
exercisable for the six (6) month period following the effective date of the registration statement of which this prospectus
forms a part. The expiration date of the Class A Warrants has been extended to May 28, 2019.
In connection with the Offering, the Company
and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”) under which the
Company is obligated to file a registration statement (the “Registration Statement”) with the Securities and Exchange
Commission registering the Common Stock and Warrant Shares, on or prior to January 31, 2019 (the “Filing Date”). In
addition, if the Registration Statement is not filed by the Filing Date or is not declared effective on or before April 30, 2019,
the Company would be liable to pay a liquidated damages amount to the Investors equal to 0.1% of the aggregate purchase price of
the Units every 60 days, up to a maximum of 1.0% of the aggregate purchase price of the Units.
October Convertible Note Offering
In October, 2018, the Company undertook
a private offering to accredited investors of unsecured convertible notes (the “October Notes”). The October Notes
accrue interest at the rate of 10% per annum, payable quarterly in arrears, payable at the option of the Company in either cash
or in shares of Common Stock valued at the 20 day VWAP immediately preceding the end of the quarter. The October Notes mature twelve
months from the date of issue.
The October Notes are convertible, at the
option of the holder, into shares of Common Stock at a conversion price of $1.00 per share. Purchasers of the October Notes each
executed an Agreement Among Lenders pursuant to which the holders have agreed to act in concert with respect to the Notes as determined
by holders owning a Majority in Interest in the October Notes.
In connection with the Offering, the Company
and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”) under which the
Company is obligated to file a registration statement (the “Registration Statement”) with the Securities and Exchange
Commission registering the resale of the Common Stock issuable upon conversion of the October Notes (the “October Conversion
Shares”), on or prior to January 31, 2019 (the “Filing Date”). In addition, if the Registration Statement is
not filed by the Filing Date or is not declared effective on or before April 30, 2019, the Company would be liable to pay a liquidated
damages amount to the Investors equal to 0.1% of the aggregate purchase price of the October Notes every 60 days, up to a maximum
of 1.0% of the aggregate purchase price of the October Notes.
The Offering of the October Notes terminated
on October 31, 2018, with the Company having sold an aggregate of $205,000 in principal amount of October Notes.
__________
1
Unit
numbers and prices have been adjusted to give effect to a 1-for-50 Reverse Stock Split that became effective on January 7, 2019.
December
Convertible Note Offering
In December, 2018, the Company undertook
a private offering to accredited investors of unsecured convertible notes (the “December Notes”). The December Notes
accrue interest at the rate of 10% per annum, payable quarterly in arrears, payable at the option of the Company in either cash
or in shares of Common Stock valued at the 20 day VWAP immediately preceding the end of the quarter. The December Notes mature
twelve months from the date of issue.
The December Notes are convertible, at
the option of the holder, into shares of Common Stock at a conversion price of $1.25 per share. Purchasers of the December Notes
each executed an Agreement Among Lenders pursuant to which the holders have agreed to act in concert with respect to the Notes
as determined by holders owning a Majority in Interest in the November Notes.
In connection with the Offering, the Company
and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”) under which the
Company is obligated to file a registration statement (the “Registration Statement”) with the Securities and Exchange
Commission registering the resale of the Common Stock issuable upon conversion of the December Notes (the “December Conversion
Shares”) , on or prior to January 31, 2019 (the “Filing Date”). In addition, if the Registration Statement is
not filed by the Filing Date or is not declared effective on or before April 30, 2019, the Company would be liable to pay a liquidated
damages amount to the Investors equal to 0.1% of the aggregate purchase price of the December Notes every 60 days, up to a maximum
of 1.0% of the aggregate purchase price of the December Notes.
The Offering of the December Notes terminated
on December 31, 2018, with the Company having sold an aggregate of $150,000 in principal amount of November Notes.
Risk Factors
Our business faces many risks. Any of
the risks discussed below, or elsewhere in this report or in our other filings with the SEC, could have a material impact on our
business, financial condition, or results of operations.
An investment in our securities is speculative
and involves a high degree of risk. Please carefully consider the following risk factors, as well as the possibility of the loss
of your entire investment, before deciding to invest in our securities.
Risks Related to our Business
Due to our history of operating losses
our auditors are uncertain that we will be able to continue as a going concern.
Our financial statements have been
prepared assuming that we will continue as a going concern. Due to our continuing operating losses and negative cash flows from
our operations, the reports of our auditors issued in connection with our consolidated financial statements for the fiscal years
ended December 31, 2018 and 2017, contain explanatory paragraphs indicating that the foregoing matters raised substantial doubt
about our ability to continue as a going concern. We cannot provide any assurance that we will be able to continue as a going concern.
We have no history of and limited experience
in mineral production
.
We have no history of and limited experience
in producing gold or other metals. In addition, our management has limited technical training and experience with exploring for,
starting and/or operating a mine. Our management may not be fully aware of many of the specific requirements related to working
within this industry. Their decisions and choices may not take into account standard engineering or managerial approaches mineral
exploration companies commonly use. Our operations, earnings and ultimate financial success could suffer due to our management’s
limited experience in this industry. As a result, we would be subject to all of the risks associated with establishing a new mining
operation and business enterprise. We may never successfully establish mining operations, and any such operations may not achieve
profitability.
Our principal shareholders and control
persons are also principal shareholders and control persons of Athena and Silver Saddle, which could result in conflicts with the
interests of minority stockholders.
Messrs. Gibbs and Power are control persons
and principal shareholders of Magellan, Athena and Silver Saddle. Magellan, Athena and Silver Saddle are engaged in mineral exploration
activities, although in different geographical regions. While the geographical focus of the companies is different, numerous conflicts
could arise in the future. For example, Messrs. Gibbs and Power have provided the majority of working capital for all three companies
to date, and in the likely event that these companies require additional capital in the future their resources may be inadequate
to finance the activities of all. In addition, if new prospects become available, a conflict may exist with respect to which company
to offer those opportunities. Messrs. Gibbs and Power have not developed a conflict of interest policy to mitigate the potential
adverse effects of these conflicts and as a result these conflicts represent a significant risk to the shareholders of the Company.
Conflicts for access to limited resources and opportunities cannot be eliminated completely, and investors should be aware of their
potential.
We have no proven or probable reserves
.
We are currently in the exploration stage
and have no proven or probable reserves, as those terms are defined by the Securities and Exchange Commission (“SEC”)
on any of our properties.
In order to demonstrate the existence of
proven or probable reserves under SEC guidelines, it would be necessary for us to advance the exploration of our Properties by
significant additional delineation drilling to demonstrate the existence of sufficient mineralized material with satisfactory continuity
which would provide the basis for a feasibility study which would demonstrate with reasonable certainty that the mineralized material
can be economically extracted and produced. We do not have sufficient data to support a feasibility study with regard to the Properties,
and in order to perform the drill work to support such feasibility study, we must obtain the necessary permits and funds to continue
our exploration efforts. It is possible that, even after we have obtained sufficient geologic data to support a feasibility study
on the Properties, such study will conclude that none of the identified mineral deposits can be economically and legally extracted
or produced. If we cannot adequately confirm or discover any mineral reserves of precious metals on the Properties, we may not
be able to generate any revenues. Even if we discover mineral reserves on the Properties in the future that can be economically
developed, the initial capital costs associated with development and production of any reserves found is such that we might not
be profitable for a significant time after the initiation of any development or production. The commercial viability of a mineral
deposit once discovered is dependent on a number of factors beyond our control, including particular attributes of the deposit
such as size, grade and proximity to infrastructure, as well as metal prices. In addition, development of a project as significant
as the ones we might be planning will likely require significant debt financing, the terms of which could contribute to a delay
of profitability.
The exploration of mineral properties
is highly speculative in nature, involves substantial expenditures and is frequently non-productive.
Mineral exploration is highly speculative
in nature and is frequently non-productive. Substantial expenditures are required to:
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establish ore reserves through drilling and metallurgical and other testing techniques;
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•
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determine metal content and metallurgical recovery processes to extract metal from the ore; and,
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design mining and processing facilities.
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If we discover ore at the Properties, we
expect that it would be several additional years from the initial phases of exploration until production is possible. During this
time, the economic feasibility of production could change. As a result of these uncertainties, there can be no assurance that our
exploration programs will result in proven and probable reserves in sufficient quantities to justify commercial operations.
Even if our exploration efforts at the
Properties are successful, we may not be able to raise the funds necessary to develop the Properties.
If our exploration efforts at our prospects
are successful, of which there can be no assurance, our current estimates indicate that we may be required to raise substantial
external financing to develop and construct the mines. Sources of external financing could include bank borrowings and debt and
equity offerings, but financing has become significantly more difficult to obtain in the current market environment. The failure
to obtain financing would have a material adverse effect on our growth strategy and our results of operations and financial condition.
We currently have no specific plan to obtain the necessary funding and there exist no agreements, commitments or arrangements to
provide us with the financing that we may need. There can be no assurance that we will commence production at any of our Properties
or generate sufficient revenues to meet our obligations as they become due or obtain necessary financing on acceptable terms, if
at all, and we may not be able to secure the financing necessary to begin or sustain production at the Properties. Our failure
to raise needed funding could also result in our inability to meet our future royalty and work commitments under our mineral leases,
which could result in a forfeiture of our mineral interest altogether and a default under other financial commitments. In addition,
should we incur significant losses in future periods, we may be unable to continue as a going concern, and we may not be able to
realize our assets and settle our liabilities in the normal course of business at amounts reflected in our financial statements
included or incorporated herein by reference.
We may not be able to obtain permits
required for development of the Properties.
In the ordinary course of business, mining
companies are required to seek governmental permits for expansion of existing operations or for the commencement of new operations.
We will be required to obtain numerous permits for our Properties. Obtaining the necessary governmental permits is a complex and
time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings. Our efforts
to develop the Properties may also be opposed by environmental groups. In addition, mining projects require the evaluation of environmental
impacts for air, water, vegetation, wildlife, cultural, historical, geological, geotechnical, geochemical, soil and socioeconomic
conditions. An Environmental Impact Statement would be required before we could commence mine development or mining activities.
Baseline environmental conditions are the basis on which direct and indirect impacts of the Properties are evaluated and based
on which potential mitigation measures would be proposed. If the Properties were found to significantly adversely impact the baseline
conditions, we could incur significant additional costs to avoid or mitigate the adverse impact, and delays in the development
of Properties could result.
Permits would also be required for, among
other things, storm-water discharge; air quality; wetland disturbance; dam safety (for water storage and/or tailing storage); septic
and sewage; and water rights appropriation. In addition, compliance must be demonstrated with the Endangered Species Act and the
National Historical Preservation Act.
The mining industry is intensely competitive.
The mining industry is intensely competitive.
We may be at a competitive disadvantage because we must compete with other individuals and companies, many of which have greater
financial resources, operational experience and technical capabilities than we do. Increased competition could adversely affect
our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration
in the future. We may also encounter increasing competition from other mining companies in our efforts to locate acquisition targets,
hire experienced mining professionals and acquire exploration resources.
Our future success is subject to risks inherent in the mining
industry.
Our future mining operations, if any, would
be subject to all of the hazards and risks normally incident to developing and operating mining properties. These risks include:
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insufficient ore reserves;
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fluctuations in metal prices and increase in production costs that may make mining of reserves uneconomic;
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significant environmental and other regulatory restrictions;
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labor disputes; geological problems;
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failure of underground stopes and/or surface dams;
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force majeure events; and
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the risk of injury to persons, property or the environment.
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Our future profitability will be affected by changes in the
prices of metals.
If we establish reserves, and complete
development of a mine, our profitability and long-term viability will depend, in large part, on the market price of gold. The market
prices for metals are volatile and are affected by numerous factors beyond our control, including:
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global or regional consumption patterns;
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supply of, and demand for, gold and other metals;
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speculative activities;
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expectations for inflation; and,
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political and economic conditions.
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The aggregate effect of these factors on
metals prices is impossible for us to predict. Decreases in metals prices could adversely affect our ability to finance the exploration
and development of our properties, which would have a material adverse effect on our financial condition and results of operations
and cash flows. There can be no assurance that metals prices will not decline.
The price of gold may decline in the future.
If the price of gold and silver is depressed for a sustained period, we may be forced to suspend operations until the prices increase,
and to record asset impairment write-downs. Any continued or increased net losses or asset impairments would adversely affect our
financial condition and results of operations.
We are subject to significant governmental regulations
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Our operations and exploration and development
activities are subject to extensive federal, state, and local laws and regulations governing various matters, including:
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environmental protection;
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management and use of toxic substances and explosives;
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management of natural resources;
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exploration and development of mines, production and post-closure reclamation;
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labor standards and occupational health and safety, including mine safety; and
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historic and cultural preservation.
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Failure to comply with applicable laws
and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory
or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment
or remedial actions, any of which could result in us incurring significant expenditures. We may also be required to compensate
private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also
possible that future laws and regulations, or a more stringent enforcement of current laws and regulations by governmental authorities,
could cause additional expense, capital expenditures, restrictions on or suspensions of any future operations and delays in the
exploration of our properties.
Changes in mining or environmental laws
could increase costs and impair our ability to develop our properties
.
From time to time the U.S. and Mexican
governments may determine to revise U.S. or Mexican mining and environmental laws. It remains unclear to what extent new legislation
or regulations may affect existing mining claims or operations. The effect of any such revisions on our operations cannot be determined
conclusively until such revision is enacted; however, such legislation could materially increase costs on properties located on
federal lands, such as ours, and such revision could also impair our ability to develop the Properties and to explore and develop
other mineral projects.
Mineral exploration and development
inherently involves significant and irreducible financial risks. We may suffer from the failure to find and develop profitable
mineral deposits.
The exploration for and development of
mineral deposits involves significant financial risks, which even a combination of careful evaluation, experience and knowledge
may not eliminate. Unprofitable efforts may result from the failure to discover mineral deposits. Even if mineral deposits are
found, such deposits may be insufficient in quantity and quality to return a profit from production, or it may take a number of
years until production is possible, during which time the economic viability of the project may change. Few properties which are
explored are ultimately developed into producing mines. Mining companies rely on consultants and others for exploration, development,
construction and operating expertise.
Substantial expenditures are required to
establish ore reserves, extract metals from ores and, in the case of new properties, to construct mining and processing facilities.
The economic feasibility of any development project is based upon, among other things, estimates of the size and grade of ore reserves,
proximity to infrastructures and other resources (such as water and power), metallurgical recoveries, production rates and capital
and operating costs of such development projects, and metals prices. Development projects are also subject to the completion of
favorable feasibility studies, issuance and maintenance of necessary permits and receipt of adequate financing.
Once a mineral deposit is developed, whether
it will be commercially viable depends on a number of factors, including: the particular attributes of the deposit, such as size,
grade and proximity to infrastructure; government regulations including taxes, royalties and land tenure; land use, importing and
exporting of minerals and environmental protection; and mineral prices. Factors that affect adequacy of infrastructure include:
reliability of roads, bridges, power sources and water supply; unusual or infrequent weather phenomena; sabotage; and government
or other interference in the maintenance or provision of such infrastructure. All of these factors are highly cyclical. The exact
effect of these factors cannot be accurately predicted, but the combination may result in not receiving an adequate return on invested
capital.
Significant investment risks and operational
costs are associated with our exploration activities. These risks and costs may result in lower economic returns and may adversely
affect our business.
Mineral exploration, particularly for gold,
involves many risks and is frequently unproductive. If mineralization is discovered, it may take a number of years until production
is possible, during which time the economic viability of the project may change.
Development projects may have no operating
history upon which to base estimates of future operating costs and capital requirements. Development project items such as estimates
of reserves, metal recoveries and cash operating costs are to a large extent based upon the interpretation of geologic data, obtained
from a limited number of drill holes and other sampling techniques, and feasibility studies. Estimates of cash operating costs
are then derived based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body,
expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other
factors. As a result, actual cash operating costs and economic returns of any and all development projects may materially differ
from the costs and returns estimated, and accordingly, our financial condition and results of operations may be negatively affected.
Our failure to satisfy the financial
commitments under the agreements controlling our rights to explore on our current prospects could result in our loss of those potential
opportunities.
We hold all of our mineral interests under
agreements and commitments that require ongoing financial obligations, including work commitments. Our failure to satisfy those
obligations could result in a loss of those interests. In such an event, we would be required to recognize an impairment of the
assets currently reported in our financial statements.
We are required to obtain government
permits to begin new operations. The acquisition of such permits can be materially impacted by third party litigation seeking to
prevent the issuance of such permits. The costs and delays associated with such approvals could affect our operations, reduce our
revenues, and negatively affect our business as a whole
.
Mining companies are required to seek governmental
permits for the commencement of new operations. Obtaining the necessary governmental permits is a complex and time-consuming process
involving numerous jurisdictions and often involving public hearings and costly undertakings. The duration and success of permitting
efforts are contingent on many factors that are out of our control. The governmental approval process may increase costs and cause
delays depending on the nature of the activity to be permitted, and could cause us to not proceed with the development of a mine.
Accordingly, this approval process could harm our results of operations.
Any of our future acquisitions may result in significant
risks, which may adversely affect our business
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An important element of our business strategy
is the opportunistic acquisition of operating mines, properties and businesses or interests therein within our geographical area
of interest. While it is our practice to engage independent mining consultants to assist in evaluating and making acquisitions,
any mining properties or interests therein we may acquire may not be developed profitably or, if profitable when acquired, that
profitability might not be sustained. In connection with any future acquisitions, we may incur indebtedness or issue equity securities,
resulting in increased interest expense, or dilution of the percentage ownership of existing shareholders. We cannot predict the
impact of future acquisitions on the price of our business or our common stock. Unprofitable acquisitions, or additional indebtedness
or issuances of securities in connection with such acquisitions, may impact the price of our common stock and negatively affect
our results of operations.
Our ability to find and acquire new
mineral properties is uncertain. Accordingly, our prospects are uncertain for the future growth of our business.
Because mines have limited lives based
on proven and probable ore reserves, we may seek to replace and expand our future ore reserves, if any. Identifying promising mining
properties is difficult and speculative. Furthermore, we encounter strong competition from other mining companies in connection
with the acquisition of properties producing or capable of producing gold. Many of these companies have greater financial resources
than we do. Consequently, we may be unable to replace and expand future ore reserves through the acquisition of new mining properties
or interests therein on terms we consider acceptable. As a result, our future revenues from the sale of gold or other precious
metals, if any, may decline, resulting in lower income and reduced growth.
Corporate and securities laws and regulations are likely
to increase our costs.
The Sarbanes-Oxley Act of 2002 (“SOX”),
which became law in July 2002, has impacted our corporate governance, securities disclosure and compliance practices. In response
to the requirements of SOX, the SEC and major stock exchanges have promulgated rules and listing standards covering a variety of
subjects. Compliance with these rules and listing standards are likely to increase our general and administrative costs, and we
expect these to continue to increase in the future. In particular, we are required to include the management report on internal
control as part of our annual reports pursuant to Section 404 of SOX. We have evaluated our internal control systems in order (i)
to allow management to report on our internal controls, as required by these laws, rules and regulations, (ii) to provide reasonable
assurance that our public disclosure will be accurate and complete, and (iii) to comply with the other provisions of Section 404
of SOX. We cannot be certain as to the timing of the completion of our evaluation, testing and remediation actions or the impact
these may have on our operations. Furthermore, there is no precedent available by which to measure compliance adequacy. If we are
not able to implement the requirements relating to internal controls and all other provisions of Section 404 in a timely fashion
or achieve adequate compliance with these requirements or other requirements of SOX, we might become subject to sanctions or investigation
by regulatory authorities such as the SEC or FINRA. Any such action may materially adversely affect our reputation, financial condition
and the value of our securities, including our common stock. SOX and these other laws, rules and regulations have increased legal
and financial compliance costs and have made our corporate governance activities more difficult, time-consuming and costly.
If we fail to maintain an effective
system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current
and potential shareholders could lose confidence in our financial reporting, this would harm our business and the trading price
of our stock.
Effective internal controls are necessary
for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide financial reports or prevent fraud,
our business reputation and operating results could be harmed. Inferior internal controls could also cause investors to lose confidence
in our reported financial information, which could have a negative effect on the trading price of our stock.
Nevada law and our by-laws protect our
directors from certain types of lawsuits.
Nevada law provides that our directors
will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as directors. Our by-laws
require us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest
extent provided or allowed by law. The exculpation provisions may have the effect of preventing shareholders from recovering damages
against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require
us to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor
judgment, or other circumstances.
The Company is subject to extensive government regulations
and permit requirements.
Operations, development and exploration
on the Company’s properties are affected to varying degrees by political stability and government regulations relating to
such matters as environmental protection, health, safety and labour, mining law reform, restrictions on production, price controls,
tax increases, maintenance of claims, tenure, and expropriation of property. Failure to comply with applicable laws and regulations
may result in fines or administrative penalties or enforcement actions, including orders issued by regulatory or judicial authorities
enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions,
any of which could result in the Company incurring significant expenditures.
The activities of the Company require licenses
and permits from various governmental authorities. The Company currently has been granted the requisite licenses and permits to
enable it to carry on its existing business and operations. There can be no assurance that the Company will be able to obtain all
the necessary licenses and permits which may be required to carry out exploration, development and mining operations for its projects
in the future. The Company might find itself in situations where the state of compliance with regulation and permits can be subject
to interpretation and challenge from authorities that could carry risk of fines or temporary stoppage.
Opposition of the Company’s exploration,
development and operational activities may adversely affect the Company’s reputation, its ability to receive mining rights
or permits and its current or future activities
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Maintaining a positive relationship with
the communities in which the Company operates is critical to continuing successful exploration and development. Community support
for operations is a key component of a successful exploration or development project. Various international and national laws,
codes, resolutions, conventions, guidelines and other materials relating to corporate social responsibility (including rights with
respect to health and safety and the environment) may also require government consultation with communities on a variety of issues
affecting local stakeholders, including the approval of mining rights or permits.
The Company may come under pressure in
the jurisdictions in which it explores or develops to demonstrate that other stakeholders benefit and will continue to benefit
from its commercial activities. Local stakeholders and other groups may oppose the Company’s current and future exploration,
development and operational activities through legal or administrative proceedings, protests, roadblocks or other forms of public
expression against the Company’s activities. Opposition by such groups may have a negative impact on the Company’s
reputation and its ability to receive necessary mining rights or permits. Opposition may also require the Company to modify its
exploration, development or operational plans or enter into agreements with local stakeholders or governments with respect to its
projects, in some cases causing considerable project delays. Any of these outcomes could have a material adverse effect on the
Company’s business, financial condition, results of operations and Common Share price.
The title to the Company’s properties could be challenged
or impugned.
Although the Company has or will receive
title opinions for any properties in which it has a material interest, there is no guarantee that title to such properties will
not be challenged or impugned. The Company has not conducted surveys of the claims in which it holds direct or indirect interests
and, therefore the precise area and location of the properties may be in doubt. The Company’s properties may be subject to
prior unregistered agreements or transfers or native land claims and title may be affected by unidentified or unknown defects.
Title insurance is generally not available for mineral properties and the Company’s ability to ensure that it has obtained
secure claims to individual mineral properties or mining concessions may be constrained. A successful challenge to the Company’s
title to a property or to the precise area and location of a property could cause delays or stoppages to the Company’s exploration,
development or operating activities without reimbursement to the Company. Any such delays or stoppages could have a material adverse
effect on the Company’s business, financial condition and results of operations.
Risks Associated with Foreign Operations
The Company relies on local counsel
and advisors and the experience of its management and board of directors in foreign jurisdictions.
The legal and regulatory requirements in
Mexico with respect to mineral exploration and mining activities, as well as local business customs and practices are different
from those in the United States. The officers and directors of the Company must rely, to a great extent, on the Company’s
local legal counsel and local consultants retained by the Company in order to keep abreast of material legal, regulatory and governmental
developments as they pertain to and affect the Company’s business operations, and to assist the Company with its governmental
relations. The Company must rely, to some extent, on those members of management and the Company’s board of directors who
have previous experience working and conducting business in these countries in order to enhance its understanding of and appreciation
for the local business customs and practices. The Company also relies on the advice of local experts and professionals in connection
with current and new regulations that develop in respect of banking, financing, labor, litigation and tax matters in these countries.
There can be no guarantee that reliance on such local counsel and advisors and the Company’s management and board of directors
will result in compliance at all times with such legal and regulatory requirements and business customs and practices. Any such
violations could result in a material adverse effect on the Company’s business, financial condition and results of operations.
Our operating properties located in
Mexico are subject to changes in political or economic conditions and regulations in that country.
As of December 1, 2018, Andres Manual Lopez
Obrador became the newly elected President of Mexico. President Obrador may attempt to implement changes to the mining regulatory
environment that are adverse to the interests of mineral exploration and development companies. The risks with respect to Mexico
include, but are not limited to: nationalization of properties, military repression, extreme fluctuations in currency exchange
rates, criminal activity, lack of personal safety or ability to safeguard property, labor instability or militancy, mineral title
irregularities and high rates of inflation. In addition, changes in mining or investment policies or shifts in political attitude
in Mexico may adversely affect our business. We may be affected in varying degrees by government regulation with respect to restrictions
on production, price controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation,
land use, land claims of local people, opposition from non-governmental organizations, water use and mine safety. The effect of
these factors cannot be accurately predicted and may adversely impact our operations.
Our ability to develop Mexican properties
to provide ore to our SDA Mill is subject to the rights of the Ejido (agrarian cooperatives) who use or own the surface for agricultural
purposes
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Our ability to mine minerals is subject
to maintaining satisfactory arrangements and relationships with the Ejido for access and surface disturbances. Ejidos are groups
of local inhabitants who were granted rights to conduct agricultural activities on the property. We must negotiate and maintain
a satisfactory arrangement with these residents in order to disturb or discontinue their rights to farm.
Since a significant amount of our expenses
in Mexico are paid in Mexican pesos, we are subject to changes in currency values that may adversely affect our results of operations.
Our operations in the future could be affected
by changes in the value of the Mexican peso against the United States dollar. The appreciation of non-U.S. dollar currencies such
as the peso against the U.S. dollar increases expenses and the cost of purchasing capital assets in U.S. dollar terms in Mexico,
which can adversely impact our operating results and cash flows. Conversely, depreciation of non-U.S. dollar currencies usually
decreases operating costs and capital asset purchases in U.S. dollar terms. The value of cash and cash equivalents, and other monetary
assets and liabilities denominated in foreign currencies also fluctuate with changes in currency exchange rates.
Our activities are subject to significant
environmental regulations, which could raise the cost of doing business
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Our operations in Mexico are subject to
environmental regulation by SEMARNAT. Regulations governing advancement of new projects or significant changes to existing projects
require an environmental impact statement, known in Mexico as a MIA. We may also be required to submit proof of local community
support for a project to obtain final approval. If an environmental impact statement is adverse or if we cannot obtain community
support, our ability to explore and develop our properties could be adversely affected. Significant environmental legislation
exists in Mexico, including fines and penalties for spills, release of emissions into the air, and other environmental damage,
which fines or penalties could adversely affect our financial condition or results of operations.
In addition, significant state and federal
environmental protection laws in the U.S. may hinder our ability to explore at our Silver District prospect and may also delay
or prohibit us from developing properties where economic mineralization is found. Federal laws that govern mining claim location
and maintenance and mining operations on federal lands are generally administered by the BLM. Additional federal laws, governing
mine safety and health, also apply. State laws also require various permits and approvals before exploration, development or production
operations can begin. Among other things, a reclamation plan must typically be prepared and approved, with bonding in the amount
of projected reclamation costs. The bond is used to ensure that proper reclamation takes place, and the bond will not be released
until that time. Local jurisdictions may also impose permitting requirements (such as conditional use permits or zoning approvals).
The Company may be responsible for corruption and anti-bribery
law violations.
The Company’s business is subject
to the Foreign Corrupt Practices Act (the “FCPA”) and the Corrupt Foreign Public Officials Act (the “CFPOA”),
which generally prohibit companies and company employees from engaging in bribery or other prohibited payments to foreign officials
for the purpose of obtaining or retaining business. The FCPA also requires companies to maintain accurate books and records and
internal controls, including at foreign-controlled subsidiaries. There is a risk of potential FCPA violations. In addition, the
Company is subject to the anti-bribery laws of Mexico and of any other countries in which it conducts business in the future. The
Company’s employees or other agents may, without its knowledge and despite its efforts, engage in prohibited conduct under
the Company’s policies and procedures and the FCPA, the CFPOA or other anti-bribery laws for which the Company may be held
responsible. If the Company’s employees or other agents are found to have engaged in such practices, the Company could suffer
severe penalties and other consequences that may have a material adverse effect on its business, financial condition and results
of operations.
The Company may be adversely affected by operating expense
exchange rate fluctuations.
The Company’s activities and operations
in Mexico make it subject to foreign currency fluctuations. Although the Company uses U.S. dollars as the currency for the presentation
of its financial statements, the Company’s operating expenses are incurred in Mexican pesos in proportions that will typically
range between 40% and 60% of total expenses, depending on the country. The fluctuation of these currencies in relation to the U.S.
dollar will consequently have an impact upon the profitability of the Company’s mineral properties and therefore its ability
to continue to finance its exploration, development and operations. Such fluctuations may also affect the value of the Company’s
assets and shareholders’ equity. Future exploration, development and operational plans may need to be altered or abandoned
if actual exchange rates for these currencies are less than or more than the rates estimated in any such future plans. To date,
the Company has not entered into any agreements or purchased any instruments to hedge possible currency risks. The Company cannot
be sure that any hedging techniques it may implement in the future will be successful or that its business, financial condition,
and results of operations will not be materially adversely affected by exchange rate fluctuations.
Risks Related to Our Stock
Future issuances of our common stock could dilute current
shareholders and adversely affect the market if it develops.
We have the authority to issue up to one
billion shares of common stock and 25 million shares of preferred stock and to issue options and warrants to purchase shares of
our common stock, without shareholder approval. Future share issuances are likely due to our need to raise additional working capital
in the future. Those future issuances will likely result in dilution to our shareholders. In addition, we could issue large blocks
of our common stock to fend off unwanted tender offers or hostile takeovers without further shareholder approval, which would not
only result in further dilution to investors in this offering but could also depress the market value of our common stock, if a
public trading market develops.
We may issue preferred stock that would
have rights that are preferential to the rights of our common stock that could discourage potentially beneficial transactions to
our common shareholders.
An issuance of shares of preferred stock
could result in a class of outstanding securities that would have preferences with respect to voting rights and dividends and in
liquidation over our common stock and could, upon conversion or otherwise, have all of the rights of our common stock. Our Board
of Directors' authority to issue preferred stock could discourage potential takeover attempts or could delay or prevent a change
in control through merger, tender offer, proxy contest or otherwise by making these attempts more difficult or costly to achieve.
The issuance of preferred stock could impair the voting, dividend and liquidation rights of common stockholders without their approval.
There is currently an illiquid market
for our common shares, and shareholders may be unable to sell their shares for an indefinite period of time.
There is presently an illiquid market for
our common shares. There is no assurance that a liquid market for our common shares will ever develop in the United States or elsewhere,
or that if such a market does develop that it will continue.
Over-the-counter stocks are subject to risks of high volatility
and price fluctuation.
We have not applied to have our shares
listed on any stock exchange or on the NASDAQ Capital Market, and we do not plan to do so in the foreseeable future. The OTC market
for securities has experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and
other factors, such as commodity prices and the investment markets generally, as well as economic conditions and quarterly variations
in our results of operations, may adversely affect the market price of our common stock and make it more difficult for investors
to sell their shares.
Trading in our securities is on an electronic
bulletin board established for securities that do not meet NASDAQ listing requirements. As a result, investors will find it substantially
more difficult to dispose of our securities. Investors may also find it difficult to obtain accurate information and quotations
as to the price of, our common stock.
Our stock price may be volatile and as a result, shareholders
could lose all or part of their investment. The value of our shares could decline due to the impact of any of the following factors
upon the market price of our common stock:
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failure to meet operating budget;
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decline in demand for our common stock;
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operating results failing to meet the expectations of securities analysts or investors in any quarter;
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downward revisions in securities analysts' estimates or changes in general market conditions;
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investor perception of the mining industry or our prospects; and
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general economic trends.
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In addition, stock markets have experienced
extreme price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often
unrelated to operating performance and may adversely affect the market price of our common stock.
Outstanding shares that are eligible for future sale could
adversely impact a public trading market for our common stock.
All of the shares of common stock that
were distributed under the Athena spin-off dividend are free-trading shares. In addition, in the future, we may offer and sell
shares without registration under the Securities Act. All of such shares will be "restricted securities" as defined by
Rule 144 ("Rule 144") under the Securities Act and cannot be resold without registration except in reliance on Rule 144
or another applicable exemption from registration. Under Rule 144, our non-affiliates (who have not been affiliates within the
past 90 days) can sell restricted shares held for at least six months, subject only to the restriction that we made available public
information as required by Rule 144 (which restriction is not applicable after the shares have been held by non-affiliates for
at least 12 months). Our affiliates can sell restricted securities after they have been held for six months, subject to compliance
with manner of sale, volume restrictions, Form 144 filing and current public information requirements.
No prediction can be made as to the effect,
if any, that future sales of restricted shares of common stock, or the availability of such common stock for sale, will have on
the market price of the common stock prevailing from time to time. Sales of substantial amounts of such common stock in the public
market, or the perception that such sales may occur, could adversely affect the then prevailing market price of the common stock.
Owners of our common stock are subject to the “penny
stock” rules.
Since our shares are not listed on a national
stock exchange or quoted on the Nasdaq Market within the United States, trading in our shares on the OTC market is subject, to
the extent the market price for our shares is less than $5.00 per share, to a number of regulations known as the "penny
stock rules". The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by
the SEC, to provide the customer with additional information including current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of
each penny stock held in the customer's account, and to make a special written determination that the penny stock is a suitable
investment for the investor and receive the investor’s written agreement to the transaction. To the extent these requirements
may be applicable they will reduce the level of trading activity in the secondary market for our shares and may severely and adversely
affect the ability of broker-dealers to sell our shares, if a publicly traded market develops.
We do not expect to pay cash dividends in the foreseeable
future. Any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on
any shares of our capital stock, and we do not anticipate that we will pay any dividends in the foreseeable future. Our current
business plan is to retain any future earnings to finance the expansion of our business. Any future determination to pay cash
dividends will be at the discretion of our Board of Directors, and will be dependent upon our financial condition, results of operations,
capital requirements and other factors as our board of directors may deem relevant at that time. If we do not pay cash dividends,
our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
Nevada law and our by-laws protect our
directors from certain types of lawsuits.
Nevada law provides that our directors
will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as directors. Our by-laws
require us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest
extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages
against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require
us to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor
judgment, or other circumstances.
Risks Related to Our Secured Debt
Our principal assets have been pledged
as collateral to secure outstanding secured debt; and if we are unable to repay the debt, the creditors have the right to execute
against our assets.
Pursuant to the terms of the Credit Agreement
with Mr. Gibbs, at December 31, 2018 we were indebted in the amount of $852,500, principal plus accrued interest. The Credit matures
on December 31, 2019. This obligations is secured by a pledge of 100% of the issued and outstanding equity securities of Gulf +
Western Industries, Inc., which owns all of the Company’s interest in the Silver District property. Should we default under
the Gibbs Credit Agreement, Mr. Gibbs would likely foreclose on the stock pledge and take ownership of Gulf + Western.
Likewise, the Series 2017 Notes in the
principal amount of $1,155,000 are secured by a pledge of 100% of the issued and outstanding common stock of Magellan Acquisition
Corporation, which owns 100% of Minerales Vane2, which owns the SDA Mill. The Series 2017 Notes mature on December 31, 2018. If
we are unable to repay the Series 2017 Notes, the holders thereof could exercise their rights under the pledge and take ownership
of the SDA Mill.
Risks Related To This Offering
The existence of outstanding convertible notes, options and
warrants may impair our ability to raise capital.
At December 31, 2018, there were 877,000
shares of common stock issuable upon conversion of notes and exercise of outstanding options, preferred stock and warrants at a
combined average exercise price of $1.94. During the life of the notes, options and warrants, the holders are given an opportunity
to profit from a rise in the market price of our common stock with a resulting dilution in the interest of the other shareholders.
Our ability to obtain additional financing during the period the notes, options, warrants are outstanding may be adversely affected
and the existence of the notes, options and warrants may have an effect on the price of our common stock. The holders of the warrants
may be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital by a new offering
of securities on terms more favorable than those provided by the warrants.
There are trading risks for low priced stocks
.
Our common stock is currently traded in
the over-the-counter market on the OTC.QB quotation system maintained by the OTC Markets Group, Inc. As a consequence, an investor
could find it more difficult to dispose of, or to obtain accurate quotations as to the price of, our securities.
The Securities Enforcement and Penny Stock
Reform Act of 1990 requires additional disclosure, relating to the market for penny stocks, in connection with trades in any stock
defined as a penny stock. The Commission recently adopted regulations that generally define a penny stock to be any equity security
that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security
listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer
has been in continuous operation for three (3) years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three (3) years, or (iii) average annual revenue of at least $6,000,000, if such issuer has
been in continuous operation for less than three (3) years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated
therewith.
If our securities are not quoted on NASDAQ,
or we do not have $2,000,000 in net tangible assets, trading in our securities will be covered by Rules 15-g-1 through 15-g-6 promulgated
under the Exchange Act for non-NASDAQ and nonexchange listed securities. Under such rules, broker-dealers who recommend such securities
to persons other than established customers and accredited investors must make a special written suitability determination that
the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to this transaction. Securities
are exempt from these rules if the market price of the common stock is at least $5.00 per share.
We cannot predict the number of warrants,
if any, that will be exercised, or the proceeds that we will receive from the exercise of warrants.
The Selling Securityholders are under no
obligation to exercise the warrants, and can be expected to do so only if it is economically reasonable for it to do so. Typically,
warrants are not exercised unless exercise is forced, either by us calling them for redemption, or because they are scheduled to
expire; and then they will be exercised only if the exercise price is less than the market price of our common stock underlying
the warrants. Accordingly, there is no assurance that the warrants will be exercised during the period they are exercisable, or
that we will receive any proceeds from the exercise of the warrants.
We will have broad discretion to allocate
any proceeds we receive from the exercise of warrants. We cannot guarantee that the monies received will improve our operations.
The monies that we may receive from the
exercise of the warrants have been allocated generally to provide working capital for operations. As such, we will use funds as
they are received for such purposes and in such proportions as we deem advisable. While we will apply the proceeds in a manner
consistent with our fiduciary duty and in a manner consistent with our best interests, we cannot assure you that the monies received
will result in any present or future improvement in our results of operations.
The market price of our securities could
be adversely affected by sales of registered and restricted securities.
Actual sales or the prospect of future
sales of shares of our common stock under Rule 144 may have a depressive effect upon the price of, and market for, our common stock.
As of December 31, 2018, 3,264,752 shares of our common stock were issued and outstanding. 2,619,018 of these shares are "restricted
securities" and under some circumstances may, in the future, be under a registration under the Securities Act or in compliance
with Rule 144 adopted under the Securities Act. In general, under Rule 144, a person who is not and has not been an affiliate for
at least 90 days and has beneficially owned restricted shares of common stock for at least six months is entitled to sell the shares
provided the Company is current in filing its reports with the SEC or has otherwise made available current public information as
defined in the Rule; and after such person has held the shares for at least 12 months, is entitled to sell the shares without restriction.
Persons who are affiliates of the Company or have been affiliates of the Company within the past 90 days may sell restricted securities,
subject to satisfying other conditions, provided they have owned the shares for at least six months and provided further that within
any three-month period, the number of shares may not exceed:
|
·
|
The greater of one percent of the total number of outstanding shares of the same class; or
|
|
·
|
If the common stock is quoted on Nasdaq or a stock exchange, the average weekly trading volume during the four calendar weeks immediately preceding the sale.
|
We cannot predict what effect, if any,
that sales of shares of common stock, or the availability of these shares for sale, will have on the market prices prevailing from
time-to-time. Nevertheless, the possibility that substantial amounts of common stock may be sold in the public market may adversely
effect prevailing prices for our common stock and could impair our ability to raise capital in the future through the sale of equity
securities.
Our ability to issue additional securities
without shareholder approval could have substantial dilutive and other adverse effects on existing stockholders and investors in
this offering.
We have the authority to issue additional
shares of common stock and to issue options and warrants to purchase shares of our common stock without shareholder approval. Future
issuance of common stock could be at values substantially below the exercise price of the warrants, and therefore could represent
further substantial dilution to you as an investor in this offering. In addition, we could issue large blocks of voting stock to
fend off unwanted tender offers or hostile takeovers without further shareholder approval. As of December 31, 2018, we had outstanding
options exercisable to purchase up to 72,000 shares of common stock at a weighted average exercise price of $2.00 per share, outstanding
warrants exercisable to purchase up to 480,000 shares of common stock at a weighted average exercise price of $2.50 per share,
and notes convertible into an aggregate of 325,000 shares of common stock. Exercise of these warrants and options could have a
further dilutive effect on existing stockholders and you as an investor.
Market for the Company’s
Common Stock and Related Stockholder Matters
Effective May 2012, our common stock was
approved for quotation on the OTC Bulletin Board under the ticker symbol “MAGE.” The Company’s shares are now
quoted on the OTCQB of the OTC Markets Group, Inc. The following sets forth the high and low trading prices for the periods shown:
|
|
2017
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First quarter ended March 31
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
17.40
|
|
|
$
|
0.79
|
|
Second quarter ended June 30
|
|
$
|
6.50
|
|
|
$
|
5.50
|
|
|
$
|
1.75
|
|
|
$
|
0.60
|
|
Third quarter ended September 30
|
|
$
|
3.00
|
|
|
$
|
3.00
|
|
|
$
|
1.75
|
|
|
$
|
0.90
|
|
Fourth quarter ended December 31
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
|
$
|
12.75
|
|
|
$
|
0.85
|
|
The closing price of the Company's common
stock as of April 23, 2019 was $2.05 as reported on the OTC.QB. The OTC.QB prices are bid and ask prices which represent prices
between broker-dealers and do not include retail mark-ups and mark-downs or any commissions to the broker-dealer. The prices do
not reflect prices in actual transactions. As of April 15, 2019 there were approximately 68 record owners of the Company's common
stock.
The OTC.QB is a registered quotation service
that displays real-time quotes, last sale prices and volume information in over-the-counter (OTC) securities. An OTC equity security
generally is any equity that is not listed or traded on NASDAQ or a national securities exchange. The OTCQB is not an issuer listing
service, market or exchange. Although the OTCQB does not have any listing requirements, per se, to be eligible for quotation on
the OTCQB, issuers must remain current in their filings with the SEC or applicable regulatory authority.
Our Board of Directors may declare and
pay dividends on outstanding shares of common stock out of funds legally available therefore in its sole discretion; however, to
date, no dividends have been paid on common stock and we do not anticipate the payment of dividends in the foreseeable future.
Trading in our common stock is subject
to rules adopted by the SEC regulating broker dealer practices in connection with transactions in "penny stocks." Those
disclosure rules applicable to penny stocks require a broker dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document prepared by the SEC. That disclosure document advises an investor
that investment in penny stocks can be very risky and that the investor's salesperson or broker is not an impartial advisor but
rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with
an investment in penny stocks, to independently investigate the security, as well as the salesperson with whom the investor is
working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer
with certain other information and must make a special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction. Further, the rules require that, following the
proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices
of the securities.
Equity Compensation
Plan Information
2017 Equity Incentive Plan
We have not adopted any equity compensation or stock option
plans, except as follows:
The Board of Directors of the Company concluded,
in order to attract and hire key technical personnel and management as our Company grows, it will be necessary to offer option
packages in order to compete effectively with other companies seeking the support of these highly qualified individuals. After
careful consideration, the Board recommended the approval of the Company’s 2017 Equity Incentive Plan as being in the best
interests of Stockholders.
Effective September 1, 2017, the 2017 Equity
Incentive Plan was approved by written consent of Stockholders holding 75% of the Company’s outstanding common stock, and
was adopted by the Board of Directors. The Company is authorized to grant rights to acquire up to a maximum of 200,000 shares of
common stock under the Plan. The Plan is authorized to grant incentive stock options that qualify under Section 422 of the Internal
Revenue Code of 1986, as amended.
The 2017 Plan provides for the grant of
(1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation
rights (collectively, "Stock Awards"). Incentive stock options granted under the 2017 Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code. Nonstatutory stock options granted under the
2017 Plan are intended not to qualify as incentive stock options under the Code.
As of the date of this prospectus, there have been no grants
made under the Plan.
Arrangements with CEO
When he was first engaged as President,
CEO and Director of G+W in June 2015, W. Pierce Carson was granted shares of G+W representing 15% of the total issued and outstanding
shares of G+W.
In July 2016, we completed a reverse triangular
merger pursuant to which a newly formed merger subsidiary was merged into Gulf + Western, and the 15% equity interest in Gulf +
Western owned by Mr. Carson was converted into 172,479 shares of Magellan common stock. As a result of the merger, Gulf + Western
became a wholly-owned subsidiary of Magellan.
On June 1, 2016 we executed an employment
agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation.
The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, and effective June 30, 2016,
Dr. Carson was appointed a Director of Magellan.
During the term of the agreement, Magellan
agreed to pay Dr. Carson a base salary in equal semi-monthly installments less required withholding and other applicable taxes.
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. Until such time as Magellan is properly funded, Magellan may defer and accrue salary owed.
If not properly funded before the end of the term, Magellan may at its option issue shares of Magellan common stock as settlement
of the accrued salary liability. The initial term of the agreement covered the period from June 1, 2016 to May 31, 2017. On June
1, 2018, Dr. Carson and the Company agreed to extend the term of the agreement to May 31, 2019 with all terms of the original agreement
remaining unchanged.
Dr. Carson has the right to voluntarily
terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan
at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through
the date of termination, including any amount that may have been deferred and accrued.
On October 26, 2017, Dr. Carson 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. The waiver of accrued wages was recorded as a capital contribution to the Company. Dr. Carson was subsequently issued
80,000 shares of the Company’s restricted common stock.
At December 31, 2017 a total of $30,000
and $2,796 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included
in accrued liabilities on the accompanying consolidated balance sheets.
Effective July 24, 2018, the Company and
W. Pierce Carson, President, executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued
but unpaid executive compensation for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash
advance of $8,100 made to the Company into an aggregate of 98,100 shares of Common Stock, valued at $1.00 per share.
Dividend Policy
We have not declared or paid cash dividends
on our common stock since our inception. We intend to retain all future earnings, if any, to fund the operation of our business,
and, therefore, do not anticipate paying dividends in the foreseeable future. Future cash dividends, if any, will be determined
by our board of directors.
Use of Proceeds
We are registering these shares pursuant
to the registration rights granted to the Selling Securityholders in the Offering. We will not receive any proceeds from the sale
or other disposition by the Selling Securityholders of the shares of our Common Stock, the Notes and the Warrants covered by this
prospectus. However, we will receive the cash exercise price of the Warrants and will use the proceeds for normal operations.
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 years ended December 31, 2018 and 2017.
Forward-Looking Statements
Some of the information presented in this
Form 10-K 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
On January 3, 2019, the Financial Industry
Regulatory Authority (“FINRA”) informed Magellan Gold Corporation, a Nevada corporation (the “Company”)
that a 1-for-50 reverse split of the Company’s common stock, previously disclosed in the Company’s Definitive Information
Statement on Schedule 14C filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2017, would
be effective at the market open on January 7, 2019. The stock split has been retroactively adjusted throughout these financial
statements and footnotes.
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 December 31, 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 agreement between Magellan and Mr. Gibbs. As of December 31, 2018, the total amount owed under the credit
agreement was $1,118,376, which includes $852,500 of principal and $265,876 of accrued interest.
On June 1, 2015, we transferred 15% of
our ownership interest in G+W to Dr. W. Pierce Carson (Dr. 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 compensation for the one-year period from 2015 through May 2016. On June 1, 2016
we executed an employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer
of Magellan Gold Corporation. The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation,
effective June 30, 2016. As a result, Mr. John Power resigned his positions as President and Chief Executive Officer and retained
the position of Chief Financial Officer until December 31, 2017 upon his replacement by Michael P. Martinez as CFO. Mr. Power and
Dr. Carson currently serve as Directors of Magellan.
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 172,479 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). Effective December 31, 2017, the Company agreed with Rio Silver to terminate the option agreement, thereby terminating
the Company’s option to earn an interest in the Niñobamba Silver/Gold Project. The Company retained its ownership
of Rio Silver stock.
On November 30, 2017, the Company purchased
from Rose Petroleum plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA
Mill”) as well as its associated assets, licenses and agreements. Magellan previously paid a $50,000 option payment, and
an additional $100,000 option-to-purchase extension. The $100,000 option extension payment was applied against the cash portion
of the purchase price.
The purchase price for the SDA Mill consisted
of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 for the option-to-purchase
payment, and 284,017 shares of common stock (the “Shares”). The note is non-interest bearing and has been paid in full.
The Shares will be held in escrow for a period of 12 months and the Company has the option to repurchase the Shares from Rose for
the sum of $500,000 in the first six months and $550,000 in months seven to eleven.
Rose owned one share of Series A capital
stock of Minerales Vane S.A. de C.V. (“Minerales Vane 1”) and Vane Minerals (UK) Limited (“Vane UK”) owned
49,999 shares of Series A capital stock and 26,524,000 shares of Series B capital stock of Minerales Vane 1.
Prior to closing, all of the assets and
operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales
Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition
Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2.
On October 17, 2017, the Company amended
the agreement to include the acquisition of Minerales VANE Operaciones (“MVO”) (the entity that provides labor to the
Mill) for $2,500 as soon as practicable following the Closing Date, rather than prior to the Closing Date. At December 31, 2017,
the Company had not obtained control of MVO. Magellan subsequently acquired control of MVO in January 2018 and paid for it in April
2018.
Our primary focus with the acquisition
of the SDA Mill in Mexico is to transform Magellan into a production company, to continue to advance our Arizona silver project
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 significant revenue.
Results of Operations for the Years Ended December 31,
2018 and 2017
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Revenues, net
|
|
$
|
123,955
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
437,711
|
|
|
|
–
|
|
Exploration costs
|
|
|
20,035
|
|
|
|
61,233
|
|
General and administrative expenses
|
|
|
886,770
|
|
|
|
964,302
|
|
Depreciation and amortization
|
|
|
118,822
|
|
|
|
12,104
|
|
Accretion of asset retirement obligation
|
|
|
–
|
|
|
|
367
|
|
Impairment loss
|
|
|
323,200
|
|
|
|
345,697
|
|
Total operating expenses
|
|
|
1,786,538
|
|
|
|
1,383,703
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,662,583
|
)
|
|
|
(1,383,703
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(718,583
|
)
|
|
|
(96,480
|
)
|
Foreign currency exchange gain
|
|
|
3,128
|
|
|
|
–
|
|
Loss on extinguishment of debt
|
|
|
(73,250
|
)
|
|
|
–
|
|
Unrealized loss on available for sale securities
|
|
|
(38,923
|
)
|
|
|
–
|
|
Other expense
|
|
|
(48,644
|
)
|
|
|
–
|
|
Gain (loss) on change in derivative liability
|
|
|
224,529
|
|
|
|
(657,776
|
)
|
Net loss
|
|
$
|
(2,314,326
|
)
|
|
$
|
(2,137,959
|
)
|
Revenues
During the year ended December 31, 2018
our total revenues were $123,955 as compared to $0 during the same period in 2017. Revenues were generated from the sale of concentrate
from the processing of tailings left from operations prior to our acquisition of the SDA Mill.
Operating expenses
During the year ended December 31, 2018,
our total operating expenses were $1,786,538 as compared to $1,383,703 during the year ended December 31, 2017.
During the year ended December 31, 2018
our total cost of sales were $437,711 as compared to $0 during the same period in 2017. Cost of sales were comprised primarily
of labor and benefits, equipment depreciation, utilities and supplies from operating the SDA Mill.
During the year ended December 31, 2018
we incurred $20,035 of exploration costs as compared to $61,233 in 2017. Exploration cost for the year ended December 31, 2018
comprised of fees to our consulting geologist, lease payments and maintenance expenses. Exploration costs for the year ended December
31, 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 and $7,500 in various mining related expenses associated with our mining efforts in
Peru and Mexico, respectively.
General and administrative expenses for
the year ended December 31, 2018 total $886,770 as compared to $964,302 for the year ended December 31, 2017. The $77,532 decrease
is primarily associated with decreases in officer compensation and investor relations offset by increases in legal and accounting
fees. For the year ended December 31, 2018, administrative expenses comprised of investor relations fees of $182,338, officer compensation
of $207,741, accounting, auditing and legal fees of $400,808, other administrative costs including travel, office and facility
rents totaling $95,883. For the year ended December 31, 2017, administrative expenses comprised of investor relations fees of $147,754,
officer compensation of $384,935, accounting and auditing fees of $63,128, legal fees of $106,651, management fees to Mr. Power
of $20,000, other administrative costs including travel, office and facility rents, and other expenses associated with our acquisition
efforts of the SDA Mill totaling $241,335, and a $499 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 combined total of $280,000
representing stock compensation, waived salary, base salary and applicable payroll taxes was expensed and is included in general
and administrative expenses for the year ended December 31, 2017. A total of $196,667 was included in general and administrative
expenses for the year ended December 31, 2018. As of December 31, 2018 and 2017, salary and payroll expense totaling $73,870 and
$32,796 was unpaid and is included in accrued liabilities on the accompanying consolidated balance sheets.
Effective July 24, 2018, the Company and
W. Pierce Carson, President, executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued
but unpaid executive compensation for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash
advance of $8,100 made to the Company into an aggregate of 98,100 shares of Common Stock, valued at $1.00 per share.
Effective July 24, 2018, the Company and
W. Pierce Carson executed a Restricted Stock Award Agreement pursuant to which the Company granted to Carson a restricted stock
award consisting of 80,000 shares of Common Stock, valued at $1.00 per share. 20,000 of the shares will vest upon the Company completing
a milestone (which was achieved), and the remaining 60,000 shares are subject to ratable vesting over an 18-month period. During
the year ended December 31, 2018 the Company recognized an expense of $36,667 related to this issuance.
Other income (expenses)
Interest expense for the year ended December
31, 2018 and 2017 totaled $718,583 and $96,480, respectively, and is primarily attributable to our related party line of credit,
which accrues interest at the rate of 6.0% per year, our related party notes payable which accrue interest at a weighted average
interest rate of 9.46%, and convertible notes which accrue interest at a weighted average of 10% per year in addition to amortization
of debt discounts of $421,083 and $12,766 during the years ended December 31, 2018 and 2017, respectively.
Gain on change in derivative
liability for the year ended December 31, 2018 totaled $224,529 compared to a loss on change in derivative liability for the year
ended December 31, 2018 of $657,776. The gain and loss on derivative liability was the result of our various convertible instruments
outstanding during 2018 and 2017. As of December 31, 2018 the Company does not have any instruments that are recorded as a derivative
liability.
Liquidity and Capital Resources:
Our audited 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 December 31, 2018, we had not yet generated any significant revenues or
achieved profitable operations and we have accumulated losses of $6,706,524. 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 the necessary financing to meet our obligations
arising from normal business operations when they come due.
On December 31, 2018 our credit agreement
with Mr. John Gibbs, a related party, provides the Company an additional $147,500 available under the credit line. Effective December
31, 2016 we amended the agreement to extend the maturity date to December 31, 2018. In April 2019 the credit facility was extended
to December 31, 2019 in exchange for a fee equal to 2% of the outstanding balance. 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 year ended December 31, 2018,
the Company raised $460,000 through the sale of 460,000 common stock and warrants (“Units”) at a price of $1.00 per
Unit. The expiration date of the warrants varies from August 31, 2018 to August 8, 2019. Of this raise $328,500 was purchased by
directors or significant shareholders. A price protection feature of the offering provides that if at December 31, 2018, the Company
has issued common stock at a price less than $1.00 per share, then additional common stock and/or warrants would be issuable to
each investor shall be increased so as to reduce the Unit price to the lower price. During the year ended December 31, 2018 pursuant
to the provision discussed above the Company issued 298,636 shares of common stock and committed to issue an additional 45,559
shares. This issuance was recorded as a deemed dividend and valued at $323,792.
During the year ended December 31, 2018,
the Company received net proceeds of $120,000 from the exercise of 120,000 warrants.
In October 2018 the Company sold $160,700
of Series 2018 36% Unsecured Promissory Notes (“Notes”) (“Bridge Note Offering”) to Mr. Gibbs and Mr. Power.
The purchase price of the Note is equal to the principal amount of the Note. The Maturity Date of the Notes is December 31, 2018.
During the year ended December 31, 2018, $10,700 was repaid to Mr. Power leaving a balance of $0. As of December 31, 2018, the
portion funded by Mr. Gibbs of $150,000 remained outstanding. The note was extended until March 31, 2019 at which point it became
past due and in default.
On July 26, 2018, the Company sold a 10%
Convertible Promissory Note to Power Up Lending Group Ltd. (“July Power Up Note”) in a principal amount of $63,000.
After deducting the investor’s discount and legal fees, net proceeds to the Company were $60,000. The Note matures on July
26, 2019 and can be converted into the Company’s common stock after 180 days from the date the Note is issued.
On August 20, 2018, the Company sold a
10% Convertible Promissory Note to Power Up Lending Group Ltd. (“August Power Up Note”) in a principal amount of $38,000.
After deducting the investor’s discount and legal fees, net proceeds to the Company were $35,000. The Note matures on August
20, 2019 and can be converted into the Company’s common stock after 180 days from the date the Note is issued.
In October 2018, the Power Up Notes were
repaid in full with a payment of $139,242. Of the payment, $101,000 was applied to the note balances and the remainder to interest
and prepayment fees.
In the quarter ended December 31, 2018,
the Company sold $355,000 of Series 2018A 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal
amount of the Note. The Notes are convertible into shares of Common Stock at a conversion price of $1.00 during the life of the
Note. The Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes mature twelve (12) months
from the Date of Issue. Maturity Date can be extended at the option of the Company for an additional one (1) year. Within thirty
(30) days following the closing of the Offering, the Company has agreed to prepare and file a Registration Statement on Form S-1
registering the resale of the shares of Common Stock issuable upon conversion of the Notes. Of this issuance, $150,000 was sold
to a related party, Mr. Gibbs. As of December 31, 2018, the balance due under these notes is $355,000 in principal and $5,692 in
accrued interest.
During the year ended December 31, 2017
we sold 25,000 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 10,000 warrants. The proceeds were generally used to fund certain investing activities and
for general working capital.
On November 1, 2017, the Company sold a
10% Convertible Promissory Note (“Auctus Note”) in a principal amount of $170,000 . After deducting the investor’s
discount and legal fees, net proceeds to the Company were $153,650. The proceeds were generally used to fund certain investing
activities and for general working capital.
On November 2, 2017, the Company sold a
10% Convertible Promissory Note (“EMA Note”) in the principal amount of $125,000 . After deducting the investor’s
discount and legal fees, net proceeds to the Company were $113,500. The proceeds were generally used to fund certain investing
activities and for general working capital.
On November 30, 2017 we entered into a
series of secured promissory notes (“Series 2017 Notes”) with related parties in the aggregate amount of $1,155,000,
including financing fees of $105,000 recorded as a discount to the notes. Mr. Gibbs, Dr. Carson, and Mr. Power transferred $100,000,
$25,000, and $25,000, respectively, from the May 31, 2017 short term related party notes into the Series 2017 Notes. Net proceeds
on the issuance after reducing for the transfers total $900,000. The proceeds were generally used to fund the purchase of the SDA
Mill in Mexico. The Series 2017 Notes are secured by a pledge of all the outstanding shares of Magellan Acquisition Corporation,
a wholly-owned subsidiary that owns the SDA Mill through Minerales Vane2.
During the year ended December 31, 2017
we issued a total of $275,000 of related party promissory notes including three short-term notes executed on May 31, 2017 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 matured on November 15, 2017 at which time the amounts due
were transferred into the Series 2017 Notes. 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% per annum and matured on December 31,
2017. The proceeds were generally used to fund general working capital and the purchase of the SDA Mill in Mexico.
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.
Cash Flows
A summary of our cash provided by and used
in operating, investing and financing activities is as follows:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net cash used in operating activities
|
|
$
|
(642,355
|
)
|
|
$
|
(465,926
|
)
|
Net cash used in investing activities
|
|
|
(65,760
|
)
|
|
|
(1,058,297
|
)
|
Net cash provided by financing activities
|
|
|
741,923
|
|
|
|
1,525,250
|
|
Effect of foreign currency exchange
|
|
|
(29,367
|
)
|
|
|
(1,091
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
4,441
|
|
|
|
(64
|
)
|
Cash and cash equivalents beginning of period
|
|
|
421
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
4,862
|
|
|
$
|
421
|
|
At December 31, 2018, we had $4,862
in cash and a $3,788,972 working capital deficit. This compares to cash of $421 and a working capital deficit of $2,827,255 at
December 31, 2017.
Net cash used in operating activities during
the year ended December 31, 2018 was $642,355 and was mainly comprised of our $2,314,326 net loss during the period, adjusted by
non-cash charges of accretion of discounts on notes payable $421,083, loss on extinguishment of debt $73,750, amortization of service
contracts $119,167, depreciation $118,822, gain due to our derivative liability of $224,529, impairment loss of $323,200 and stock
based compensation $36,667. In addition, it reflects a decrease in receivables from Rose Petroleum for toll milling, and prepaid
expenses and other assets totaling $82,255, as well as increases in accounts payable and accrued expenses totaling $396,114, and
increases in accrued interest totaling $451,029 representing accrued interest on our related party line of credit and related party
and other notes payable.
Net cash used in operating activities during
the year ended December 31, 2017 was $465,926 and was mainly comprised of our $2,137,959 net loss during the period, adjusted by
non-cash charges of accretion of asset retirement obligation $367, accretion of discounts on notes payable $12,766, amortization
of certain service contracts $52,884, depreciation $12,104, loss due to an increase in our derivative liability of $657,776, impairment
loss of $345,697, and stock based compensation $303,642. In addition, it reflects a decrease in receivables from Rose Petroleum
for toll milling, and prepaid expenses and other assets totaling $25,793, as well as increases in accounts payable and accrued
expenses totaling $229,259, and increases in accrued interest totaling $83,331 representing accrued interest on our related party
line of credit and related party and other notes payable.
During the year ended December 31, 2018,
our net cash used in investing activities was $65,760 which was due to the purchase of plant, property and equipment, as well as
an installment payment for acquisition of the El Dorado gold-silver property. During the year ended December 31, 2017, our net
cash used in investing activities was $1,058,297, comprised mainly of $1,000,000 for the purchase of the SDA mill. 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 expired on July 19, 2018. The cost of the units in the second private placement totaled USD $58,297.
During the year ended December 31, 2018,
net cash provided by financing activities was $741,923 including proceeds from related party notes payable of $160,700 (payments
of $60,700), proceeds from line of credit of $20,000 and proceeds from convertible notes to third parties and related parties of
$450,000 (payments of $306,896). Mr. Power, an executive and director, advanced the Company a total of $19,300 of which $19,300
was repaid. In addition Mr. Power was repaid $101,181 as repayment for expenses paid on his personal credit card. In addition,
during the year ended December 31, 2018 we completed a private placement of equity securities resulting in total proceeds of $460,000
and warrants were exercised resulting in total proceeds of $120,000.
During the year ended December 31, 2017, net cash provided by financing activities was $1,525,250 including proceeds from related
party notes payable of $1,075,000 and proceeds from convertible notes of $267,150. Mr. Power, an executive and director, advanced
the Company a total of $26,050 of which $26,050 was repaid. Also during the period, Dr. Carson, an executive and director, advanced
the Company $8,100 with no repayments. In addition, during the year ended December 31, 2017 we completed a private placement of
equity securities with two investors in which we sold a total of 25,000 units priced at $5.00 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 $5.00 per share in cash. The warrants originally expired on December 30, 2017 but were extended until
December 30, 2018.
On July 31, 2017 a holder of 120,000 warrants
exercisable at $5.00 exercised 10,000 warrants for $50,000 resulting in the issuance of 10,000 shares of the Company’s common
stock. Upon exercise, the Company agreed to extend the expiration date on his remaining 10,000 warrants from December 30, 2017
to December 30, 2018.
During the year ended December 31, 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 matured on November 15, 2017 at which time the amounts due were transferred
into the Series 2017 Notes. 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% per annum and matured on December 31, 2017
and has not been extended and is in technical default. The note is collateralized by our investment in Rio Silver shares and warrants.
Magellan Gold Peru (“MGP”),
a former 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 $0 and $412, which was recorded as a
component of the consolidated comprehensive loss at December 31, 2018 and 2017, respectively. Effective in 2018, the Company sold
its interest in Magellan Gold Peru S.A.C. for consideration of $1.00. The Company realized a loss on disposition of $567.
Additionally, Minerales Vane 2, S.A. de
C.v. (“MV2”) and Minerales Vane Operaciones (“MVO”), wholly owned subsidiaries of Magellan Acquisition
Corporation (“MAC”), maintains operations in the Mexican Peso, its functional currency. The accounts of MV2 and MVO
are translated to US dollars upon consolidation for reporting purposes. A translation adjustment of $29,806 and $79,052 was recorded
as a component of the consolidated comprehensive loss at December 31, 2018 and 2017, respectively.
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., Magellan Acquisition Corporation,
Minerales Vane 2, S.A. de C.V., and Minerales VANE Operaciones. 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 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, Minerales Vane 2, S.A. de C.V is located in Mexico and maintains its accounting records
in the Mexican Peso, which is its functional currency. Assets and liabilities of the 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. Foreign currency denominated transactions
are translated at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recognized
in income.
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, investments in available-for-sale
securities, accounts payable, accrued liabilities, derivative 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 third parties and 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 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 December 31, 2018. At December 31, 2018
and 2017 mineral rights totaling $0 and $323,200 were net of impairment and abandonment charges. Impairment charges were recognized
for the years ended December 31, 2018 or 2017 were $323,200 and $0, respectively.
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.
Property and Equipment
Property and equipment is recorded at cost,
less accumulated depreciation. Property and equipment is amortized on a straight-line basis over its estimated life:
|
•
|
Mill equipment – 10 years
|
|
•
|
Tailings Dam – 10 years
|
|
•
|
Office and Warehouse – 10 years
|
Goodwill
Goodwill was generated through the acquisition
of the SDA Mill in the 2017 fiscal year as the total consideration paid exceeded the fair value of the net assets acquired.
The Company tests its goodwill for impairment
at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount
of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a
significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the
business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant
impact on the recoverability of goodwill and the Company’s consolidated financial results. There was an impairment charge
of $0 and $345,697 during the years ended December 31, 2018 and 2017, respectively.
Asset Retirement Obligations
The Company accounts for asset retirement
obligations in accordance with ASC 410-20, Asset Retirement Obligations. ASC 410-20 requires the Company to record the fair value
of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement
of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. Asset
retirement obligations consists of estimated final mill closure and associated ground reclamation costs to be incurred by the Company
in the future once the economical life of its SDA Mill is reached. The estimated fair value of the asset retirement obligation
is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability
is capitalized as part of the cost of the related asset and amortized over its useful life. The liability accretes until the Company
settles the obligation.
Comprehensive Income/Loss
ASC 220, Comprehensive Income, establishes
standards for the reporting and display of comprehensive income/loss and its components in the financial statements. As of December
31, 2018 and 2017, the Company’s only components of comprehensive income were foreign currency translation adjustments and
unrealized gain or loss on available-for-sale securities.
Notes Payable – Related Parties
Notes payable to related parties are classified
as current liabilities as either the note holders have the ability to control the repayment dates of the notes or maturity dates
are within one year of the reported balance sheet date.
Revenue Recognition
The Company recognizes revenue in accordance
with ASC Topic 606, Revenue From Contracts With Customers, which was adopted on January 1, 2018 using the modified retrospective
method, with no impact to the Company’s comparative financial statements. Revenues are recognized when control of the promised
goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled
to in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:
|
•
|
Identification of the contact with a customer
|
|
•
|
Identification of the performance obligations in the contract
|
|
•
|
Determination of the transaction price
|
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
|
•
|
Recognition of revenue when, or as, the Company satisfies a performance obligation
|
All of the Company’s revenue is currently
generated from the sales of similar products. As such no further disaggregation of revenue information is provided.
Performance Obligations
Revenues are recognized when all the following
criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company
will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end
user has received the benefit of the services or when control of products has transferred to the end user. A contract with commercial
substance exists once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If
collectibility is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control
of products typically transfers when title and risk of ownership of the product has transferred to the customer or the services
are completed. Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns. Shipping
charges billed to customers are included in net sales. Various taxes on the sale of products and enrollment packages to customers
are collected by the Company as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis
and recorded as a liability until remitted to the respective taxing authority.
Contract Costs
Costs incurred to obtain a customer contract
are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain
contracts with a duration of one year or less, which are expensed and included within cost of goods and services.
Contract Liabilities
The Company may at times receive payment at the time the customer places an order or requests services. Amounts received for undelivered
product are considered a contract liability and are recorded as deferred revenue. As of December 31, 2018 and 2017, the Company
had $15,000 and $0 of deferred revenue related to unsatisfied performance obligations included with accrued liabilities.
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 December 31, 2018 and 2017, the Company had no uncertain tax positions.
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 years ended December 31, 2018 and 2017, 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.
Description of Business
About Our Company
Magellan Gold Corporation (“Magellan”,
“the Company”, “our” or “we”) was formed and organized effective September 28, 2010, under
the laws of the State of Nevada. We are an exploration stage company and our principal business is the acquisition and exploration
of mineral resources in Arizona, Nevada and Mexico. We have not presently determined whether the properties to which we have mining
rights contain mineral deposits that are economically recoverable.
We were formed and organized by Athena
Silver Corporation (“Athena”), a Delaware corporation, and by John C. Power and John D. Gibbs, two of the control persons
and principal shareholders of Athena. Effective September 2010, we issued an aggregate of 660,000 shares of common stock to our
founders in consideration of $0.125 per share: 600,000 shares were issued to Messrs. Power and Gibbs and 60,000 shares were
issued to Athena. During 2011, the majority of the shares issued to Athena were distributed, in the nature of a spin-off dividend
of such shares, to the shareholders of Athena, as of a Record Date of December 31, 2010, pro rata.
Our focus is on projects in Arizona and Mexico.
Silver District, La Paz County, Arizona
In August 2012, we entered into an Option
Agreement with Columbus Silver (US) Corporation (“Columbus”) to purchase “The Silver District Claims” consisting
of 85 unpatented lode mining claims, 4 patented lode claims, an Arizona State Exploration Permit of 154.66 acres and 23 unpatented
mill site claims, totaling over 2,000 acres in La Paz County, Arizona. The underlying claims are subject to third party lease and
or purchase obligations and net smelter royalties of varying percentages. In June and July 2013, Magellan staked 9 additional unpatented
lode mining claims in the Silver District adjacent to the land package under option from Columbus; the Company currently retains
2 of these original 9 claims. Effective September 29, 2014, we entered into a Purchase Agreement with Columbus Silver (US) Corporation,
a wholly-owned subsidiary of Columbus Exploration Corporation (TSXV:CLX) to purchase the patented and unpatented mining claims
that had been covered by the Option Agreement. The Purchase Agreement superseded the Option Agreement and conveyed the Silver District
Claims to the Company. In consideration of the Silver District Claims, we made a one-time payment to Columbus in the amount of
$100,000. Following our purchase of the Silver District Claims, we formed a new wholly-owned subsidiary “Gulf + Western Industries,
Inc.” (“Gulf + Western”) and transferred our interest in the Silver District Claims to Gulf + Western.
In November 2015 we were granted a new
Arizona State Exploration Permit that effectively increases the size of our exploration permit in the Silver District from 154.66
acres to 334.85 acres.
The Company continues to pursue the Silver
District property but fully impaired the capitalized value of $323,200 during the year ended December 31, 2018.
SDA Mill Acquisition
On November 30, 2017, the Company purchased
from Rose Petroleum plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA
Mill”) as well as its associated assets, licenses and agreements. Magellan previously had paid a $50,000 option payment,
and an additional $100,000 option-to-purchase extension. The $100,000 option extension payment was applied against the cash portion
of the purchase price.
The purchase price for the SDA Mill consisted
of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 option-to-purchase payment,
and 284,017 shares of common stock (the “Shares”) with a fair value of $426,025 on the date of acquisition. The note
was non-interest bearing and has been paid in full. The Shares will be held in escrow for a period of 12 months and the Company
has the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months and $550,000 in months seven
to twelve.
Rose owned one share of Series A capital
stock of Minerales Vane S.A. de C.V. (“Minerales Vane 1”) and Vane Minerals (UK) Limited (“Vane UK”) owned
49,999 shares of Series A capital stock and 26,524,000 shares of Series B capital stock of Minerales Vane 1.
Prior to closing, all of the assets and
operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales
Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition
Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2.
On October 17, 2017, the Company amended
the agreement to include the acquisition of Minerales VANE Operaciones (“MVO”) (the entity that provides labor to the
SDA Mill) for $2,500 as soon as practicable following the Closing Date, rather than prior to the Closing Date. At December 31,
2017, the Company had not obtained control of MVO. Magellan subsequently acquired control of MVO in January 2018 and paid for it
in April 2018.
Our primary focus with the acquisition
of the SDA Mill in Mexico is to transform Magellan into a production company, to continue to advance our Arizona silver project
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.
Subsequent to the closing, Rose and Magellan
entered into an IVA Agreement pursuant to the provisions of the definitive Purchase Agreement. Under the terms of the IVA Agreement,
Rose advanced the sum of MXN 4,251,840 which was used to pay the IVA tax assessed by the Mexican taxing authorities on the acquisition
transaction. Magellan has agreed that Rose is entitled to any future credits or rebates of IVA tax that Magellan may be entitled
to until the advance is fully recouped.
El Dorado Acquisition
In August, 2018, the Company entered into
an agreement giving it the right to acquire the El Dorado Gold-Silver Property, a 50 hectare mining concession located near the
village of Las Minitas, which lies 50 kilometers south of Magellan’s SDA Flotation Plant at Acaponeta, Nayarit State. Magellan
intends to advance El Dorado towards production as a matter of priority. The Company has initiated permitting and is in the process
of selecting an underground mining contractor. The project has excellent road and rail infrastructure, and the Company plans to
truck the mineralized material from El Dorado to the SDA Plant for processing. El Dorado is situated within a district of epithermal
vein systems from which historic mining produced high grades.
Commencement of mining will depend on a
number of preconditions, the most important of which include obtaining environmental and blasting permits, selecting and mobilizing
a mining contractor and procuring financing. An access and land use agreement with the local ejido already is in place. Once development
begins, mineralized material will be accessible with a minimal amount of underground development. Mineralized material will be
sourced initially from the shallow, upper portions of the mineralized veins.
Drilling on the El Dorado vein system was
conducted by a TSX.V-listed company in 2010-2011 and comprised 28 diamond core holes totaling 4,950 meters. Two veins appear to
offer particular promise for mining, namely the Hundido and Intermedia veins. These veins lie adjacent to and along strike from
the old Hundido Mine, which from 1900-1927 produced an estimated 50,000 tonnes of high-grade gold-silver ore. The veins are steeply-dipping,
highly silicified structures cutting volcanic rocks. Polygonal resource calculations for the two veins, based on intersections
in 10 core holes and after applying a 25% tonnage deduction for dilution and recovery factors, yielded respectively 89,000 tonnes
grading 7.01 g/t gold equivalent (Au+Ag) over a true width of 2.3 meters (Hundido Vein); and 91,000 tonnes grading 15.17 g/t gold
equivalent (Au+Ag) over a true width of 8.3 meters (Intermedia Vein). These mineralized materials do not constitute ore reserves
under SEC Industry Guide 7, The mineralization extends from near surface to a drilled depth of 150 meters and is open at greater
depth.
The El Dorado vein system can be traced
on the surface for a distance greater than three kilometers and exhibits structural complexity with numerous conjugate vein splits
both in the hangingwall and footwall. This complex structure hosts multiple mineralized zones including high-grade veins potentially
minable underground, and lower-grade open-pittable stockwork zones that are observed to extend over tens of meters in width in
both the hangingwall and footwall of the El Dorado vein system.
Magellan concluded the agreement with Ingenieros
Mineros, S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making
staged six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable.
Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of
$50,000 (plus 16% IVA). In addition, Magellan has agreed with a TSX.V-listed company to purchase a comprehensive El Dorado data
package including diamond drill core and technical information for a price of $120,000, payable in cash and Magellan common stock.
Conflicts of Interests
Athena Silver Corporation is a company
under common control. Mr. Power is a director and is also a director and CEO of Athena. Mr. Power and Mr. Gibbs are significant
investors in both Magellan and Athena.
Silver Saddle Resources, LLC (“Silver
Saddle”) is a private company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members
of Silver Saddle.
Magellan, Athena and Silver Saddle are exploration stage companies
and each is involved in the business of acquisition and exploration of mineral resources.
The existence of common ownership and common
management could result in significantly different operating results or financial position from those that could have resulted
had Magellan, Athena and Silver Saddle been autonomous. In addition, the common ownership could result in significant conflicts
of interest both in terms of the allocation of working capital as well as under the doctrine of corporate opportunity, inasmuch
as all three entities are engaged in mineral exploration in the United States. Messrs. Power and Gibbs have not adopted any policy
or guidelines to mitigate the potential adverse effects of their conflicting interests between and among, Magellan, Athena and
Silver Saddle.
Investors in Magellan should be cognizant
that the interests of Magellan may, in the future, be in conflict with the other activities of Magellan’s control persons.
No Proven or Probable Mineral Reserves/Exploration Stage
Company
We are considered an exploration stage
company under SEC criteria since we have not demonstrated the existence of proven or probable mineral reserves at any of our properties.
In Industry Guide 7, the SEC defines a “reserve” as that part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination. Proven or probable mineral reserves are those reserves
for which (a) quantity is computed and (b) the sites for inspection, sampling, and measurement are spaced so closely
that the geologic character is defined and size, shape and depth of mineral content can be established (proven) or the sites are
farther apart or are otherwise less adequately spaced but high enough to assume continuity between observation points (probable).
Mineral Reserves cannot be considered proven or probable unless and until they are supported by a feasibility study, indicating
that the mineral reserves have had the requisite geologic, technical and economic work performed and are economically and legally
extractable.
We have not completed a feasibility study
with regard to all or a portion of any of our properties to date. Any mineralized material discovered or extracted by us should
not be considered proven or probable mineral reserves. As of December 31, 2018, none of our mineralized material met the definition
of proven or probable mineral reserves. We expect to remain an exploration stage company for the foreseeable future, even though
we were extracting and processing mineralized material. We will not exit the exploration stage until such time, if ever, that we
demonstrate the existence of proven or probable mineral reserves that meet the guidelines under SEC Industry Guide 7.
On October 31, 2018, the SEC adopted final
rules modernizing disclosure requirements for companies with material mining operations (excluding oil and gas). The rules will
implement extensive changes to the existing disclosure regime and are intended to align US disclosure requirements more closely
with current industry and global regulatory practices and standards, specifically the Committee for Mineral Reserves International
Reporting Standards (“CRIRSCO”). The rules have a two year phase-in period. Companies are not required to begin to
comply with the rules until their first fiscal year beginning on or after January 1, 2021.
Unpatented Mining Claims: The Mining Law of 1872
Except for the Arizona State Mineral Lease
and patented claims held within the Silver District Claims, our mineral rights consist of leases covering "unpatented"
mining claims created and maintained in accordance with the U.S. General Mining Law of 1872, or the “General Mining Law.”
Unpatented mining claims are unique U.S. property interests, and are generally considered to be subject to greater title risk than
other real property interests because the validity of unpatented mining claims is often uncertain. The validity of an unpatented
mining claim, in terms of both its location and its maintenance, is dependent on strict compliance with a complex body of federal
and state statutory and decisional law that supplement the General Mining Law. Also, unpatented mining claims and related rights,
including rights to use the surface, are subject to possible challenges by third parties or contests by the federal government.
In addition, there are few public records that definitively control the issues of validity and ownership of unpatented mining claims.
We have not filed a patent application for any of our unpatented mining claims that are located on federal public lands in the
United States and, under possible future legislation to change the General Mining Law, patents may be difficult to obtain.
Our exploration, development and mining
rights relate to patented and unpatented mining claims covering federal and State lands in Arizona and California. Most of our
patented and unpatented claims are located in the Silver District in Arizona.
Location of mining claims under the General
Mining Law, is a self-initiation system under which a person physically stakes an unpatented mining claim on public land that is
open to location, posts a location notice and monuments the boundaries of the claim in compliance with federal laws and regulations
and with state location laws, and files notice of that location in the county records and with the Bureau of Land Management (“BLM”).
Mining claims can be located on land as to which the surface was patented into private ownership under the Stockraising Homestead
Act of 1916, 43 U.S.C. §299, but the mining claimant cannot injure, damage or destroy the surface owner's permanent improvements
and must pay for damage to crops caused by prospecting. Discovery of a valuable mineral deposit, as defined under federal law,
is essential to the validity of an unpatented mining claim and is required on each mining claim individually. The location is made
as a lode claim for mineral deposits found as veins or rock in place, or as a placer claim for other deposits. While the maximum
size and shape of lode claims and placer claims are established by statute, there are no limits on the number of claims one person
may locate or own. The General Mining Law also contains provision for acquiring five-acre claims of non-mineral land for mill site
purposes. A mining operation typically is comprised of many mining claims.
The holder of a valid unpatented mining
claim has possessory title to the land covered thereby, which gives the claimant exclusive possession of the surface for mining
purposes and the right to mine and remove minerals from the claim. Legal title to land encompassed by an unpatented mining claim
remains in the United States, and the government can contest the validity of a mining claim. The General Mining Law requires the
performance of annual assessment work for each claim, and subsequent to enactment of the Federal Land Policy and Management Act
of 1976, 43 U.S.C. §1201
et seq.
, mining claims are invalidated if evidence of assessment work is not timely filed
with BLM. However, in 1993 Congress enacted a provision requiring payment of $140 per year (now $155 per year) claim maintenance
fee in lieu of performing assessment work, subject to an exception for small miners having less than 10 claims. No royalty is paid
to the United States with respect to minerals mined and sold from a mining claim The General Mining Law provides a procedure for
a qualified claimant to obtain a mineral patent (
i.e.,
fee simple title to the mining claim) under certain
conditions. It has become much more difficult in recent years to obtain a patent. Beginning in 1994, Congress imposed a funding
moratorium on the processing of mineral patent applications which had not reached a designated stage in the patent process at the
time the moratorium went into effect. Additionally, Congress has considered several bills in recent years to repeal the General
Mining Law or to amend it to provide for the payment of royalties to the United States and to eliminate or substantially limit
the patent provisions of the law.
Mining claims are conveyed by deed, or
leased by the claimant to the party seeking to develop the property. Such a deed or lease (or memorandum of it) needs to be recorded
in the real property records of the county where the property is located, and evidence of such transfer needs to be filed with
BLM. It is not unusual for the grantor or lessor to reserve a royalty, which as to precious metals often is expressed as a percentage
of net smelter returns.
Patented Mining Claims
Patented mining claims, such as the ones
located in our Silver District Project, are mining claims on federal lands that are held in fee simple by the owner. No maintenance
fees or royalties are payable to the BLM; however lease payments and royalties with third parties are applicable on some of these
claims.
Our Properties
Our primary focus during the next twelve
months, and depending on available resources, will be to acquire, explore, and if warranted and feasible, permit and develop our
mineral properties.
We have two material properties, namely
the Silver District Project in southwest Arizona and the SDA Mill in Nayarit State, Mexico. We also recently acquired rights to
explore the El Dorado prospect in Nayarit State, Mexico, which is in proximity to the SDA Mill. We currently intend to engage in
exploration activities on the Silver District Project and, if commercially recoverable deposits are found, to conduct mineral development
activities. We intend to assess and acquire mineral properties in the region of the SDA Mill with the objective of sourcing
ore for processing at the mill. To date, we have only begun preliminary exploration work.
Silver District Project, La Paz Co., Arizona
The following map illustrates the location of our Silver District
Project:
Silver District, La Paz County, Arizona
Effective August 28, 2012, Magellan entered
into an Option Agreement with Columbus Silver (US) Corporation, a Nevada corporation (“Columbus”), which Option Agreement
granted the Company the right to acquire all of Columbus’ interest in its Silver District properties located in La Paz County,
Arizona. Magellan paid Columbus an initial $63,200 on signing the Option and an additional $50,000 before December 31, 2012. An
amendment was signed in August 2013 extending the payments to exercise the option.
During February 2014 and January 2013,
we paid the final two payments of $80,000 and $30,000, respectively, towards the purchase of the James Blaine-patented claim purchase
obligation entered into between Columbus and a third party. We also paid all of the costs to maintain all of the claims and leases
in 2013 - 2017.
Effective September 29, 2014, we entered
into a Purchase Agreement with Columbus to purchase the patented and unpatented mining claims that had been covered by the Option
Agreement. The Purchase Agreement superseded the Option Agreement and conveyed the Silver District Claims to the Company. In consideration
of the Silver District Claims, we made a one-time payment to Columbus in the amount of $100,000. Following our purchase of the
Silver District Claims, we formed a new wholly-owned subsidiary “Gulf + Western Industries, Inc.” (“Gulf + Western”)
and transferred our interest in the Silver District Claims to Gulf + Western.
The Silver District project area consists
of 87 unpatented lode mining claims, 6 patented lode claims, an Arizona State Exploration Permit of 334.85 acres and 23 unpatented
mill site claims, totaling over 2,000 acres. The project is located approximately 80 kilometers (50 miles) north of Yuma in southwest
Arizona.
2014 Drilling Program
In May 2014, we completed the drilling
of three holes at our Silver District Project. The three holes were the initial holes of a permitted 12-hole exploratory program
on Magellan’s unpatented claims near the Papago and Red Cloud Mines. The drilling program was permitted and bonded with the
BLM and State of Arizona. Following the drilling program, our bond with the BLM in the amount of $21,457 was refunded.
Two of the three holes drilled (core holes
PA-01 / 336 total depth & PA-02 / 380 total depth) were designed to test the Papago target, and one hole (RC-01/ 244 total
depth) was directed at the Red Cloud target. Our consulting geologist selected 52 samples that were delivered to ALS Labs in Reno,
NV for analysis.
The highlights of the assay results include
the following:
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•
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Excellent comparison of our core hole PA-01 with historic RC hole S242P. Magellan PA-01 intercept of 90 feet grading 6.05 OPT Ag, (including 10 feet of 17.06 OPT Ag), compared very favorably with the historic result of 90 feet grading 5.78 OPT Ag (including 10 feet averaging 14.60 OPT Ag).
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|
•
|
Previously unreported significant zinc and lead assays from the mineralization in PA-01 4.71% Zn and 1.56% Pb over 90 feet, including 10 feet averaging 8.35% Zn and 4.02% Pb.
|
|
•
|
PA-01 intercepted a previously unknown vein structure, about 15 feet wide and approximately 50 feet below the known mineralized structure, that includes 3 feet grading 3.64% Zn, 0.62% Pb and 0.15 OPT Ag. The significance of this occurrence relative to the Papago resource area is unknown.
|
|
•
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PA-02 was drilled 250 feet east of PA-01 to test for the down plunge extension of that intercept, but did not encounter any mineralization due to offset by a late fault.
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|
•
|
RC-01 was drilled just north of the Red Cloud open pit to intersect the extension of the Red Cloud vein beneath the Red Cloud Fault. Although the vein was known to be partly cut off by that fault, the hole intersected over 10 feet of the footwall of the vein, which has never been mined, including five feet grading 3.2% Pb, 7.47% Zn, 0.6 OPT Ag and Trace Au. The granodiorite in the footwall of the vein was extensively altered with stockwork veins for over 50 feet, containing anomalous levels of Pb, Zn, Ag and Au.
|
The 2014 drill results will be incorporated
into the existing historic drill database for use in planning additional drilling. Geologic evaluation of the entire district continues
as Magellan develops additional drill targets in and around the multiple satellite deposits in the Silver District land package.
2015 Sampling Program
In 2015 the Company carried out a program
of rock chip surface sampling. The samples were collected across seven of fourteen known deposits. Results were successful in validating
the occurrence of silver values up to 13.0 ounces per ton and fluorspar values up to 25.7% over significant widths. Silver District
deposits are localized along three major vein systems having a collective strike length of eight miles. Previous shallow drilling
that partially tested these vein systems identified mineralized material containing silver and fluorite, with additional barite
and lead-zinc mineralization.
The sample results are consistent with
historical drilling results. In addition, with respect to any future mining development, ICP 33-element analysis returned low values
for environmentally undesirable elements such as mercury, arsenic and uranium.
Following are highlights of sample results:
|
Clip (15 ft rock chip across vein):
|
|
13.0 opt Ag; 5.2% Fluorspar (CaF2); 6.9% Barite (BaSO4)
|
|
Geronimo (12 ft rock chip across vein):
|
|
10.5 opt Ag; 5.7% Fluorspar; 1.5% Pb
|
|
MP (20 ft rock chip across vein):
|
|
5.3 opt Ag
|
|
Red Cloud (30 ft rock chip across vein):
|
|
4.1 opt Ag; 25.7% Fluorspar; 2.1% Zn
|
|
Pacific (20 ft rock chip across vein):
|
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1.0 opt Ag; 20.9% Fluorspar; 2.2% Pb; 3.8%Zn
|
For locations of the deposits from which
the samples were collected, refer to Magellan’s management presentation available on the Company’s website, www.magellangoldcorp.com.
Geochemical analyses were performed by
ALS Minerals in Reno, NV and Vancouver, B.C. Silver analysis was by four acid digestion, HCl leach and atomic absorption finish.
Fluorine analysis was by Na2O2 fusion, citric acid leach and ion selective electrode. Barium analysis was by fusion XRF. Lead and
zinc analyses were by four acid digestion with ICP-AES finish. All samples were analyzed as part of a 33 element package by four
acid digestion and ICP-AES finish. Gold analysis was by fire assay with atomic absorption finish.
2016 - 2017 Exploration Program
During 2016 and 2017 we conducted exploration
in the vicinity of the Red Cloud Mine, one of two mines in the district that produced significant quantities of silver-lead ores
during the ten-year period 1883-1893. Mineralization in the Red Cloud area is controlled by veins localized along fault structures.
The vein targets, which in most places are poorly exposed, occur along a prospective fault zone passing through the Red Cloud Mine.
The zone and its possible continuation extends 1,000 meters to the north-northwest of the mine, and to the south-southeast continues
for over 800 meters towards the Papago Prospect, where drilling in 2014 returned significant results.
Our exploration program in 2016 and 2017
consisted of a ground magnetic survey and a geochemical orientation survey. The work had several objectives, including gaining
a better understanding of the geology and in particular the locations of major fault structures, testing the usefulness of geochemical
techniques for locating buried mineralization, and delineating drill targets.
Zonge International performed a GPS-based
2 kilometer x 1 kilometer ground magnetic survey during May 2016. Ground magnetic/GPS data were acquired on 20 lines oriented N70
degrees East and spaced approximately 100 meters apart, for a total distance of 18 line-kilometers of data acquisition. Total-field
magnetic measurements and GPS positions were acquired at 1-second intervals, which corresponds to a down-line station spacing of
about 1 meter.
Red Cloud Magnetic Survey Interpretation,
Showing Rock Domains, Fault Structures, Mines and Prospects and Exploration Target Zones
The magnetic results suggest there are
four main magnetic domains in the survey area: 1) relatively low susceptibility metamorphic and granitic basement rocks that occupy
the western edge and southeast corner of the survey; 2) higher susceptibility volcanic rocks that bound the Red Cloud in the central
eastern part of the survey; 3) low to very low susceptibility volcanic rocks in the northeast corner of the survey that are essentially
“non-magnetic or transparent” and reflect the rocks beneath them (probably older volcanic rocks); 4) high to very high
susceptibility rocks in the extreme northwest corner of the survey and possibly in the extreme northeast corner.
Structurally, the Red Cloud Fault and probable
extensions is evident for about 800 or more meters both north-northwest and south-southeast of the Red Cloud Mine. To the south-southeast
it apparently extends toward Papago and the Pacific Patent. It may be cut off or offset on the north end by a significant east-west
fault that also separates the two volcanic units. To the south, the andesitic volcanic rocks (and possibly the southern end of
the Red Cloud Fault) are cut off by a northeast trending late fault that is obscured by valley fill sediments. Some northwest and
west-northwest textures and breaks within the volcanic units are also highlighted. Structural complexity is evident around the
Papago drilling area. Late post-mineral faults that juxtapose rocks of high susceptibility with those of low susceptibility are
defined clearly, even at 100-meter line spacing.
In summary, the magnetic survey has helped
to define major lithologic domains. It also has been especially useful in showing the location of major faults, some of which served
as conduits for mineralization and some of which are post-mineral. Several locations along the major Red Cloud fault where poorly
exposed constitute prospective exploration targets.
In 2016 and 2017, we performed a geochemical
orientation survey over the Red Cloud ore body in an attempt to detect known deep mineralization through overlying barren volcanic
rocks. This technique could be useful in identifying additional ore bodies beneath post-mineral cover. In the Silver District,
all the known ore bodies crop out at surface. Exploration for extensions of known ore bodies and potentially blind ore bodies must
rely on indirect methods such as geochemistry or geophysics.
Twenty-three soil samples were collected
at 15-meter intervals along two parallel lines approximately 100 meters apart in the hanging wall of the Red Cloud Vein. The samples
were prepared for analysis by MEG, Inc. of Reno, Nevada. A split of all 23 samples were analyzed for mercury (Hg) by MEG using
their proprietary GAS’m method. A second split of all 23 samples was submitted to ALS in Reno for Ionic Leach analysis for
a 60-element suite of metals including silver, lead, zinc, molybdenum, gold and mercury, which are the primary and main secondary
metals found in Red Cloud ore. Both of these methods measure metal ions that are loosely attached to the surfaces of clay minerals
in the soil, having been mobilized from a deep mineralized source, traveled upward through barren overlying rock and been re-deposited
on the clay minerals.
The orientation survey produced encouraging
results. Samples collected from directly above the known, dipping ore body contain levels of silver, lead, molybdenum, zinc, mercury
and gold that are ten to one hundred times background. Mercury analyses from the GAS’m survey agreed with mercury analyses
from the Ionic Leach method. Those samples collected closest to the outcropping vein had the highest values, diminishing with distance
by a factor of 10 as the dipping vein passed below the water table at a vertical depth of almost 400 feet. The mobilization process
for the metals is only effective above the water table in oxidizing conditions, so this fall-off in values was expected.
The orientation survey demonstrates that
primary metals from the Red Cloud ore body can be detected through tens to hundreds of feet of barren overlying material as long
as the mineralized source is above the water table. Expanding the sample grid along strike to the north and south is warranted
to search for extensions of the Red Cloud vein and to explore for other deposits. The ALS Ionic Leach process is the best analytical
tool for an expanded survey, as it adequately detects the principal metals (including mercury) from the known ore bodies.
Based on the initial encouraging results
obtained from the orientation survey, in 2017 we conducted an additional program of soil sampling along strike to the north and
south of the Red Cloud ore body. Samples were collected on a grid with lines oriented across strike of the Red Cloud vein.
Silver District Claim Map
Silver District Patented Mining Claims
RED CLOUD Patented Mining Claim
– MS 749; Parcel #301-34-003 La Paz Co. Assessor
(Subject to lease agreement)
JAMES G. BLAINE Patented Mining Claim – MS 1258-A Parcel
#301-31-001 La Paz Co. Assessor
BLACK ROCK Patented Mining
Claim – MS 291 Parcel #301-34-002 La Paz Co. Assessor
PACIFIC Patented Mining Claim – MS 292 Parcel #301-34-002
La Paz Co. Assessor
SILVER GLANCE Patented Mining Claim – MS 246 Parcel #301-34-001
La Paz Co. Assessor
(Subject to lease agreement; title to be perfected)
MENDIVIL Patented Mining Claim – MS 279 Parcel #301-33-002
La Paz Co. Assessor
(Subject to lease agreement; title to be perfected)
Arizona State Exploration Permit
Arizona State Exploration Permit #08-118475 - GRANTED December
2, 2015; 334.85 acres+/-
Silver District Unpatented Mining Claims
Plata No. 1(3
rd
am.)
|
AMC# 44189 (subject to lease agreement)
|
Plata No. 2(2
nd
am.)
|
AMC# 44190 (subject to lease agreement)
|
POP #1 (2dAm.)
|
AMC# 43990
|
POP #2 (2d Am.)
|
AMC# 43991
|
POP #3 (2d Am)
|
AMC# 43992
|
POP #4 (2d Am)
|
AMC# 43993
|
POP #5 (2d Am)
|
AMC# 43994
|
POP #6 (2d Am)
|
AMC# 43995
|
POP #7 (2d Am)
|
AMC# 43996
|
POP #8 (2d Am)
|
AMC# 43997
|
POP #9 (2d Am)
|
AMC# 43998
|
POP #10 (2d Am)
|
AMC# 43999
|
POP #11 (2d Am)
|
AMC# 44000
|
POP #13 (2dAm)
|
AMC# 44002
|
POP #14 (2dAm)
|
AMC# 44003
|
POP #15 (2dAm)
|
AMC# 44004
|
POP #16 (2dAm)
|
AMC# 44005
|
POP #17 (Am)
|
AMC# 44006
|
POP #19 (Am)
|
AMC# 44008
|
POP #21 (Am)
|
AMC# 44010
|
POP #22 (Am)
|
AMC# 44011
|
POP #24 (2d Am
|
AMC# 44013
|
POP #25 (2d Am
|
AMC# 44014
|
POP #26 (2d Am
|
AMC# 44015
|
POP #27 (2d Am
|
AMC# 44016
|
POP #28 (2d Am
|
AMC# 44017
|
POP #29 (2d Am
|
AMC# 44018
|
POP #30 (Am)
|
AMC# 44019
|
POP #31 (Am)
|
AMC# 44020
|
POP #32 (Am)
|
AMC# 44021
|
POP #37 (2d Am)
|
AMC# 44026
|
POP #38 (2d Am)
|
AMC# 44027
|
POP #43 (Am)
|
AMC# 44032
|
POP #50 – POP #51
|
AMC# 207723-207724
|
POP #53 – POP #57
|
AMC# 207725-207729
|
POP #62
|
AMC# 207734
|
RUF #1
|
AMC # 129269
|
RUF #2
|
AMC # 129270
|
RUF #5
|
AMC # 129273
|
RUF #9
|
AMC # 129277
|
RUF #10
|
AMC# 129278
|
RUF #12
|
AMC# 129280
|
RUF #13
|
AMC# 129281
|
RUF #14
|
AMC# 129282
|
RUF #15
|
AMC# 129283
|
RUF #17
|
AMC# 129285
|
RUF #18
|
AMC# 129286
|
RUF #22
|
AMC# 129290
|
RUF #23
|
AMC# 129291
|
RUF #24
|
AMC# 129292
|
MIL #1
|
AMC # 129261
|
MIL #2
|
AMC# 129262
|
MIL #3
|
AMC# 129263
|
MIL #4
|
AMC# 129264
|
MIL #5
|
AMC# 129265
|
MIL #6
|
AMC# 129266
|
G + W #2
|
AMC # 129255
|
G + W #3
|
AMC # 129256
|
G + W #4
|
AMC # 129257
|
PL-1 – PL-2
|
AMC # 366944-366945
|
Arch
|
AMC # 366937
|
RU 1 – RU 3
|
AMC # 366947-366949
|
CH-1 – CH-6
|
AMC # 366938-366943
|
POP 39
|
AMC # 366946
|
A-1
|
AMC # 369924
|
RIHO
|
AMC # 369925
|
MAX 13-26
|
AMC # 386562-386575
|
Ruth #1 Amended
|
AMC # 42216
|
Ruth #3 Amended
|
AMC# 44218
|
Ruth #5 Amended
|
AMC# 44220
|
Ruth #7 Amended
|
AMC# 44222
|
Plata No. 3 Amended
|
AMC# 44191
|
Plata No. 5 Amended
|
AMC# 44193
|
Plata No. 6 Amended
|
AMC# 44194
|
Plata No.10 Amended
|
AMC# 44195
|
Plata No.11 Amended
|
AMC# 44196
|
Plata No.12 Amended
|
AMC# 44197
|
Plata No.14
|
AMC# 44199
|
Plata No.15 Amended
|
AMC# 44200
|
Chuck No.5
|
AMC# 44208
|
Chuck No.7
|
AMC# 44210
|
Chuck No.9
|
AMC# 44212
|
Staked by Magellan
|
|
SD 30
|
AMC424398
|
SD 37
|
AMC424404
|
|
|
Certain of the Silver District Claims are
subject to third party lease and/or net smelter royalties of varying percentages.
SDA Mill, Nayarit, Mexico
On March 3, 2017, Magellan acquired a 150-day
option to purchase the SDA Mill from Rose Petroleum plc and its wholly-owned subsidiary Minerales Vane S,A. de C.V. (“Rose”)
for consideration of $1.0 million in cash and $500,000 in restricted common stock of Magellan. The Company paid an initial $50,000
option fee on March 3, 2017, and on June 1, 2017 paid an additional $100,000 option fee that also applied to the purchase price
upon closing.
On July 31, 2017, Magellan and Rose agreed
to extend the option period. Under terms of the extension, Magellan had the obligation by August 15, 2017, to deliver executed
irrevocable bridge loan commitments representing not less than $900,000 in cash required to fund the transaction. Magellan delivered
the loan commitments as required. Magellan also agreed to reimburse Rose for certain mill employee and maintenance costs for the
months of August and September 2017. Magellan reimbursed Rose approximately $50,000 for the two months, as required under terms
of the extension.
On September 9, 2017, Magellan and Rose
executed a definitive and binding stock purchase agreement (“SPA”) pursuant to which Magellan would acquire 100% interest
in Rose's wholly-owned Mexican subsidiary that owned the SDA Mill. The SPA provided that the purchase price for the SDA Mill
would be US $1.5 million, consisting of $1.0 million in cash (of which $100,000 had been paid in the form of an option extension
payment on June 1, 2017) and $500,000 in shares of Magellan’s restricted common stock. The SPA provided that closing of the
transaction would be subject to the satisfaction of certain conditions, including Rose completing the split-off of its Mexican
subsidiary that owned the SDA Mill and Rose obtaining the approval of its shareholders.
On November 30, 2017, as disclosed above,
the transaction closed for the agreed upon price of approximately US$1.5 million, consisting of $1,000,000 in cash, including the
$100,000 option extension payment, and $500,000 in restricted common stock of Magellan. Based upon the volume weighted average
price per share of Magellan Gold stock for the 30 calendar days preceding the closing date, 284,017 shares of stock were issued
in connection with the transaction.
The total purchase price for the SDA Mill
was determined to be $1,476,025 which consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option
payment, the $100,000 previously paid for the option-to-purchase extension, and 284,017 shares of common stock (the “Shares”)
with a fair value of $426,025. The note was non-interest bearing and has been paid in full. The Shares will be held in escrow for
a period of 12 months and the Company has the option to repurchase the Shares from Rose for the sum of $500,000 in the first six
months and $550,000 in months 7 to 12. This repurchase option expired unexercised.
The SDA Mill is a fully operational flotation
plant that also includes a precious metals leach circuit and associated assets, licenses and agreements. The mill has the capacity
to process ore at a rate of up to 200 tons per day. The mill has a ten-year operating history. Historically its operation has been
based on sales of flotation concentrates to smelters, and payment for precious metals content. Until the month of November
2017 when the Company conducted limited toll milling operations, milling activity was on hold pending the completion of the purchase
transaction.
Magellan acquired no ore reserves in connection
with the SDA Mill purchase. Resumption of production will depend on the Company’s success in identifying and acquiring new
sources of ore, for which there is no assurance.
Recent Developments with the SDA Mill
The Company has reached preliminary agreement
with a private company supplier of mineralized material to toll treat the material at the Company’s SDA Mill. The supplier
will source the mineralized material and deliver it to the mill. Test processing of a bulk sample of approximately 600 tons was
completed in February 2019. While the results of the test were encouraging, the supplier has experienced challenges in providing
mineralized ore on a consistent basis. The Company intends to identify alternative suppliers for the mill.
El Dorado
EL DORADO GOLD-SILVER PROJECT, NAYARIT STATE, MEXICO
In August, 2018, the Company entered into
an agreement giving it the right to acquire the El Dorado Gold-Silver Property, a 50 hectare mining concession located near the
village of Las Minitas, which lies 50 kilometers south of Magellan’s SDA Flotation Plant at Acaponeta, Nayarit State. Magellan
intends to advance El Dorado towards production as a matter of priority. The Company has initiated permitting and is in the process
of selecting an underground mining contractor. The project has excellent road and rail infrastructure, and the Company plans to
truck the mineralized material from El Dorado to the SDA Plant for processing. El Dorado is situated within a district of epithermal
vein systems from which historic mining produced high grades.
Commencement of
mining will depend on a number of preconditions, the most important of which include obtaining environmental and blasting permits,
selecting and mobilizing a mining contractor and procuring financing. An access and land use agreement with the local ejido already
is in place. Once development begins, mineralized material will be accessible with a minimal amount of underground development.
Mineralized material will be sourced initially from the shallow, upper portions of the mineralized veins.
Drilling on the El Dorado vein system was
conducted by a TSX.V-listed company in 2010-2011 and comprised 28 diamond core holes totaling 4,950 meters. Two veins appear to
offer particular promise for mining, namely the Hundido and Intermedia veins. These veins lie adjacent to and along strike from
the old Hundido Mine, which from 1900-1927 produced an estimated 50,000 tonnes of high-grade gold-silver ore. The veins are steeply-dipping,
highly silicified structures cutting volcanic rocks. Polygonal resource calculations for the two veins, based on intersections
in 10 core holes and after applying a 25% tonnage deduction for dilution and recovery factors, yielded respectively 89,000 tonnes
grading 7.01 g/t gold equivalent (Au+Ag) over a true width of 2.3 meters (Hundido Vein); and 91,000 tonnes grading 15.17 g/t gold
equivalent (Au+Ag) over a true width of 8.3 meters (Intermedia Vein). These mineralized materials do not constitute ore reserves
under SEC Industry Guide 7. The mineralization extends from near surface to a drilled depth of 150 meters and is open at greater
depth.
The El Dorado vein system can be
traced on the surface for a distance greater than three kilometers and exhibits structural complexity with numerous conjugate
vein splits both in the hangingwall and footwall. This complex structure hosts multiple mineralized zones including
high-grade veins potentially minable underground, and lower-grade open-pittable stockwork zones that are observed to extend
over tens of meters in width in both the hangingwall and footwall of the El Dorado vein system.
Magellan concluded the agreement with Ingenieros
Mineros, S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making
staged six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable.
Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of
$50,000 (plus 16% IVA). The Company is currently negotiating an extension to the payment schedule. In addition, Magellan has agreed
with a TSX.V-listed company to purchase a comprehensive El Dorado data package including diamond drill core and technical information
for a price of $120,000, payable in cash and Magellan common stock.
LOCATION, HISTORY AND GEOLOGY OF OUR
PROPERTIES
Silver District
The property covers the heart of the historic
Silver District in La Paz County, approximately 80 kilometers (50 miles) north of Yuma in southwest Arizona. This property is currently
without known reserves and our proposed program is exploratory in nature.
Location, Access and Composition
The Silver District is located approximately
50 miles by road north of Yuma, Arizona on the southeast flank of the Trigo Mountains. Access to the property via a 4WD vehicle
from Yuma is seasonally good, with 34 miles of paved or well-maintained gravel road and another 14 miles of seasonally maintained
unimproved roads to the Red Cloud Mine, in the southwestern corner of the district.
The Silver District Project consists of
87 unpatented lode mining claims, 6 patented lode claims, an Arizona State Exploration Permit of 334.85 acres and 23 unpatented
mill site claims, totaling over 2,000 acres in La Paz County, Arizona.
Certain of the underlying claims are subject
to third party lease and or purchase obligations and net smelter royalties of varying percentages.
History
The Silver District was discovered in 1862
and supported small but significant silver-lead production, largely from underground operations at the Red Cloud and Clip (Blaine
patented claim) mines, during the ten year period from 1883 to 1893. Recorded production is estimated at 1.56 million ounces silver
and 2.33 million pounds lead. There have been occasional small scale development activities since that time and in recent years
the area has been a site for collection of high value, specimen wulfenite crystals.
Modern exploration, principally shallow
drilling, metallurgical test work and a number of scoping studies to evaluate development of the silver and fluorspar deposits,
was carried out intermittently from 1973 through 1992, initially by Gulf + Western Industries (no relation to our recently-formed
subsidiary) through its New Jersey Zinc subsidiary, and followed by Orbex Resources and its successor companies, Silver Glance
Resources and Silverspar Minerals. A total of 465 holes for an aggregate length of 62,866 feet were drilled during this period.
The project has been largely inactive since the early 1990’s.
Columbus Silver (US) Corporation acquired
the project in 2004 and focused its efforts on re-consolidation of the property position, organization and compilation of technical
records and limited field mapping and sampling.
Power and Water
There are no modern mine developments or
equipment on the property. The Red Cloud Mine patented mining claim has a covered shop and full time watchman with living facilities.
It also has a water well and a small diesel generator. There is no commercial water or power available at the site and these would
have to be developed with any mining development.
Geology
The Silver District deposits consist of
variable silver and lead-zinc mineralization in massive quartz-calcite-fluorspar-barite veins and breccia zones that occur within
three major north-northwest trending vein systems having a collective strike length of about eight miles. The veins cut Tertiary
volcanic and volcaniclastic rock formations, which overly an older, possibly Pre-Cambrian crystalline to metamorphic basement complex.
Potential ore-grade silver (lead-zinc), fluorspar and barite deposits occur as pod-like bodies within all three vein systems. Various
historic resource estimates, all pre-dating NI 43-101 reporting standards, have been carried out by past operators in the District.
Exploration Plans
Subject to available funding, the following outlines our exploration
plans for the Silver District.
Past explorers identified a number of outcropping
ore bodies (some of which saw production in the late 19
th
and early 20
th
centuries) and with shallow drilling
defined new and larger deposits to open-pit depths. These known occurrences are the exposed portions of three long, through-going
district wide fault trends. Potential for the discovery of additional mineralization is excellent at depth below known ore bodies
and along the fault trends between known ore bodies. The best method for making new discoveries is by drilling at depth below known
ore bodies. Geology, geophysics and geochemistry could prove useful in defining blind targets in non-outcropping areas. We chose
the known mineralization at the historic Red Cloud and Papago mines as our initial exploration targets in the exploration drilling
carried out in 2014 and for our exploration program in 2016.
Geological mapping, with rock sampling
and assaying, will help guide drilling and geophysical surveying over the next twelve months. Geophysical geochemical test surveys
to detect sulfide mineralization below known resources at Red Cloud and Papago, if successful, will be used to delineate drill
targets under other historic resources and along the unexplored sections of the major mineralized structures.
Subject to securing the necessary funding,
we have budgeted $500,000 for exploration work over the next 12 to 24 months, comprising $100,000 for geology, geochemistry and
computer modeling, $50,000 for geophysical orientation surveys, and $350,000 for diamond drilling and assaying of approximately
6,000 feet of core.
We anticipate the
exploration program will be supervised by Douglas R Bowden, a consulting geologist based in Sparks, Nevada. Mr. Bowden has over
35 years of experience in mining exploration in the United States, Canada and Mexico and is a licensed geologist in the State of
Utah.
SDA Mill
Location and Access
The SDA Mill (“SDA”) is located
in the town of San Dieguito de Arriba, within the municipality of Acaponeta, in the State of Nayarit, Mexico. It is approximately
15 km east of Acaponeta and easily accessible by paved road. The town, with a population of approximately 300 inhabitants, lies
at an elevation of 38 meters asl and is within the ejido of the same name. Acaponeta is about 150 km southeast from Mazatlan, a
1.5 hours drive via a major paved highway. Mazatlan is served by direct flights from several cities in the US and Canada.
The SDA plant and tailings area includes
approximately 9 hectares (21.6 acres) of land leased from the local ejido and an individual. The largest lease of 6 hectares (14.4
acres), on which the plant is located, was renewed in 2016 and includes the supply of plant make-up water. The facility is fully
permitted and the Operating License is valid until 2026.
Ore transport, operating supplies and concentrate
shipments are by truck. The majority of employees live in the adjacent town of San Dieguito de Arriba and either walk or bicycle
to work.
History
The SDA plant was built and began operating
in 2007 by Minerales Vane S.A. de C.V. (“Vane”), and operated more or less continuously until 2017. The plant was originally
designed to process ore from Vane’s El Diablito mine. Vane developed and exploited this mine as well as other mines through
joint ventures until mining ceased in October 2015 due to lack of ore.
The mill continued to operate until April
2017, processing ore from various operators in the region on a toll basis. The toll ores were tested prior to processing to estimate
recoveries and concentrate grades. Typical reported recoveries were in the range 85-92% for gold and 72-77% for silver. The stated
objective of SDA was to produce a bulk gold-silver concentrate of the highest grade possible without detrimental impurities.
The SDA plant generally has been operated
at the rate of 100 mtpd over the past ten years.
An agitated leach system and precious metals
recovery plant (Merrill – Crowe) was installed and operated briefly processing concentrates. The leach system is not currently
being operated.
Water and Power
Water is pumped from the Rio Acaponeta,
2.4 km distant to the west using a company owned portable pump and 4-inch piping. The fresh water make-up requirement is estimated
at 4-5 m
3
per hour. This is equivalent to approximately 1 tonne of fresh water per tonne of ore processed. The plant
has two storage tanks totaling approximately 150 m
3
of storage.
Power is supplied by an overland power
line from the grid by Comision Federal de Electricidad (“CFE”). Rates are set by the CFE. Plant power is 440V with
two transformers, one for the plant and a smaller unit for the laboratory.
Workforce
When fully operational the SDA Mill is
operated with a total of 36 employees, which includes 3 in administration (I GM and 2 Engineers), 4 in the laboratory and 29 operators.
The technical support for metallurgy is provided through an external consultant. Overall the workforce is well trained to maintain
current operating status, and open to process improvement given external support. Turnover is nil with the advantage of the local
workforce, and community relations are in good standing.
Process Plant
The main sections of the SDA process plant include:
|
·
|
Crushing – two stage crushing in closed circuit – capacity 25 mtph
|
|
·
|
Grinding – ball mill in closed circuit with cyclone classifier – capacity 150 mtpd
|
|
·
|
Flotation – including conditioner tank, roughers and cleaners – capacity + 150 mtpd
|
|
·
|
Concentrate vats, drying and load out area
|
|
·
|
Tailings facility – contains 250,000 mt – additional capacity 150,000 mt
|
|
·
|
Office, warehouse and small maintenance shop
|
|
·
|
Leaching – Merrill Crowe installation – not operating – capacity 300 mtpd concentrate leaching
|
The plant historically has operated at
100 mtpd but has the capacity to operate at 150 mtpd or greater without additional capital expenditure.
Exploration Plans
Magellan acquired no ore reserves in connection
with the SDA Mill purchase. Resumption of production will depend on the Company’s success in obtaining new sources of ore,
for which there is no assurance.
The Company’s strategy is to acquire
new sources of ore, to resume mining and processing operations, and to build production and increase cash flow. A key objective
will be to secure high-grade feed sources. The mill lies within the rich Sierra Madre Occidental mineralized belt, which historically
has yielded millions of ounces of precious metals and offers multiple high-grade gold and silver epithermal vein opportunities.
Subject to securing the necessary funding,
we have budgeted $350,000 for exploration work over the next 12 months, comprising $100,000 for geologic mapping and geochemical
sampling, and $250,000 for diamond drilling and assaying of approximately 2,000 meters of core.
If exploration and/or acquisition is successful
in generating projects with potential for production, then additional funding would be required for mine development. The Company’s
objective would be to achieve production as a matter of priority.
The exploration program will be supervised
by Pierce Carson, the Company’s president, and by well qualified geologists based in Mexico.
EL DORADO
Location and Access
The El Dorado Gold-Silver Project is located
in the Pacific Coastal Plain, near the village of Las Minitas, Municipality of Rosamorada, State of Nayarit, within the Mining
Agency of Tepic. It lies 50 kilometers south of the Company’s SDA Mill, 70 kilometers north-northwest of Tepic, the state
capital, and 180 kilometers southeast of Mazatlan, Sinaloa. The project has excellent road and rail infrastructure.
The El Dorado Mining Concession consists
of a 50-hectare concession held under option by the Company’s wholly-owned subsidiary Minerales Vane 2 S.A. de C.V. from
a Mexican private company, Ingenieros Mineros S.A. de C.V.
NAME OF THE MINING CONCESSION
|
|
TITLE N°
|
|
|
HA
|
|
|
VALID UNTIL
|
EL DORADO
|
|
|
166132
|
|
|
50
|
|
|
March 26, 2030
|
The principal vein
system is the El Dorado epithermal vein trend that strikes N50°E and dips steeply to the NW. It forms a continuous reef outcrop
1.5 kilometers in length. Additional discontinuous outcrops both to the NE and SW indicate a strike length of 3.5 kilometers.
History
The El Dorado vein system has a history
of small-scale mining. In the period 1900-1927 a mineralized zone was mined in the Hundido Mine. A historic longitudinal section
of this portion of El Dorado vein indicates that it was mined for gold and silver to a maximum depth of 150 meters from the surface.
The workings are largely inaccessible and there are no production records available. Based on the extent of old workings and the
size of the stopes shown on the historic longitudinal section approximately 50,000 tons of gold-silver mineralization are estimated
to have been extracted from the Hundido Mine.
From 1965 to 1975 Rafael Velasco extracted mineralized material from the El Dorado mine, located 250 meters further NE of the El
Hundido mine
,
and from 1975 to 1983 American interests mined direct-to-smelter grade material from the El Dorado mine.
From 1985 to 1990 the company Ingenieros
Mineros SA de CV continued operations in the El Dorado Mine in three levels to a depth of 30 meters below the surface and shipped
the ore to the "El Venado" processing plant located near Ruiz, Nayarit, for toll treatment to produce a flotation concentrate.
Historic metallurgical balance sheets from this plant indicate the grade of the material was on the order of 5 g/t Au and 70 g/t
Ag.
In a report dated May 1986 by Compañia
Fresnillo, S.A. de C.V., a list of 46 underground samples reported an average grade of 7.88 g/t Au and 55 g/t Ag for the three
levels of the El Dorado Mine with vein widths ranging from 1.2 meters to 4.0 meters.
Magellan has not verified available historic
data because the underground workings are presently flooded and inaccessible. In due course the Company intends to dewater the
underground workings and carry out the work necessary to verify data and define the size and grade of the mineralization.
Drilling Program 2010-2011
Drilling on the El Dorado vein system was
conducted by a TSX.V-listed company in 2010-2011 and comprised 28 diamond core holes totaling 4,950 meters. The drilling intersected
multiple steeply-dipping silicified mineralized zones extending from near-surface to a drilled depth of 150 meters.
The following longitudinal section shows
the drilling pattern along the El Dorado vein in the area of the Hundido and El Dorado mines, and summary drill hole intersection
grades and widths.
The mineralization extends from near surface
to a drilled depth of 150 meters and is open at greater depth.
Two veins appear to offer particular promise
for mining, namely the Hundido and Intermedia veins. These veins lie adjacent to and along strike from the old Hundido Mine. Polygonal
resource calculations for the two veins, based on intersections in 10 core holes are summarized as follows:
MINERALIZATION INDICATED BY DRILLING
Vein
|
True
Width
m
|
Tonnes
|
Au+Ag
Au Equiv
g/t
|
Hundido
|
2.3
|
89,000
|
7.01
|
Intermedia
|
8.3
|
91,000
|
15.17
|
Notes:
|
1. Polygonal resources based on intersections from 10 holes.
|
|
2. Tonnage reduced by 25% to allow for mining dilution and recovery loss.
|
|
3. Does not constitute ore reserves under SEC Industry Guide 7.
|
Geology
The stratigraphy of the district consists
predominantly of a thick andesitic lithic lapilli tuff, with a dacitic crystal tuff marker horizon within the andesitic pile.
The andesitic sequence is overlain by a pre-vein rhyolitic pyroclastic sequence, indicating an andesitic/rhyolitic bimodal composition.
In the central part of the district a complex of domes and dikes of rhyolitic composition exhibit a NE-SW orientation similar
to the vein system. The pre-vein volcanic stratigraphy shows a general tilt of 8°-15° to the east, exposing the deepest
portions of the stratigraphy and hydrothermal system in the SW and central parts of the district, and the higher geologic level
of the deposit towards the NE where high level silicification and argillization outcrop.
The vein pattern is interpreted to be
the result of a right lateral structural regime that developed a N50°E fault system exhibiting a horizontal component of movement,
and a conjugate system of N70°E to E-W faults with dilational and normal movement. The principal mineralized structure in
the district is the El Dorado Vein which can be traced on the surface for a distance greater than 3 kilometers, and exhibits structural
complexity with numerous conjugate vein splits both in the hangingwall and footwall.
A number of prospective exploration targets
have been defined along the El Dorado Vein structure related to old mines, anaomalous geochemical sample results and zones of
structural complexity.
Two main stages of vein formation appear
to be present consisting of early fine to medium grained crystalline quartz with Pb-Zn-Cu and Ag sulfides (Stage I), and a later
Stage II which consists of generally barren coarse-crystalline quartz that is commonly observed cementing breccia fragments of
Stage I vein material. In the hangingwall and footwall of the veins it is common to observe quartz stockwork-stringer zones with
Pb-Zn-Cu sulfides as well as dissemination of sulfides in permeable zones of coarse-grained tuffs and pyroclastic breccias. In
the geologically deeper central part of the El Dorado vein system where the Hundido and El Dorado mineralized zones were mined,
quartz with Au-Ag values and base metal sulfides of Stage I are present accompanied by strong propylitization (epidote and chlorite)
of the andesitic volcanic, particularly in the footwall portion of El Dorado vein system.
The El Dorado Vein exhibits potential to
contain multiple mineralized zones, including higher grade over minable widths for underground mining, or lower-grade open pitable
stockwork zones which are observed over tens of meters in width in both the hangingwall and footwall of the El Dorado vein system.
Exploration and Development Plans
Subject to the availability of financing,
Magellan intends to advance El Dorado towards production as a matter of priority. The Company has initiated permitting and is in
the process of selecting an underground mining contractor. The project has excellent road and rail infrastructure, and the Company
plans to truck the mineralized material from El Dorado to the Company’s SDA Plant for processing, a distance of approximately
50 kilometers.
Commencement of
mining will depend on a number of preconditions, the most important of which include obtaining environmental and blasting permits,
selecting and mobilizing a mining contractor and procuring financing. An access and land use agreement with the local ejido already
is in place. Once development begins, mineralized material will be accessible with a minimal amount of underground development.
Mineralized material will be sourced initially from the shallow, upper portions of the mineralized veins.
The Company also has identified and is
assessing exploration targets and other acquisition opportunities in the El Dorado district as well as in other districts within
trucking distance of the SDA Mill.
Our Exploration Process
Our exploration program is designed to
acquire, explore and evaluate exploration properties in an economically efficient manner. We have not at this time identified or
delineated any mineral reserves on any of our properties.
Our current focus is primarily on the exploration
of our Silver District (Arizona) and exploration opportunities nearby our SDA mill in Nayarit, Mexico, and in particular our El
Dorado Gold-Silver Project. We plan to develop a formal sample collection and analysis process in due course; this process will
include appropriate quality assurance and quality control procedures.
Subject to our ability to raise the necessary
funds, we may acquire additional exploration properties near our existing properties or elsewhere and implement exploration programs
that may cover these future properties.
We expect our exploration work on a given
property to proceed generally in three phases. Decisions about proceeding to each successive phase will take into consideration
the completion of the previous phases and our analysis of the results of those phases.
The first phase is intended to determine whether a prospect
warrants further exploration and involves:
|
·
|
researching the available geologic literature;
|
|
·
|
interviewing geologists, mining engineers and others familiar with the prospect sites;
|
|
·
|
conducting geologic mapping, geophysical testing and geochemical testing;
|
|
·
|
examining any existing workings, such as trenches, prospect pits, shafts or tunnels;
|
|
·
|
digging trenches that allow for an examination of surface vein structures as well as for efficient reclamation, re-contouring and re-seeding of disturbed areas; and,
|
|
·
|
analyzing samples for minerals that are known to have occurred in the test area.
|
Subject to obtaining the necessary permits
in a timely manner, the first phase can typically be completed on an individual property in several months at a cost of less than
$200,000.
The second phase is intended to identify
any mineral deposits of potential economic importance and would involve:
|
·
|
examining underground characteristics of mineralization that were previously identified;
|
|
·
|
conducting more detailed geologic mapping;
|
|
·
|
conducting more advanced geochemical and geophysical surveys;
|
|
·
|
conducting more extensive trenching; and
|
|
·
|
conducting exploratory drilling.
|
Subject to obtaining the necessary permits
in a timely manner, the second phase can typically be completed on an individual property in nine to twelve months at a cost
of less than $1 million. Our Silver District Project has reached the second phase.
The third phase is intended to
precisely define depth, width, length, tonnage and value per ton of any deposit that has been identified and would involve:
|
·
|
drilling to develop the mining site;
|
|
·
|
conducting metallurgical testing; and
|
|
·
|
obtaining other pertinent technical information required to define an ore reserve and complete a feasibility study.
|
Depending upon the nature of the particular
deposit, the third phase on any one property could take one to five years or more and cost well in excess of $1 million. None of
our properties has reached the third phase.
We intend to explore and develop our properties
ourselves, although our plans could change depending on the terms and availability of financing and the terms or merits of any
joint venture proposals.
Plan of Exploration
We have two material properties, namely
the Silver District Project in southwest Arizona and the SDA Mill in Nayarit State, Mexico. We currently intend to engage in exploration
activities on the Silver District Project and, if commercially recoverable deposits are found, to conduct mineral development activities.
We intend to assess and acquire mineral
properties in the region of the SDA Mill with the objective of sourcing ore for resumption of processing at the mill. To date,
we have only begun preliminary exploration work.
Gold and Silver Prices
Our operating results are substantially
dependent upon the world market prices of gold and silver. We have no control over gold or silver prices, which can fluctuate widely.
The volatility of such prices is illustrated by the following graphs, which respectively set forth the prices of gold and silver
per ounce (as reported by www.kitco.com) during the periods indicated:
These historical prices are not indicative of future gold or
silver prices.
Marketing
All of our mining operations, if successful,
will produce precious metals in doré form or contained in a concentrate.
We plan to refine and market our precious
metals doré and concentrates using a geographically diverse group of third party smelters and refiners. The loss of any
one smelter or refiner may have a material adverse effect if alternate smelters and refiners are not available. We believe there
is sufficient global capacity available to address the loss of any one smelter or refiner.
Hedging Activities
Our strategy is to provide shareholders
with leverage to changes in gold and silver prices by selling precious metals production at market prices. We may sell precious
metals from our future mines, if any, both pursuant to forward contracts and at spot prices prevailing at the time of sale. We
may also enter into derivative contracts to protect the selling price for certain anticipated gold and silver production and to
manage risks associated with commodities and foreign currencies.
Government Regulation
General
Our activities are and will be subject
to extensive federal, state and local laws governing the protection of the environment, prospecting, mine development, production,
taxes, labor standards, occupational health, mine safety, toxic substances and other matters. The costs associated with compliance
with such regulatory requirements are substantial and possible future legislation and regulations could cause additional expense,
capital expenditures, restrictions and delays in the development and continued operation of our properties, the extent of which
cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, we must comply with
known standards and regulations which may entail significant costs and delays. Although we are committed to environmental responsibility
and believe we are in substantial compliance with applicable laws and regulations, amendments to current laws and regulations,
more stringent implementation of these laws and regulations through judicial review or administrative action or the adoption of
new laws could have a materially adverse effect upon our results of operations.
Federal Environmental Laws
Certain mining wastes from extraction and
beneficiation of ores are currently exempt from the extensive set of Environmental Protection Agency (“EPA”) regulations
governing hazardous waste, although such wastes may be subject to regulation under state law as a solid or hazardous waste. The
EPA has worked on a program to regulate these mining wastes pursuant to its solid waste management authority under the Resource
Conservation and Recovery Act (“RCRA”). Certain ore processing and other wastes are currently regulated as hazardous
wastes by the EPA under RCRA. If our future mine wastes, if any, were treated as hazardous waste or such wastes resulted in operations
being designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA” or “Superfund”) for cleanup, material expenditures would be required for the construction of
additional waste disposal facilities or for other remediation expenditures. Under CERCLA, any present owner or operator of a Superfund
site or an owner or operator at the time of its contamination generally may be held liable and may be forced to undertake remedial
cleanup action or to pay for the government’s cleanup efforts. Such owner or operator may also be liable to governmental
entities for the cost of damages to natural resources, which may be substantial. Additional regulations or requirements may also
be imposed upon our future tailings and waste disposal, if any, in Nevada under the Federal Clean Water Act (“CWA”)
and state law counterparts. We have reviewed and considered current federal legislation relating to climate change and we do not
believe it to have a material effect on our operations. Additional regulation or requirements under any of these laws and regulations
could have a materially adverse effect upon our results of operations.
In June 2018, we received a notification
from the US Department of Interior regarding a breach of a mine tailings impoundment at the Red Cloud prospect in the Silver District.
According to the notice, the tailings contained hazardous substances including lead and arsenic. We were indentified as a potential
responsible party. We responded to the notification and have heard nothing further. We cannot predict whether the situation represents
the potential a material liability.
Mexico
In order to carry out
mining activities in Mexico, the Company is required to obtain a mining concession from the General Bureau of Mining, which belongs
to the Ministry of Economy of the Federal Government, or be assigned previously granted concession rights, and both must be recorded
with the Public Registry of Mining. In addition, mining works may have to be authorized by other authorities when performed in
certain areas, including
ejidos
(communal owners of land recognized by the federal laws in Mexico), villages,
dams, channels, general communications ways, submarine shelves of islands, islets and reefs, marine beds and subsoil and federal
maritime-terrestrial zones. Reports have to be filed with the General Bureau of Mining in May of each year, evidencing previous
calendar year mining investment and works. Annual reports, detailing technical and statistical information and production results,
must be submitted during the first 30 business days of the following year for each concession or group of concessions bearing production
and all concessions over six years of age. Bi-annual mining duties are payable in January and July of each year and, based on amount
of surface of each mining concession, holders of mining concessions must also pay annually and no later than the last business
day of March a special mining fee based on 7.5% of the income before interest and certain other permitted deductions derived from
the transfer or sale of minerals, plus 0.5% of gross revenues from sales of gold, silver and platinum. Failure to pay any of these
duties and submit the required reports could lead to cancellation of the concessions. Upon expiration or cancellation of the concession,
certain obligations remain, such as filing technical reports and ground support.
Employees and Consultants
Effective June 1, 2016, we entered into
an Employment Agreement with Dr. Pierce Carson and engaged his services as President and CEO of Magellan for an initial term of
one year. Under the terms of the Employment Agreement, Mr. Carson was entitled to a salary of $6,667 per month for the first three
months, and $10,000 per month for the following nine months. Effective June 1, 2017, and then again on June 1, 2018, the Employment
Agreement was extended for an additional year at a salary $10,000 per month. If the Company is unable to pay the salary, the Company
has the right to satisfy its obligation with shares of common stock.
Effective September 18, 2017, Michael P.
Martinez was engaged on a consulting basis to serve as the Company’s Chief Financial Officer and Secretary. John C. Power
stepped down from these positions, but continued in his role as a director of the Company.
We rely heavily on the services of our
consulting geologist and other technical consultants.
Directors, Executive
Officers and Corporate Governance
Directors and Executive
Officers
Our current executive officers and directors
are:
Name
|
Age
|
Position
|
John C. Power
|
56
|
Director
|
W. Pierce Carson
|
76
|
President, CEO and Director
|
Michael P. Martinez
|
49
|
CFO
|
W. Pierce Carson
has served as our
President & CEO since June 1, 2016
.
Mr. Carson has over 40 years of experience in the mining industry and has managed
the discovery, financing, development and operation of precious metals, base metals and industrial minerals properties in the United
States, Australia, Africa and Papua New Guinea. He has been responsible for or closely involved with a number of mineral deposits
that have been developed into mines. Mr. Carson held the positions of Senior Geologist, Overseas Mineral Evaluation, and Exploration
Manager, Australia for Exxon Minerals Company; Manager of Precious Metals Exploration, North America for Kennecott Copper Corporation;
President and Director of Mining & Exploration Operations in Australia, Papua New Guinea, USA, Canada and Mexico for Nord Pacific
Ltd.; President and Vice-President of Exploration for Nord Resources Corporation; and Chief Executive Officer for Santa Fe Gold
Corporation. Mr. Carson holds a PhD in Economic and Structural Geology and an MS in Ore Deposits from Stanford University, and
a Bachelor’s Degree in Geology from Princeton University.
John C. Power
served as President,
CFO, Secretary and director from our inception in September 2010 until June 1, 2016 when Dr. Carson became President & CEO.
Mr. Power continued to serve as CFO and Secretary until September 2017 when Mr. Martinez was engaged to fulfill those roles. Mr.
Power continues to serve as a director.
Mr. Power also serves as a director of
Athena Silver Corporation since its inception in December 2003 and has served as Athena’s President from December 2005 to
December 2007 and from January 2009 to the present and has served as Athena’s Secretary since January 2007.
Mr. Power is also a co-managing member since 2011 of Silver
Saddle Resources, LLC a private company that owns mining claims in Nevada.
From March 2010 to present, Mr. Power has
served as co-Managing Member of Ryan Air Exposition, LLC, a private California holding company that invests in antique airplanes.
Mr. Power served as President and director of Alta California Broadcasting, Inc., which operated radio stations, from December
1993 to March 2007; and President and director of Four Rivers Broadcasting, Inc., also a radio broadcaster, from May 1997 to March
2005 and Vice President from March 2005 until December 2013. Mr. Power also has served as Co-Managing Member of Wyoming Resorts,
LLC, which owns and operates an historic hotel in Thermopolis, Wyoming, since June 1997; and Mr. Power has served as President
of Power Curve, Inc., a private investment company, since 1986. Mr. Power has also been the managing member of Best of Sea Ranch,
LLC since December 2004 which operated through a joint venture a vacation home rental business in The Sea Ranch California. Mr.
Power has been a general partner of Power Vacaville, LP a real estate investment firm since January 2008. Mr. Power also has served
as the vice-president and director of The Tide Community Broadcasting, Inc. since July 2012.
From September 2008 to March 2012, Mr.
Power served as an officer and director of Hungry Hunter, Inc., a private California-based restaurant enterprise. From March
2008 until February 2010, Mr. Power served as a director of Reserve Energy Corporation, a small private oil and gas exploration
and production company; and was Managing Member of Montana Resorts, LLC, which is a holding company for Yellowstone Gateway Resorts,
LLC, from May 2002 until May 2008; and was Managing Member of Yellowstone Gateway Resorts, LLC, which owned and operated the Gallatin
Gateway Inn, from May 2002 until May 2008. On November 16, 2004, Yellowstone Gateway Resorts, LLC filed a voluntary petition in
bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in response to an adverse arbitration award in favor of a former employee.
Yellowstone Gateway Resorts, LLC was successfully reorganized under Chapter 11.
Mr. Power attended, but did not
receive a degree from, Occidental College and University of California at Davis.
Michael P. Martinez
has served as
the Company’ Chief Financial Officer, Secretary and Treasurer since September 18, 2017.
He also is employed as the Chief Financial
Officer for a company that operates in heavy construction including excavation and earthwork. Mr. Martinez served as Financial
Reporting Manager at Ernest Healthcare which operates twenty-six hospitals in 11 states for inpatient rehabilitation and long-term
acute care. At Ernest Healthcare Mr. Martinez was responsible for monitoring and providing oversight of financial reporting requirements
and covenant compliance, and consolidation of financial statements for the twenty-six hospitals. Mr. Martinez was also a principal
of Martinez Financial Group, providing merchant banking services including capital formation and corporate finance advisory functions
for commercial enterprises.
Mr. Martinez graduated Cum Laude from the
University of Arizona with a B.S. in Business Administration. He is a certified public accountant and a member of the New Mexico
Society of CPA’s.
Mr. Martinez was paid $11,000 for the initial
3-month period of consultancy services. Thereafter, Mr. Martinez’s status may change from a consultant to an employee at
the sole discretion of the Company. He will receive no additional compensation for his service as Secretary and Treasurer of the
Company.
Involvement in Certain Legal Proceedings
During the last 10 years, none of our directors
or officers has:
|
a.
|
had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
b.
|
been convicted in a criminal proceeding or subject to a pending criminal proceeding;
|
|
c.
|
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
|
|
d.
|
been found by a court of competent jurisdiction in a civil action, the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
Family Relationships
No family relationships exist among our
directors. Additionally, there do not exist any arrangements or understandings between any director and any other person pursuant
to which any director was elected as such.
Conflicts of Interest
Athena Silver Corporation is a company
under common control. Mr. Power is a director and is also a director and CEO of Athena. Mr. Power and Mr. Gibbs are significant
investors in both Magellan and Athena.
Silver Saddle Resources, LLC (“Silver
Saddle”) is a private company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members
of Silver Saddle.
Magellan, Athena and Silver Saddle are
exploration stage companies and each is involved in the business of acquisition and exploration of mineral resources.
The existence
of common ownership and common management could result in significantly different operating results or financial position from
those that could have resulted had Magellan, Athena and Silver Saddle been autonomous. In addition, the common ownership could
result in significant conflicts of interest both in terms of the allocation of working capital as well as under the doctrine of
corporate opportunity, inasmuch as all three entities are engaged in mineral exploration in the United States. Messr. Power and
Gibbs have not adopted any policy or guidelines to mitigate the potential adverse effects of their conflicting interests between
and among, Magellan, Athena and Silver Saddle.
While the foregoing may mitigate the conflicts
of interest inherent in the interlocking interests, it will not eliminate all potential future conflicts. Investors in Magellan
should be cognizant that the interests of Magellan may, in the future, be in conflict with the other activities of Magellan’s
control persons.
Director Independence
Our common stock is listed on the OTC.QB
of the OTC Markets Group, Inc. inter-dealer quotation systems, which does not have director independence requirements. Nevertheless,
for purposes of determining director independence, we have applied the definition set forth in NASDAQ Rule 4200(a)(15). Our
two directors are both officers of the corporation and are not considered independent.
Board Meetings
During the years ended December 31,
2017 and 2018, our Board members engaged in frequent informal discussions; and all Board actions have been undertaken by unanimous
written consent.
Committees of the Board of Directors
We currently do not have standing audit,
compensation or nominating committees of the Board of Directors. We plan to form audit, compensation and nominating committees
when it is necessary to do so to comply with federal securities laws or to meet listing requirements of a stock exchange or the
Nasdaq Capital Market.
Compliance with Section 16(a), Beneficial
Ownership
Under the Securities Laws of the United
States, our directors, executive (and certain other) officers, and any persons holding more than ten percent (10%) of our common
stock during any part of our most recent fiscal year are required to report their ownership of common stock and any changes in
that ownership to the SEC. Specific due dates for these reports have been established and we are required to report in this Report
any failure to file by these dates. During the year ended December 31, 2018, all of these filing requirements were satisfied by
our officers, directors, and ten-percent holders except that Mr. Gibbs failed to file three reports covering seven transactions
in a timely fashion, Mr. Power failed to file two reports covering three transactions in a timely fashion and Mr. Carson failed
to file one report covering two transactions in a timely fashion. In making these statements, we have relied on the written representation
of our directors and officers or copies of the reports that they have filed with the Commission.
Code of Ethics
We have adopted a Code of Ethics that apples
to, among other persons, our company’s principal executive officer, as well as persons performing similar functions. As adopted,
our Code of Ethics sets forth written guidelines to promote:
|
·
|
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
|
|
·
|
full, fair, accurate, timely and understandable disclosure in all reports and documents that we file with, or submit to, the SEC and in other public communications made by us that are within the executive officer’s area of responsibility;
|
|
·
|
compliance with applicable governmental laws, rules and regulations;
|
|
·
|
the prompt internal reporting of violations of the Code; and
|
|
·
|
accountability for adherence to the Code.
|
Our Code of Ethics is on file with the
SEC. We will provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent to: Magellan
Gold Corporation, 500 Marquette Avenue NW, Ste. 1200, Albuquerque, New Mexico 87102.
Executive Compensation
Our directors receive no compensation for
their services as director.
Executive Compensation
The following table sets forth all compensation
paid to our Named Executive Officers for the years ended December 31, 2018 and 2017:
SUMMARY COMPENSATION TABLE
Name
and
Principal
Position
|
Year
|
|
Salary
($)
|
|
|
Bonus ($)
|
|
|
Stock
Awards
($)
|
|
|
Options
Awards ($)
|
|
|
Non equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation ($)
|
|
|
|
Total
($)
|
John C. Power, Former President
|
2018
2017
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
39,901
|
|
|
0
0
|
|
|
0
0
|
|
|
0
20,000
|
|
|
|
0
59,901
|
W. Pierce Carson, CEO & President
|
2018
2017
|
|
120,000
120,000
|
|
|
0
0
|
|
|
36,667
160,000
|
|
|
0
79,801
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
|
36,667
239,801
|
Michael P. Martinez, CFO
|
2018
2017 (partial)
|
|
40,000
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
9,975
|
|
|
0
0
|
|
|
0
0
|
|
|
0
11,000
|
|
|
|
40,000
0
20,975
|
(1)
|
When he was first engaged as President, CEO and Director of G+W in June 2015, W. Pierce Carson was granted shares of G+W representing 15% of the total issued and outstanding shares of G+W.
|
|
|
|
In July 2016, we completed a reverse triangular merger pursuant to which a newly formed merger subsidiary was merged into Gulf + Western, and the 15% equity interest in Gulf + Western owned by Mr. Carson was converted into 172,479 shares of Magellan common stock. As a result of the merger, Gulf + Western became a wholly-owned subsidiary of Magellan.
|
|
|
|
Effective June 1, 2016, we entered into an Employment Agreement with Mr. Carson and engaged his services as President and CEO of Magellan for an initial term of one year. Under the terms of the Employment Agreement, Mr. Carson is entitled to a salary of $6,667 per month for the first three months, and $10,000 per month for the following nine months. If the Company is unable to pay the salary, the Company has the right to satisfy its obligation with shares of common stock.
|
|
|
|
The initial 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 term of the agreement to May 31, 2018, with all terms of the original agreement remaining unchanged. On June 1, 2018, Dr. Carson and the Company agreed to extend the term of the agreement to May 31, 2019, with all terms of the original agreement remaining unchanged.
|
|
Dr. Carson shall have the right to voluntarily terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through the date of termination, including any amount that may have been deferred and accrued.
|
|
|
|
On October 26, 2017, Dr. Carson 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, including $60,000 earned in 2016. The waiver of accrued wages is recorded as a capital contribution to the Company.
Dr. Carson was subsequently issued 80,000 shares of the Company’s restricted common stock.
Effective July 24, 2018, the Company and
W. Pierce Carson, President, executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued
but unpaid executive compensation for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash
advance of $8,100 made to the Company into an aggregate of 98,100 shares of Common Stock, valued at $1.00 per share. The
fair value of the shares issued equaled to the amount of debt settled which resulted in no gain or loss.
Effective July 24, 2018, the Company and
W. Pierce Carson executed a Restricted Stock Award Agreement pursuant to which the Company granted to Carson a restricted stock
award consisting of 80,000 shares of Common Stock, valued at $1.00 per share. 20,000 of the shares will vest upon the Company completing
a milestone (which was achieved), and the remaining 60,000 shares are subject to ratable vesting over an 18-month period. During
the year ended December 31, 2018 the Company recognized an expense of $36,667 related to this issuance.
|
(2)
|
We entered into a consulting agreement with Mr. Power at the rate of $30,000 per year for his part-time service as our CFO. Mr. Power resigned as our CFO on August 31, 2017 and no longer receives consulting fees.
|
Employment Agreements
Gulf + Western entered into an employment
agreement with W. Pierce Carson to serve as President and CEO for a period of one year ending May 31, 2016. Mr. Carson’s
compensation was in the form of a transfer of a 15% equity interest in Gulf + Western.
Effective June 1, 2016, we entered into
an Employment Agreement with Mr. Carson and engaged his services as President and CEO of Magellan for an initial term of one year.
Under the terms of the Employment Agreement, Mr. Carson was entitled to a salary of $6,667 per month for the first three months,
and $10,000 per month for the following nine months. Effective June 1, 2017, the Employment Agreement was extended for an additional
year at a salary of $10,000 per month. If the Company is unable to pay the salary, the Company has the right to satisfy its obligation
with shares of common stock.
The initial term of the agreement covered
the period from June 1, 2016 to May 31, 2017. On June 1, 2018, Dr. Carson and the Company agreed to extend the term of the agreement
to May 31, 2019 with all terms of the original agreement remaining unchanged.
Dr. Carson shall have the right to voluntarily
terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan
at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through
the date of termination, including any amount that may have been deferred and accrued.
On October 26, 2017, Dr. Carson 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. The waiver of accrued wages was recorded as a capital contribution to the Company. Dr. Carson was subsequently issued
80,000 shares of the Company’s restricted common stock.
At December 31, 2017 a total of
$30,000 and $2,796 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement
and included in accrued liabilities on the accompanying consolidated balance sheets.
At December 31, 2018 a total of $60,000
and $13,870 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included
in accrued liabilities on the accompanying consolidated balance sheets.
2017 Equity Incentive Plan
We have not adopted any equity compensation or stock option
plans, except as follows:
The Board of Directors of the Company concluded,
in order to attract and hire key technical personnel and management as our Company grows, it will be necessary to offer option
packages in order to compete effectively with other companies seeking the support of these highly qualified individuals. After
careful consideration, the Board recommended the approval of the Company’s 2017 Equity Incentive Plan as being in the best
interests of Stockholders.
Effective September 1, 2017, the 2017 Equity
Incentive Plan was approved by written consent of stockholders holding 75% of the Company’s outstanding common stock, and
was adopted by the Board of Directors. The Company is authorized to grant rights to acquire up to a maximum of 200,000 shares of
common stock under the Plan. The Plan is authorized to grant incentive stock options that qualify under Section 422 of the Internal
Revenue Code of 1986, as amended.
The 2017 Plan provides for the grant of
(1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation
rights (collectively, "Stock Awards"). Incentive stock options granted under the 2017 Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code. Nonstatutory stock options granted under the
2017 Plan are intended not to qualify as incentive stock options under the Code.
As of the date of this prospectus, there have been no grants
made under the Plan.
Indemnification of Directors and Officers
Nevada Revised Statutes provide that a
corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Nevada Revised Statutes also provide that
to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense.
Our Articles of Incorporation authorize
us to indemnify our directors and officers to the fullest extent permitted under Nevada Revised Statutes. Our bylaws set forth
the procedures that must be followed in order for directors and officers to receive indemnity payments from us.
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The
following table sets forth information with respect to beneficial ownership of our common stock by:
|
*
|
each person who beneficially owns more than 5% of our common stock;
|
|
*
|
each of our executive officers named in the Management section;
|
|
*
|
each of our directors; and
|
|
*
|
all executive officers and directors as a group.
|
The following table shows the number of
shares owned and the percentage of outstanding common stock owned as of March 31, 2019. Each person has sole voting and investment
power with respect to the shares shown, except as noted.
Name and Address of Beneficial
Owner
(1)
|
|
|
Amount
and Nature of Beneficial Ownership
(2)
|
|
|
|
Ownership
as a Percentage of Outstanding Common Shares
(3)
|
|
|
|
|
|
|
|
|
John Gibbs
807 Wood N Creek
Ardmore, OK 73041
|
|
|
1,490,743
|
(4)
|
|
|
40.52%
|
|
|
|
|
|
|
|
|
John C. Power
|
|
|
283,019
|
(5)
|
|
|
8.00%
|
|
|
|
|
|
|
|
|
W. Pierce Carson
|
|
|
470,580
|
(6)
|
|
|
13.19%
|
|
|
|
|
|
|
|
|
Michael P. Martinez
|
|
|
19,118
|
(7)
|
|
|
nil
|
|
|
|
|
|
|
|
|
All officers and directors as a group
(three persons)
|
|
|
772,717
|
|
|
|
21.53%
|
(1)
|
Unless otherwise stated, address is 500 Marquette Avenue NW, Ste. 1200, Albuquerque, New Mexico 87102.
|
|
|
(2)
|
Under SEC Rules, we include in the number of shares owned by each person, the number of shares issuable under outstanding options or warrants if those options or warrants are exercisable within 60 days of the date of this Annual Report. In calculating percentage ownership, we calculate the ownership of each person who owns exercisable options by adding (i) the number of exercisable options for that person only to (ii) the number of total shares outstanding and dividing that result into (iii) the total number of shares and exercisable options owned by that person.
|
|
|
(3)
|
Shares and percentages beneficially owned are based upon 3,529,003 shares outstanding on April 23, 2019.
|
|
|
(4)
|
Includes 1,330,443 shares owned
individually, a Promissory Note convertible into 150,000 shares of Common Stock (excluding any future accrued interest that may
be convertible) and 10,330 shares owned by Tri Power Resources, Inc., controlled by Mr. Gibbs.
|
(5)
|
Includes options exercisable to purchase 20,000 shares at $1.00 per share.
|
|
|
(6)
|
Includes options exercisable to purchase 40,000 shares at $1.00 per share, and 60,000 shares under a restricted stock award subject to future vesting.
|
|
|
(7)
|
Includes options exercisable to purchase 5,000 shares at $1.00 per share.
|
Certain
Relationships and Related Transactions and Director Independence
Except as disclosed herein, there have
been no transactions or proposed transactions in which the amount involved exceeds the lesser of $120,000 or one percent of the
average of our total assets at year-end for the last two completed fiscal years in which any of our directors, executive officers
or beneficial holders of more than 5% of the outstanding shares of our common stock, or any of their respective relatives, spouses,
associates or affiliates, has had or will have any direct or material indirect interest.
Conflicts of Interests
Athena Silver Corporation (“Athena”)
is a company under common control. Mr. Power is also a director and CEO of Athena. Mr. Gibbs is a significant investor in both
Magellan and Athena. Magellan and Athena are both exploration stage companies involved in the business of acquisition and exploration
of mineral resources.
Silver Saddle Resources, LLC is also a
company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle. Magellan
and Silver Saddle are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.
The existence of common ownership and common
management could result in significantly different operating results or financial position from those that could have resulted
had Magellan, Athena and Silver Saddle been autonomous.
Management Fees
The Company previously maintained a month-to-month
management agreement with Mr. Power requiring a monthly payment, in advance, of $2,500 as consideration for his services as CFO
to Magellan. Effective August 31, 2017, Mr. Power resigned as CFO and Secretary of the Company and was replaced by Michael P. Martinez
on September 18, 2017 to serve as CFO, Secretary and Treasurer. Mr. Power continues to serve as a member of the Board of Directors.
Management fees
to Mr. Power for the year ended December 31, 2018 and 2017, are $0 and $20,000, respectively. These fees are included in general
and administrative expenses in our consolidated statements of operations and comprehensive loss. At December 31, 2018 and 2017,
$27,500 and $27,500 of the fees had not been paid and are included in accrued liabilities on the accompanying consolidated balance
sheets.
Management fees
to Mr. Martinez for the year ended December 31, 2018 and 2017, are $40,000 and $0, respectively. These fees are included in general
and administrative expenses in our consolidated statements of operations and comprehensive loss. At December 31, 2018 and 2017,
$28,000 and $0 of the fees had not been paid and are included in accounts payable on the accompanying consolidated balance sheets.
Accrued Interest - Related Parties
Accrued interest due to related parties is included in our consolidated
balance sheets as follows:
|
December 31,
2018
|
|
December 31,
2017
|
|
Accrued interest payable - Mr. Gibbs
|
$
|
340,218
|
|
$
|
221,103
|
|
Accrued interest payable - Mr. Power
|
|
76,504
|
|
|
16,562
|
|
Accrued interest payable - Dr. Carson
|
|
3,736
|
|
|
986
|
|
|
|
|
|
|
|
|
|
$
|
420,458
|
|
$
|
238,651
|
|
During the year
ended December 31, 2018, we paid a total of $12,357 to Mr. Power representing unpaid accrued interest on notes payable. During
the year ended December 31, 2017, we paid a total of $382 to Mr. Power representing unpaid accrued interest on notes payable.
Advances Payable – Related Party
We borrowed and repaid non-interest bearing advances from/to
related parties as follows:
|
Year Ended December 31, 2018
|
|
|
Advances
|
|
Repayments/Conversion
|
|
Mr. Power
|
$
|
19,300
|
|
$
|
(19,300
|
)
|
Mr. Carson
|
|
–
|
|
|
(8,100
|
)
|
Totals
|
$
|
19,300
|
|
$
|
(27,400
|
)
|
|
Year Ended December 31, 2017
|
|
|
Advances
|
|
Repayments
|
|
Mr. Power
|
$
|
26,050
|
|
$
|
26,050
|
|
Mr. Carson
|
|
8,100
|
|
|
–
|
|
Totals
|
$
|
34,150
|
|
$
|
26,050
|
|
In addition to the above, during the year
ended December 31, 2017, Mr. Power loaned the Company $25,000 in a short term note that was subsequently transferred into the Series
2017 Notes. Mr. Power’s used personal credit cards during the year ended December 31, 2018 to fund Company operations. During
the year ended December 31, 2018 a total of $125,945 was paid for on these credit cards and the Company repaid Mr. Power $101,181
resulting in a balance of $24,764 remained outstanding and is included in Advances payable, related party.
Notes Payable – Related Parties
In August 2011, we entered into an unsecured
loan from John Power, the Company’s Director, evidenced by a $20,000 promissory note. The promissory note bears interest
at 6% per annum and is payable on demand with thirty days’ notice from the lender. During 2014, the Company made payments
totaling $5,000 to pay down the principal balance of the note. Effective December 31, 2017, the interest rate on the note increased
to 12% per annum. At both December 31, 2018 and 2017, the note balance was $15,000. At December 31, 2018 and 2017, accrued interest
totaling $1,800 and $1,576, respectively, is included in Accrued interest – related parties on the accompanying consolidated
balance sheets.
In January 2014, we entered into an additional
unsecured loan from Mr. Power, evidenced by a $50,000 promissory note. The promissory note bears interest at 6.75% per annum and
is payable on demand with thirty days’ notice from the lender. Effective December 31, 2017, the interest rate on the note
increased to 12% per annum. At December 31, 2018 and 2017, accrued interest totaling $6,000 and $6,249, respectively, is included
in Accrued interest – related parties on the accompanying consolidated balance sheets. At both December 31, 2018 and December
31, 2017, the note balance was $50,000.
On May 31, 2017 we entered into three short-term
notes with Mr. Gibbs, 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 matured on November 15, 2017. A total of $3,760 and $4,512 of interest is accrued on these notes as of
December 31, 2018 and December 31, 2017, respectively. The note balances were subsequently rolled into the Series 2017 Notes.
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%
per annum and matured on December 31, 2017 and is currently in default. Effective December 31, 2017, the interest rate on the note
increased to 12% per annum. The note is collateralized by our investment in Rio Silver shares and warrants. At both December 31,
2018 and December 31, 2017, the note balance was $125,000. A total of $15,000 and $3,781 of interest is accrued on these notes
as of December 31, 2018 and December 31, 2017, respectively and is included in Accrued interest – related parties on the
accompanying consolidated balance sheets.
On November 30,
2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties
in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.
Net proceeds on the issuance after reducing
for the transfers previously listed total $900,000. The notes are secured by a stock pledge agreement covering 100% of the outstanding
common stock of Magellan Acquisition Corporation, bear interest at 10% and mature on December 31, 2018, and were subsequently extended
to December 31, 2019.
The total of portion of the Series 2017
Notes from related parties totaled $1,045,000, including financing fees of $95,000 recorded as discount to the notes. Mr. Gibbs,
Dr. Carson, and Mr. Power transferred $100,000, $25,000, and $25,000, respectively, from the May 31, 2017 short term related party
notes into the Series 2017 Notes. As of December 31, 2018 the balance on the Series 2017 Notes from related parties, net of unamortized
discount of $0, is $1,045,000 with accrued interest of $113,375. As of December 31, 2017, the balance on the Series 2017 Notes
from related parties, net of unamortized discount of $87,563, is $957,437 with accrued interest of $8,875.
During the year ended December 31, 2018
$87,563 of debt discount related to the above notes was fully amortized to interest expense.
During the quarter ended December 31, 2018,
Mr. Gibbs participated in the Series 2018A 10% Unsecured Convertible Note for $150,000. See below for further disclosure.
Bridge Note Offering
In October 2018 the Company sold $160,700
of Series 2018 36% Unsecured Promissory Notes (“Notes”) (“Bridge Note Offering”) to Mr. Gibbs and Mr. Power.
The purchase price of the Note is equal to the principal amount of the Note. The Maturity Date of the Notes is December 31, 2018.
During the year ended December 31, 2018, $10,700 was repaid to Mr. Power leaving a balance of $0. As of December 31, 2018, the
portion funded by Mr. Gibbs of $150,000 remained outstanding. The note was extended until March 31, 2019 at which point it became
past due and in default.
Deferred Compensation
On June 1, 2016 we executed an employment
agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation.
The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, and effective June 30, 2016,
Dr. Carson was appointed a Director of Magellan. The term of the agreement covered the period from June 1, 2016 to May 31, 2017
and is subject to annual renewal. The agreement has subsequently been renewed each year and is currently effective from June 1,
2018 to May 31, 2019, with all terms of the original agreement remaining unchanged.
During the term of the agreement, Magellan
agreed to pay Dr. Carson a base salary in equal semi-monthly installments less required withholding and other applicable taxes.
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. Until such time as Magellan is properly funded, Magellan may defer and accrue salary owed.
If not properly funded before the end of the term, Magellan may at its option issue shares of Magellan common stock as settlement
of the accrued salary liability.
Dr. Carson shall have the right to voluntarily
terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan
at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through
the date of termination, including any amount that may have been deferred and accrued.
At December 31,
2018 a total of $60,000 and $13,870 of salary and associated payroll tax obligations, respectively, is accrued in connection with
the agreement and included in accrued liabilities on the accompanying consolidated balance sheets.
At December 31, 2017 a total of $30,000
and $2,796 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included
in accrued liabilities on the accompanying consolidated balance sheets.
Director Independence
Our common stock is not listed on a national
securities exchange or inter-dealer quotation system. Under NASDAQ Rule 5605(a)(2) and Item 407(a) of Regulation S-K, a director
is not considered to be independent if he or she is also an executive officer of the corporation. Our director is considered an
executive officer under Rule 3b-7 of the Exchange Act. Therefore, our director is not independent.
As a result of our limited operating history
and minimal resources, we believe that we will have difficulty in attracting independent directors. In addition, we would likely
be required to obtain directors’ and officers’ insurance coverage in order to attract and retain independent directors.
We believe that the costs associated with maintaining such insurance is prohibitive at this time.
Description of Capital
Stock
The authorized share capital of the Company
consists of 1,000,000,000 shares of Common Stock with a par value of $0.001 and 25,000,000 shares of preferred stock with a par
value of $0.001. As at April 11, 2019, there were 3,529,003 shares of Common Stock issued and outstanding, after giving effect
to a 1-for-50 reverse split effective January 7, 2019, and no preferred stock issued and outstanding.
Common Stock
The holders of Common Stock are entitled
to one vote per share on all matters voted on by stockholders, including the election of directors. Except as otherwise required
by law, the holders of Common Stock exclusively possess all voting power. The holders of Common Stock are entitled to dividends
as may be declared from time to time by our board of directors from funds available for distribution to holders. No holder of Common
Stock has any pre-emptive right to subscribe to any securities of ours of any kind or class or any cumulative voting rights. The
outstanding shares of Common Stock are, and the shares, upon issuance and sale as contemplated will be, duly authorized, validly
issued, fully paid and non-assessable.
Anti-Takeover Effects of Various Provisions of Nevada Law
and Our Articles of Incorporation and By-laws
The Nevada Corporation Law, our certificate
of incorporation and our by-laws contain provisions that may have some anti-takeover effects and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in his, her or its best interest, including those attempts that
might result in a premium over the market price for the shares held by stockholders.
Nevada Anti-Takeover Statute
We are subject to Section 78.411
et.seq.
of the Nevada Revised Statutes (“Section 78.411”). Subject to specific exceptions, Section 78.411 prohibits a publicly
held Nevada corporation from engaging in a “business combination” with an “interested stockholder” for
a period of two years after the time the stockholder becomes an interested stockholder, unless:
|
•
|
the business combination, or the transaction in which the stockholder became an interested stockholder, is approved by our board of directors prior to the time the interested stockholder attained that status;
|
|
•
|
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
|
|
•
|
at or after the time a stockholder became an interested stockholder, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of our outstanding voting stock that is not owned by the interested stockholder.
|
“Business combinations” include
mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to various
exceptions, in general, an “interested stockholder” is a stockholder who, together with his, her or its affiliates
and associates, owns, or within two years did own, 10% or more of the shares of our outstanding voting stock. These restrictions
could prohibit or delay the accomplishment of mergers or other takeover or change of control attempts with respect to us and, therefore,
may discourage attempts to acquire us.
Outstanding Warrants to Purchase Common Stock
As at December 31, 2018, there are no outstanding
Warrants to purchase Common Stock, other than the Warrants sold in the Offerings.
Preferred Stock
Our board of directors is authorized to
issue all and any of the shares of preferred stock in one or more series, fix the number of shares, determine or alter for each
such series voting powers or other rights, qualifications, limitations or restrictions thereof. As of the date of this prospectus,
there are no shares of preferred stock outstanding.
Bridge Notes
The Company issued an aggregate of $160,700
of 36% Unsecured Subordinated Promissory Notes (the “Bridge Notes”) to two related parties. The Bridge Notes matured
on December 31, 2018 and bear interest at annual rate of 36% per annum payable at maturity. A Bridge Note in the amount of $10,700
was repaid, and the maturity date of the Bridge Note of $150,000 was extended to December 31, 2019.
Senior Secured Notes
During the year ended December 31, 2017,
the Company borrowed $1,155,000 from certain related parties which was primarily represented by a series of promissory notes ("Series
2017 Notes"). The proceeds were generally used to fund the purchase of the SDA Mill in Mexico. The Series 2017 Notes accrue
interest at the rate of 10% per annum and are secured by a pledge of all the outstanding shares of Magellan Acquisition Corporation,
a wholly-owned subsidiary that owns the SDA Mill through Minerales Vane 2. Minerales Vane 2 also holds the Company’s rights
to the El Dorado concession in Mexico which is in proximity to the SDA Mill. The Series 2017 Notes mature on December 31, 2018.
The stock pledge is held by John Gibbs as Collateral Agent for the various holders of the Series 2017 Notes, of which his in the
largest.
Series 2018A Convertible Notes
The Company has an aggregate of $205,000
of 10% Unsecured Convertible Promissory Notes (the “Series 2018A Convertible Notes”) due October 31, 2019. Interest
at the rate of 10% per annum is payable quarterly in arrears either in cash, or at the option of the Company, in shares of Common
Stock valued at the 20 day VWAP immediately preceding the end of the quarter. The Series 2018A Convertible Notes may be prepaid
at any time without penalty.
Conversion
The Series 2018A Convertible Notes are
convertible at the option of the holders at any time at a conversion price of $1.00 (the “Conversion Price”) per common
share, subject to adjustment in certain events. The Conversion Amount shall automatically be converted into Conversion Shares in
the event (i) there exists a public market for the Company’s common stock, (ii) the closing price of the common stock in
the principal trading market has been $12.50 per share or higher for the preceding ten (10) trading days, and (iii) either (A)
there is an effective registration statement registering for resale under the Securities Act of 1933, as amended (“Securities
Act”) the Conversion Shares or (B) the Conversion Shares are eligible to be resold by non-affiliates of the Company without
restriction under Rule 144 under the Securities Act. The holder of Convertible Notess does not have the right to convert any portion
of the Note if the holder would beneficially own in excess of 4.99% of the shares of our Common Stock outstanding immediately after
giving effect to such conversion.
Subordination
The payment of the principal of, and interest
on, the Series 2018A Convertible Notes is unsecured and, as a result, is subordinated in right of payment to the prior payment
in full of all Senior Indebtedness of the Company, including indebtedness under the Company’s present and future bank credit
facilities and any other secured creditors. “Senior Indebtedness” of the Company is defined as the principal of and
premium, if any, and interest on and other amounts in respect of all indebtedness of the Company which is secured by assets of
the Company. Subject to statutory or preferred exceptions or as may be specified by the terms of any particular securities, each
Series 2018A Convertible Note ranks pari passu with each other Series 2018A Convertible Note, and with all other present and future
subordinated and unsecured indebtedness of the Company. The Series 2018A Convertible Note will not limit the ability of the Company
to incur additional indebtedness, including indebtedness that ranks senior to the Series 2018A Convertible Note, or from mortgaging,
pledging or charging its properties to secure any indebtedness.
The Series 2018A Convertible Notes are
also effectively subordinated to claims of creditors of the Company’s subsidiaries, except to the extent the Company is a
creditor of such subsidiaries ranking at least pari passu with such other creditors.
Default
Under the terms of the Series 2018A Convertible
Notes, an event of default in respect of the Notes will occur if any one or more of the following described events has occurred
and is continuing with respect to the Notes: (a) failure to pay principal or premium, if any, when due on the Notes, whether at
maturity, upon redemption, by declaration or otherwise; (b) certain events of bankruptcy, insolvency or reorganization of the Company
under bankruptcy or insolvency laws; or (c) the Company breaches any representation or covenant in the Note that could reasonably
be expected to have a material adverse effect. If an Event of Default has occurred and is continuing, an investor may, with the
written consent of the holders of more than 50% of the principal amount of the Notes then outstanding, by written notice to the
Company, declare all outstanding Notes to be immediately due and payable without presentment, demand, protest or any other notice
of any kind, all of which will be expressly waived by the Company.
Agreement Among Lenders
All holders of the Series 2018A Convertible
Notes have executed an Agreement Among Lenders pursuant to which such holders have agreed to act in concert with respect to the
Series 2018A Convertible Notes in accordance with the determination of the holders of a Majority in Interest in such Series 2018A
Convertible Notes.
Registration Rights Agreement
All holders of the Series 2018A Convertible
Notes have executed a Registration Rights Agreement pursuant to which the Company has agreed to register under the Securities Act
the resale of the shares of Common Stock issuable upon conversion of the Series 2018A Convertible Notes. The Registration Rights
Agreement has customary liquidated damages provisions if the Company fails to file and have declared effective the Registration
Statement on or before certain deadlines, and customary indemnification provisions under federal securities laws. The Registration
Statement of which this prospectus forms a part has been prepared and filed by the Company pursuant to the provisions of the Registration
Rights Agreement.
Series 2018B Convertible Notes
The Company has an aggregate of $150,000
of 10% Unsecured Convertible Promissory Notes (the “Series 2018B Convertible Notes”) due December 15, 2019. Interest
at the rate of 10% per annum is payable quarterly in arrears either in cash, or at the option of the Company, in shares of Common
Stock valued at the 20 day VWAP immediately preceding the end of the quarter. The Series 2018B Convertible Notes may be prepaid
at any time without penalty.
Conversion
The Series 2018B Convertible Notes are
convertible at the option of the holders at any time at a conversion price of $1.25 (the “Conversion Price”) per common
share, subject to adjustment in certain events. The Conversion Amount shall automatically be converted into Conversion Shares in
the event (i) there exists a public market for the Company’s common stock, (ii) the closing price of the common stock in
the principal trading market has been $12.50 per share or higher for the preceding ten (10) trading days, and (iii) either (A)
there is an effective registration statement registering for resale under the Securities Act of 1933, as amended (“Securities
Act”) the Conversion Shares or (B) the Conversion Shares are eligible to be resold by non-affiliates of the Company without
restriction under Rule 144 under the Securities Act. The holder of Convertible Notes does not have the right to convert any portion
of the Note if the holder would beneficially own in excess of 4.99% of the shares of our Common Stock outstanding immediately after
giving effect to such conversion.
Subordination
The payment of the principal of, and interest
on, the Series 2018B Convertible Notes is unsecured and, as a result, is subordinated in right of payment to the prior payment
in full of all Senior Indebtedness of the Company, including indebtedness under the Company’s present and future bank credit
facilities and any other secured creditors. “Senior Indebtedness” of the Company is defined as the principal of and
premium, if any, and interest on and other amounts in respect of all indebtedness of the Company which is secured by assets of
the Company. Subject to statutory or preferred exceptions or as may be specified by the terms of any particular securities, each
Series 2018B Convertible Note ranks pari passu with each other Series 2018B Convertible Note, and with all other present and future
subordinated and unsecured indebtedness of the Company. The Series 2018B Convertible Note will not limit the ability of the Company
to incur additional indebtedness, including indebtedness that ranks senior to the Series 2018B Convertible Note, or from mortgaging,
pledging or charging its properties to secure any indebtedness.
The Series 2018B Convertible Notes are
also effectively subordinated to claims of creditors of the Company’s subsidiaries, except to the extent the Company is a
creditor of such subsidiaries ranking at least pari passu with such other creditors.
Default
Under the terms of the Series 2018B Convertible
Notes, an event of default in respect of the Notes will occur if any one or more of the following described events has occurred
and is continuing with respect to the Notes: (a) failure to pay principal or premium, if any, when due on the Notes, whether at
maturity, upon redemption, by declaration or otherwise; (b) certain events of bankruptcy, insolvency or reorganization of the Company
under bankruptcy or insolvency laws; or (c) the Company breaches any representation or covenant in the Note that could reasonably
be expected to have a material adverse effect. If an Event of Default has occurred and is continuing, an investor may, with the
written consent of the holders of more than 50% of the principal amount of the Notes then outstanding, by written notice to the
Company, declare all outstanding Notes to be immediately due and payable without presentment, demand, protest or any other notice
of any kind, all of which will be expressly waived by the Company.
Agreement Among Lenders
All holders of the Series 2018B Convertible
Notes have executed an Agreement Among Lenders pursuant to which such holders have agreed to act in concert with respect to the
Series 2018B Convertible Notes in accordance with the determination of the holders of a Majority in Interest in such Series 2018B
Convertible Notes.
Registration Rights Agreement
All holders of the Series 2018B Convertible
Notes have executed a Registration Rights Agreement pursuant to which the Company has agreed to register under the Securities Act
the resale of the shares of Common Stock issuable upon conversion of the Series 2018B Convertible Notes. The Registration Rights
Agreement has customary liquidated damages provisions if the Company fails to file and have declared effective the Registration
Statement on or before certain deadlines, and customary indemnification provisions under federal securities laws. The Registration
Statement of which this prospectus forms a part has been prepared and filed by the Company pursuant to the provisions of the Registration
Rights Agreement.
Warrants
As of the date of this prospectus, in connection
with the Offerings, we had outstanding Warrants to purchase an aggregate of 300,000 shares of our Common Stock at an exercise price
of $1.00 (the “A Warrants”) and Warrants exercisable to purchase an additional 300,000 shares of Common Stock at an
exercise price of $3.00 per Share (the “B Warrants”). The number of warrants and price per share reflect a 1-for-50
reverse stock split that became effective on January 7, 2019.
Exercisability
Holders may exercise the A Warrants at
any time up to 5:00 p.m., San Francisco time, on May 28, 2019; and holders may exercise the B Warrants at any time up to 5:00 p.m.
San Francisco time on August 8, 2019 [six months from the effective date of the S-1 Registation Statement]. The Warrants are exercisable,
at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in
full for the number of shares of our Common Stock purchased upon such exercise. The holder of Warrants does not have the right
to exercise any portion of the Warrant if the holder would beneficially own in excess of 4.99% of the shares of our Common Stock
outstanding immediately after giving effect to such exercise.
Exercise Price
The exercise price of Common Stock purchasable
upon exercise of the Class A Warrants is $1.00 per share, and $3.00 per share for the Class B Warrants . The exercise price and
the number of shares issuable upon exercise of the Warrants is subject to appropriate adjustment in the event of stock combinations,
reclassifications stock splits, rights offerings, special distributions of cash, securities, rights or any other properties or
assets, or similar events affecting our Common Stock.
Capital Reorganization
In the event of a capital reorganization,
as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our Common Stock,
the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with
or into another person, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount
of securities with cash or other property that the holders would have received had they exercised the Warrants immediately prior
to such capital reorganization.
Transferability
The Warrants may be transferred at the
option of the holder upon surrender of the Warrants with the appropriate instruments of transfer.
Rights as Stockholder
Except as otherwise provided in the Warrants
(such as the rights described above of a Warrant to receive consideration upon a capital reorganization) or by virtue of such holder’s
ownership of shares of our Common Stock, the holders of the Warrants do not have the rights or privileges of holders of our Common
Stock, including any voting rights, until they exercise their Warrants.
Fractional Shares
No fractional shares of Common Stock will
be issued upon the exercise of the Warrants. Rather, the Company will deliver the holder an amount of cash equal to the value of
the fractional interest on the basis of the closing price of the Company’s Common Stock on the OTC.QB (or, if the Company
no longer trades on the OTC.QB, the Company’s primary trading market) on the trading day prior to the date of exercise.
Selling Securityholders
The Common Stock being offered by the Selling
Securityholders are those previously issued to the Selling Securityholders in the Offerings. For additional information regarding
the issuances of the Securities, see “Description of Private Placements” above. We are registering the Common Stock
to permit the Selling Securityholders to offer the Securities for resale from time to time. Except for the ownership of the Securities
and as otherwise noted in the table below, the Selling Securityholders have not had any material relationship with us within the
past three years.
The following table sets forth the name
of each person who is offering for resale Common Stock, covered by this prospectus, the beneficial ownership of each such Selling
Securityholder, the number of shares of Common Stock that may be sold in this offering and the number of shares of Common Stock
each will own after the offering, assuming they sell all of the Common Stock offered. The term “Selling Securityholder”
includes the securityholders listed below and their transferees. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. This information
does not necessarily indicate beneficial ownership for any other purpose. In computing the number of shares of Common Stock beneficially
owned by a person and the percentage ownership of that person, Common Stock subject to convertible notes, warrants, options and
other convertible securities held by that person that are currently convertible or exercisable, or convertible or exercisable within
60 days of the date of this prospectus are deemed outstanding. Such shares of Common Stock, however, are not deemed outstanding
for the purposes of computing the percentage ownership of any other person. The percentage of beneficial ownership for the shares
of Common Stock is based on 3,529,003 shares of Common Stock outstanding on the date of this prospectus.
In accordance with the terms of a registration
rights agreement with the Selling Securityholders, this prospectus generally covers the resale of the number of shares of Common
Stock issued to the Selling Securityholders in the private placements and the maximum number of shares of Common Stock issuable
upon exercise of the related Warrants, determined as if the outstanding Warrants were exercised in full as of the trading day immediately
preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding
the applicable date of determination and all subject to adjustment as provided in the registration right agreement. The fourth
column assumes the sale of all of the shares offered by the Selling Securityholders pursuant to this prospectus.
Under the terms of the Warrants and Notes,
a Selling Securityholder may not exercise the Warrants or convert the Notes to the extent such exercise or conversion would cause
such Selling Securityholder, together with its affiliates and attribution parties, to beneficially own a number of shares of Common
Stock which would exceed 4.99% of our then outstanding Common Stock following such exercise, excluding for purposes of such determination
shares of Common Stock issuable upon exercise of the Warrants which have not been exercised or Notes which have not been converted.
The number of shares in the second column does not reflect this limitation. The Selling Securityholder may sell all, some or none
of their Securities in this offering. See “Plan of Distribution.”
There is no assurance that the Selling Securityholders will
sell the shares offered by this prospectus.
The following table sets forth:
|
·
|
The name of the Selling Securityholders;
|
|
·
|
The number of shares of our common stock owned by the Selling Securityholders, including the number of shares that may be acquired upon conversion of notes and the exercise of the warrants held by the Selling Securityholders;
|
|
·
|
The number of shares offered by this prospectus that may be sold from time to time by the Selling Securityholders;
|
|
·
|
The number of shares of our common stock that will be beneficially owned by the Selling Securityholders if all of the shares offered by the Selling Securityholders are sold;
|
|
·
|
The percentage of the total shares outstanding that will be owned by the Selling Securityholders at the completion of this offering, if the Selling Securityholders sell all of the shares included in this prospectus.
|
Beneficial ownership is based on information
provided to us, and the beneficial owner has no obligation to inform us of or otherwise report any changes in beneficial ownership.
Except as indicated, and subject to community property laws when applicable, the persons named in the table above have sole voting
and investment power with respect to all shares of common stock shown as beneficially owned by them.
|
|
Shares
Beneficially Owned
Prior to the Offering(1)
|
|
|
Shares
Offered
|
|
|
Shares
Beneficially Owned
After Offering(3)
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Number
|
|
|
Percent(2)
|
|
Michael E. Donnelly
|
|
|
25,000
|
(4)
|
|
|
*
|
|
|
|
25,000
|
|
|
|
-0-
|
|
|
|
*
|
|
Steven M. Bathgate
|
|
|
12,500
|
(4)
|
|
|
*
|
|
|
|
12,500
|
|
|
|
-0-
|
|
|
|
*
|
|
Susan K. Huebner
|
|
|
12,500
|
(4)
|
|
|
*
|
|
|
|
12,500
|
|
|
|
-0-
|
|
|
|
*
|
|
Norman Raoul Clark
|
|
|
5,000
|
(4)
|
|
|
*
|
|
|
|
5,000
|
|
|
|
-0-
|
|
|
|
*
|
|
John D. Gibbs
|
|
|
1,490,773
|
(5)
|
|
|
40.52%
|
|
|
|
150,000
|
|
|
|
1,340,773
|
|
|
|
30.10%
|
|
Philip Grey
|
|
|
300,000
|
(6)
|
|
|
6.74%
|
|
|
|
300,000
|
|
|
|
-0-
|
|
|
|
*
|
|
Joseph Lavigne
|
|
|
300,000
|
(6)
|
|
|
6.74%
|
|
|
|
300,000
|
|
|
|
-0-
|
|
|
|
*
|
|
Kevin Curtis
|
|
|
150,000
|
(7)
|
|
|
3.37%
|
|
|
|
150,000
|
|
|
|
-0-
|
|
|
|
*
|
|
Stephen Calandrella
|
|
|
119,098
|
(8)
|
|
|
2.6%
|
|
|
|
40,000
|
|
|
|
79,098
|
|
|
|
1.78%
|
|
Ron Lavigne
|
|
|
80,000
|
(9)
|
|
|
1.8%
|
|
|
|
80,000
|
|
|
|
-0-
|
|
|
|
*
|
|
_____________________
* Represents less than
1%
(1) Assumes
all principal underlying outstanding notes in the October Convertible Note Offering are converted into common stock at a conversion
price of $1.00 per share; the principal underlying notes in the December Convertible Note Offering are converted into common stock
a conversion price of $1.25 per share and all outstanding warrants issued in the Unit Offering are exercised, of which there can
be no assurance.
(2) Based
on 4,454,003 shares outstanding, including 600,000 shares issuable upon exercise of the A and B Warrants, if all of the warrants
in the Unit Offering were exercised; 205,000 shares issuable upon conversion of the 2018 A Convertible Notes; and 120,000 shares
issuable upon conversion of the 2018B Convertible Notes.
(3) Assumes
all conversion stock underlying the notes and all warrant stock underlying the warrants are resold by the Selling Securityholder
in this offering. Actual number of shares sold by each Selling Securityholder may vary.
(4) Consists
of a 2018A Convertible Note convertible into shares of Common Stock at an exercise price of $1.00 per share.
(5) Includes
1,330,443 shares owned individually, a Promissory Note convertible into 150,000 shares of Common Stock (excluding any future accrued
interest that may be convertible) and 10,330 shares owned by Tri Power Resources, Inc., controlled by Mr. Gibbs.
(6) Includes
A and B Warrants exercisable to purchase an aggregate of 240,000 shares of Common Stock. The A and B Warrants include a “blocker”
provision that limits the ability of the holders of those Warrants to exercise them if such exercise would result in such holder
becoming the beneficial owner, within the meaning of Rule 13d-3 under the Exchange Act, of more than 4.99% of the total issued
and outstanding shares of the Company. Without giving effect to the blocker, the percentage owned, within the meaning of Rule 13d-3,
would be 6.8%.
(7) Includes
A and B Warrants exercisable to purchase an aggregate of 120,000 shares of Common Stock.
(8) Of
the 119,098 beneficial shares held by the Selling Securityholder, 40,000 shares are issuable upon conversion of a Series 2018B
Convertible Note, 1,692 shares are held by the Stephen G. Calandrella Traditional IRA and 124 shares are held by the Calandrella
Family Foundation, of which Mr. Calandrella is a principal.
(9) Consists
of shares of Common Stock issuable upon conversion of 2018B Convertible Note at a conversion price of $1.25 per share.
We have agreed to indemnify the Selling
Securityholders against specified liabilities including liabilities under the Securities Act in connection with its offering. The
Selling Securityholders have agreed to indemnify us and our directors and officers, as well as any persons controlling us, against
certain liabilities, including liabilities under the Securities Act.
We will pay all expenses to register the
shares, except that the Selling Securityholders will pay any underwriting and brokerage discounts, fees and commissions, specified
attorneys' fees and other expenses to the extent applicable to them.
The Selling Securityholders may sell their
shares of common stock either directly or through a broker-dealer or other agent at prices related to prevailing market prices,
if a public trading market continues to exist, or negotiated prices, in one or more of the following kinds of transactions:
|
·
|
Transactions in the over-the-counter market;
|
|
·
|
A block trade in which a broker or dealer will attempt to sell shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
·
|
Purchases by a broker or dealer as principal and resale by a broker or dealer for its account;
|
|
·
|
Ordinary brokerage transactions and transactions in which a broker solicits a buyer; or
|
|
·
|
In privately negotiated transactions not involving a broker or dealer.
|
Broker-dealers or agents may purchase shares
directly from the Selling Securityholders or sell shares to someone else on behalf of the Selling Securityholders. Broker-dealers
may charge commissions to both the Selling Securityholders selling common stock, and purchasers buying shares sold by the Selling
Securityholders. If a broker buys shares directly from a Selling Securityholder, the broker may resell the shares through another
broker, and the other broker may receive compensation from the Selling Securityholder for the resale.
To the extent required by laws, regulations
or agreements we have made, we will use our best efforts to file a prospectus supplement during the time the Selling Securityholders
are offering or selling shares covered by this prospectus in order to add or correct important information about the plan of distribution
for the shares.
In addition to any other applicable laws
or regulations, Selling Securityholders must comply with regulations relating to distributions by Selling Securityholders, including
Regulation M under the Securities Exchange Act of 1934, as amended. Regulation M prohibits Selling Securityholders from offering
to purchase or purchasing our common stock at certain periods of time surrounding their sales of shares of our common stock under
this prospectus.
The Selling Securityholders may be deemed
to be underwriters within the meaning of the Securities Act. If a Selling Securityholder is a broker-dealer or an affiliate of
a broker-dealer, he will be an underwriter.
Some states may require that registration,
exemption from registration or notification requirements be met before the Selling Securityholders may sell their common stock.
Some states may also require the Selling Securityholders to sell their common stock only through broker-dealers.
Relationships With
Selling Securityholders
None of the Selling Securityholders has
any material relationship with the Company except for Mr. John Gibbs. As described elsewhere in this prospectus, Mr. Gibbs is the
largest shareholder of the Company, beneficially owning, within the meaning of Rule 13d-3 under the Exchange Act, of more than
40% of the total issued and outstanding shares of the Company. Historically, Mr. Gibbs has also provided the Company with most
of its working capital requirements, including underwriting a Credit Agreement with a current outstanding balance of approximately
$1,100,000, principal and accrued interest. Mr. Gibbs is also a holder of a majority of the outstanding 2017 Notes that are secured
by a pledge of all of the outstanding shares of Magellan Gold Corporation, which, through Minerales Vane2, owns the SDA Mill and
El Dorado prospect in Mexico. Mr. Gibbs serves as Collateral Agent for the holders of the 2017 Notes.
Plan
of Distribution
Each Selling Securityholder of the Securities
and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their Securities covered
hereby on the OTCQB or any other stock exchange, market or trading facility on which the Securities are traded or in private transactions.
These sales may be at fixed or negotiated prices. A Selling Securityholder may use any one or more of the following methods when
selling Securities:
|
•
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
•
|
block trades in which the broker-dealer will attempt to sell the Securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
•
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
•
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
|
•
|
privately negotiated transactions;
|
|
•
|
settlement of short sales;
|
|
•
|
in transactions through broker-dealers that agree with the Selling Securityholders to sell a specified number of such Securities at a stipulated price per security;
|
|
•
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
•
|
a combination of any such methods of sale; or
|
|
•
|
any other method permitted pursuant to applicable law.
|
The Selling Securityholders may also sell
Securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities
Act”), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Securityholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Securityholders (or, if any broker-dealer acts as agent for the purchaser of Securities, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with FINRA IM-2440.
In connection with the sale of the Securities
or interests therein, the Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the Securities in the course of hedging the positions they assume. The Selling Securityholders
may also sell Securities short and deliver these Securities to close out their short positions, or loan or pledge the Securities
to broker-dealers that in turn may sell these Securities. The Selling Securityholders may also enter into option or other transactions
with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of Securities offered by this prospectus, which Securities such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Securityholders and any broker-dealers
or agents that are involved in selling the Securities may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the Securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. Each Selling Securityholder has informed the Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Securities.
The Company is required to pay certain
fees and expenses incurred by the Company incident to the registration of the Securities. The Company has agreed to indemnify the
Selling Securityholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective
until the earlier of (i) the date on which the Securities may be resold by the Selling Securityholders without registration and
without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be
in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or
(ii) all of the Securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of
similar effect. The resale Securities will be sold only through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the resale Securities covered hereby may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations
under the Exchange Act, any person engaged in the distribution of the resale Securities may not simultaneously engage in market
making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution. In addition, the Selling Securityholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the
Common Stock by the Selling Securityholders or any other person. Because the Selling Securityholders may be deemed to be "underwriters"
within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act.
Legal Matters
The validity of the Common Stock offered
hereby will be passed upon by Clifford L. Neuman, PC. Mr. Neuman is the beneficial owner of an aggregate of 41,647 shares of Common
Stock of the Company.
Experts
Magellan Gold Corporation’s consolidated
financial statements for the years ended December 31, 2018 and 2017 included in this registration statement have been audited by
MaloneBailey, LLP, Houston, Texas, an independent registered public accounting firm, as stated in their report, which includes
an explanatory paragraph as to the Company’s ability to continue as a going concern, and have been so included in reliance
upon the report of said firm and their authority as experts in accounting and auditing.
Where You Can Find
Additional Information
We file reports and other information with
the Securities and Exchange Commission. We have also filed a registration statement on Form S-1, including exhibits, with the SEC
with respect to the shares being offered in this offering. This prospectus is part of the registration statement, but it does not
contain all of the information included in the registration statement or exhibits. For further information with respect to us and
our Common Stock, we refer you to the registration statement and to the exhibits and schedules to the registration statement. Statements
contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete,
and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement.
Each of these statements is qualified in all respects by this reference. You may inspect a copy of the registration statement and
other reports we file with the Securities and Exchange Commission without charge at the SEC’s principal office in Washington,
D.C., and copies of all or any part of the registration statement may be obtained from the Public Reference Section of the SEC,
100 F Street NE, Washington, D.C. 20549, upon payment of fees prescribed by the SEC. The SEC maintains an internet site that contains
reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The
address of the Web site is http://www.sec.gov. The SEC’s toll free investor information service can be reached at 1-800-SEC-0330.
MAGELLAN GOLD CORPORATION
FINANCIAL
INFORMATION TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Magellan Gold Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Magellan Gold Corporation and its subsidiaries (collectively, the “Company”) as of December 31, 2018
and 2017, and the related consolidated statements of operations and comprehensive loss, shareholders’ deficit, and cash flows
for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018
and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor
since 2011.
Houston, Texas
April 12, 2019
MAGELLAN
GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,862
|
|
|
$
|
421
|
|
Due from Rose Petroleum
|
|
|
–
|
|
|
|
27,147
|
|
Investment in Rio Silver equities
|
|
|
70,609
|
|
|
|
109,532
|
|
Prepaid expenses and other current assets
|
|
|
44,746
|
|
|
|
121,283
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
120,217
|
|
|
|
258,383
|
|
|
|
|
|
|
|
|
|
|
Mineral rights, net of impairment
|
|
|
48,164
|
|
|
|
323,200
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation of $130,644 and $11,822, respectively
|
|
|
1,054,381
|
|
|
|
1,155,811
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
301,158
|
|
|
|
216,151
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,523,920
|
|
|
$
|
1,953,545
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
540,593
|
|
|
|
270,424
|
|
Accrued liabilities
|
|
|
206,948
|
|
|
|
60,296
|
|
Line of credit - related party
|
|
|
852,500
|
|
|
|
932,500
|
|
Notes payable - related parties
|
|
|
1,385,000
|
|
|
|
1,197,437
|
|
Notes payable
|
|
|
110,000
|
|
|
|
100,783
|
|
Convertible note payable - related party
|
|
|
150,000
|
|
|
|
–
|
|
Convertible notes payable
|
|
|
205,000
|
|
|
|
271,697
|
|
Accrued interest - related parties
|
|
|
420,458
|
|
|
|
238,651
|
|
Accrued interest
|
|
|
13,926
|
|
|
|
5,750
|
|
Advances payable, related party
|
|
|
24,764
|
|
|
|
8,100
|
|
Total current liabilities
|
|
|
3,909,189
|
|
|
|
3,085,638
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Asset retirement obligation
|
|
|
116,149
|
|
|
|
115,914
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,025,338
|
|
|
|
3,201,552
|
|
|
|
|
|
|
|
|
|
|
Shareholders' deficit:
|
|
|
|
|
|
|
|
|
Preferred shares, $.001 par value, 25,000,000 shares authorized, no shares issued and outstanding
|
|
|
–
|
|
|
|
–
|
|
Common shares - $0.001 par value; 1,000,000,000 shares authorized, 3,264,752 and 1,911,628 shares issued and outstanding, respectively
|
|
|
3,265
|
|
|
|
1,912
|
|
Additional paid-in capital
|
|
|
4,310,699
|
|
|
|
2,897,539
|
|
Accumulated other comprehensive loss
|
|
|
(108,858
|
)
|
|
|
(87,570
|
)
|
Accumulated deficit
|
|
|
(6,706,524
|
)
|
|
|
(4,059,888
|
)
|
Shareholders' deficit
|
|
|
(2,501,418
|
)
|
|
|
(1,248,007
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' deficit
|
|
$
|
1,523,920
|
|
|
$
|
1,953,545
|
|
See accompanying notes to the consolidated
financial statements
MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
Years ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues, net
|
|
$
|
123,955
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
437,711
|
|
|
|
–
|
|
Exploration costs
|
|
|
20,035
|
|
|
|
61,233
|
|
General and administrative expenses
|
|
|
886,770
|
|
|
|
964,302
|
|
Depreciation and amortization
|
|
|
118,822
|
|
|
|
12,104
|
|
Accretion of asset retirement obligation
|
|
|
–
|
|
|
|
367
|
|
Impairment loss
|
|
|
323,200
|
|
|
|
345,697
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,786,538
|
|
|
|
1,383,703
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,662,583
|
)
|
|
|
(1,383,703
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(718,583
|
)
|
|
|
(96,480
|
)
|
Foreign currency exchange gain
|
|
|
3,128
|
|
|
|
–
|
|
Loss on extinguishment of debt
|
|
|
(73,250
|
)
|
|
|
–
|
|
Unrealized gain (loss) on equity securities
|
|
|
(38,923
|
)
|
|
|
–
|
|
Other expenses
|
|
|
(48,644
|
)
|
|
|
–
|
|
Gain (loss) on change in derivative liability
|
|
|
224,529
|
|
|
|
(657,776
|
)
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(651,743
|
)
|
|
|
(754,256
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,314,326
|
)
|
|
|
(2,137,959
|
)
|
|
|
|
|
|
|
|
|
|
Deemed dividend
|
|
|
(323,792
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(2,638,118
|
)
|
|
$
|
(2,317,959
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,314,326
|
)
|
|
$
|
(2,137,959
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(29,806
|
)
|
|
|
(79,052
|
)
|
Unrealized loss on available -for-sale securities
|
|
|
–
|
|
|
|
(8,518
|
)
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss
|
|
$
|
(2,344,132
|
)
|
|
$
|
(2,225,529
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(1.10
|
)
|
|
$
|
(1.46
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average common shares outstanding
|
|
|
2,388,807
|
|
|
|
1,465,243
|
|
See accompanying notes to the consolidated
financial statements
MAGELLAN GOLD
CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
For the years ended December 31, 2018 and
2017
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid - in
|
|
|
Accumulated
Other Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Gain (Loss)
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
–
|
|
|
$
|
–
|
|
|
|
1,292,611
|
|
|
$
|
1,293
|
|
|
$
|
920,160
|
|
|
$
|
–
|
|
|
$
|
(1,921,929
|
)
|
|
$
|
(1,000,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Sales of common stock and warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
35,000
|
|
|
|
35
|
|
|
|
174,965
|
|
|
|
–
|
|
|
|
–
|
|
|
|
175,000
|
|
Conversion of notes payable
|
|
|
–
|
|
|
|
–
|
|
|
|
160,000
|
|
|
|
160
|
|
|
|
25,895
|
|
|
|
–
|
|
|
|
–
|
|
|
|
26,055
|
|
Reclassification of derivative liability
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
777,276
|
|
|
|
–
|
|
|
|
–
|
|
|
|
777,276
|
|
Stock issued for prepaid services
|
|
|
–
|
|
|
|
–
|
|
|
|
60,000
|
|
|
|
60
|
|
|
|
119,940
|
|
|
|
–
|
|
|
|
–
|
|
|
|
120,000
|
|
Stock Based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
80,000
|
|
|
|
80
|
|
|
|
303,562
|
|
|
|
–
|
|
|
|
–
|
|
|
|
303,642
|
|
Stock issued for acquisition of SDA Mill
|
|
|
–
|
|
|
|
–
|
|
|
|
284,017
|
|
|
|
284
|
|
|
|
425,741
|
|
|
|
–
|
|
|
|
–
|
|
|
|
426,025
|
|
Capital contribution
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
150,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
150,000
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,137,959
|
)
|
|
|
(2,137,959
|
)
|
Other comprehensive loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(87,570
|
)
|
|
|
–
|
|
|
|
(87,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
–
|
|
|
|
–
|
|
|
|
1,911,628
|
|
|
|
1,912
|
|
|
|
2,897,539
|
|
|
|
(87,570
|
)
|
|
|
(4,059,888
|
)
|
|
|
(1,248,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASU 2016-01
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8,518
|
|
|
|
(8,518
|
)
|
|
|
–
|
|
Sales of common stock and warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
460,000
|
|
|
|
460
|
|
|
|
459,540
|
|
|
|
–
|
|
|
|
–
|
|
|
|
460,000
|
|
Exercise of warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
120,000
|
|
|
|
120
|
|
|
|
119,880
|
|
|
|
–
|
|
|
|
–
|
|
|
|
120,000
|
|
Conversion of debt - related party
|
|
|
–
|
|
|
|
–
|
|
|
|
198,100
|
|
|
|
198
|
|
|
|
197,902
|
|
|
|
–
|
|
|
|
–
|
|
|
|
198,100
|
|
Warrant derivative liability
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(168,791
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(168,791
|
)
|
Resolution of derivative liability
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
239,262
|
|
|
|
–
|
|
|
|
–
|
|
|
|
239,262
|
|
Stock Based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
36,647
|
|
|
|
–
|
|
|
|
–
|
|
|
|
36,667
|
|
Stock issued for prepaid asset
|
|
|
–
|
|
|
|
–
|
|
|
|
20,261
|
|
|
|
20
|
|
|
|
18,215
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18,235
|
|
Conversion of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
236,000
|
|
|
|
236
|
|
|
|
187,012
|
|
|
|
–
|
|
|
|
–
|
|
|
|
187,248
|
|
Deemed dividend
|
|
|
–
|
|
|
|
–
|
|
|
|
298,636
|
|
|
|
299
|
|
|
|
323,493
|
|
|
|
–
|
|
|
|
(323,792
|
)
|
|
|
–
|
|
Rounding from stock split
|
|
|
–
|
|
|
|
–
|
|
|
|
127
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,314,326
|
)
|
|
|
(2,314,326
|
)
|
Other comprehensive loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(29,806
|
)
|
|
|
–
|
|
|
|
(29,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
–
|
|
|
$
|
–
|
|
|
|
3,264,752
|
|
|
$
|
3,265
|
|
|
$
|
4,310,699
|
|
|
$
|
(108,858
|
)
|
|
$
|
(6,706,524
|
)
|
|
$
|
(2,501,418
|
)
|
See accompanying notes to the consolidated
financial statements
MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Years ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,314,326
|
)
|
|
$
|
(2,137,959
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Accretion of asset retirement obligation
|
|
|
–
|
|
|
|
367
|
|
Accretion of discounts on notes payable
|
|
|
421,083
|
|
|
|
12,766
|
|
Amortization of service contracts
|
|
|
119,167
|
|
|
|
52,884
|
|
Depreciation and amortization expense
|
|
|
118,822
|
|
|
|
12,104
|
|
Loss on extinguishment of debt
|
|
|
73,750
|
|
|
|
–
|
|
Unrealized loss on equity securities
|
|
|
38,923
|
|
|
|
–
|
|
(Gain) loss on change in derivative liability
|
|
|
(224,529
|
)
|
|
|
657,776
|
|
Impairment loss
|
|
|
323,200
|
|
|
|
345,697
|
|
Stock based compensation
|
|
|
36,667
|
|
|
|
303,642
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Due from Rose Petroleum
|
|
|
27,147
|
|
|
|
(27,147
|
)
|
Prepaid expenses and other assets
|
|
|
(109,402
|
)
|
|
|
1,354
|
|
Accounts payable and accrued liabilities
|
|
|
396,114
|
|
|
|
229,259
|
|
Accrued interest
|
|
|
451,029
|
|
|
|
83,331
|
|
Net cash used in operating activities
|
|
|
(642,355
|
)
|
|
|
(465,926
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchase of plant, property and equipment
|
|
|
(15,760
|
)
|
|
|
–
|
|
Payment of installment on El Dorado acquisition
|
|
|
(50,000
|
)
|
|
|
–
|
|
Purchase of Rio Silver equity securities
|
|
|
–
|
|
|
|
(58,297
|
)
|
Payment of option to acquire SDA mill
|
|
|
–
|
|
|
|
(1,000,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(65,760
|
)
|
|
|
(1,058,297
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from advances from related parties
|
|
|
19,300
|
|
|
|
34,150
|
|
Payments on advances from related parties
|
|
|
(19,300
|
)
|
|
|
(26,050
|
)
|
Payments on expenses paid on related party credit card
|
|
|
(101,181
|
)
|
|
|
–
|
|
Proceeds from Notes payable - related parties
|
|
|
160,700
|
|
|
|
1,075,000
|
|
Payments on Notes payable - related parties
|
|
|
(60,700
|
)
|
|
|
–
|
|
Proceeds from Line of credit - related party
|
|
|
20,000
|
|
|
|
–
|
|
Proceeds from convertible notes
|
|
|
300,000
|
|
|
|
267,150
|
|
Proceeds from convertible notes - related parties
|
|
|
150,000
|
|
|
|
–
|
|
Payments on convertible notes
|
|
|
(306,896
|
)
|
|
|
–
|
|
Proceeds from sale of common stock and warrants
|
|
|
460,000
|
|
|
|
175,000
|
|
Proceeds from the exercise of warrants
|
|
|
120,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
741,923
|
|
|
|
1,525,250
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange
|
|
|
(29,367
|
)
|
|
|
(1,091
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
4,441
|
|
|
|
(64
|
)
|
Cash at beginning of period
|
|
|
421
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
4,862
|
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
90,373
|
|
|
$
|
382
|
|
Cash paid for income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
Conversion of line of credit to common stock
|
|
$
|
100,000
|
|
|
$
|
–
|
|
Conversion of advances - related party to common stock
|
|
$
|
8,100
|
|
|
$
|
–
|
|
Conversion of accrued wages to common stock
|
|
$
|
90,000
|
|
|
$
|
–
|
|
Common stock issued for prepaid assets
|
|
$
|
18,235
|
|
|
$
|
–
|
|
Deemed dividend on true-up share issuance
|
|
$
|
323,792
|
|
|
$
|
–
|
|
Adoption of ASU 2016-01
|
|
$
|
8,518
|
|
|
|
–
|
|
Common stock issued for prepaid service contracts
|
|
$
|
–
|
|
|
$
|
120,000
|
|
Common stock issued for purchase of SDA Mill
|
|
$
|
–
|
|
|
$
|
426,025
|
|
Conversion of accounts payable - related party to note payable
|
|
$
|
–
|
|
|
$
|
100,000
|
|
Notes payable - Rose Petroleum, purchase of SDA Mill
|
|
$
|
–
|
|
|
$
|
50,000
|
|
Dr. Carson capital contribution for waiver of accrued wages
|
|
$
|
–
|
|
|
$
|
150,000
|
|
Conversion of notes payable and accrued interest to common stock
|
|
$
|
187,248
|
|
|
$
|
26,055
|
|
Warrant derivative liability
|
|
$
|
168,791
|
|
|
$
|
–
|
|
Resolution of derivative liability
|
|
$
|
239,262
|
|
|
$
|
777,276
|
|
Expenses paid by related party credit cards
|
|
$
|
125,945
|
|
|
$
|
–
|
|
Unrealized loss on available-for-sale securities
|
|
$
|
–
|
|
|
$
|
8,518
|
|
See accompanying notes to the consolidated
financial statements
MAGELLAN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization, Basis of Presentation, and Continuance
of Operations
Organization and Nature of Operations
Magellan Gold Corporation (“we” “our”,
“us”, the “Company” or “Magellan”) was incorporated on September 28, 2010, under the laws of
the State of Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined
whether the properties to which we have mining rights contain mineral reserves that are economically recoverable.
On January 3, 2019, the Financial Industry Regulatory Authority
(“FINRA”) informed Magellan Gold Corporation, a Nevada corporation (the “Company”) that a 1-for-50 reverse
split of the Company’s common stock, previously disclosed in the Company’s Definitive Information Statement on Schedule
14C filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2017, would be effective at the
market open on January 7, 2019. The stock split has been retroactively adjusted throughout these financial statements and footnotes.
On December 31, 2014, we formed and organized a new wholly-owned
subsidiary, Gulf+Western Industries, Inc., a Nevada corporation (“Gulf+Western” or “G+W”), to own and operate
our Silver District mining interests. On October 1, 2014 we completed the transfer of those assets from Magellan to 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 agreement between Magellan and Mr. Gibbs.
On June 1, 2015, we transferred 15% of our ownership interest
in G+W to Dr. W. Pierce Carson (Dr. 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 compensation for the one-year period from 2015 through May 2016. On June 1, 2016 we executed an employment
agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation.
The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, effective June 30, 2016. As a
result, Mr. John Power resigned his positions as President and Chief Executive Officer and retained the position of Chief Financial
Officer until December 31, 2017 upon his replacement by Michael P. Martinez as CFO. Mr. Power and Dr. Carson currently serve as
Directors of Magellan.
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 172,480 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 (“Option Agreement”) between and among Rio Silver Inc., a Canadian company (“Rio Silver”), Minera
Rio Plata S.A.C. (“Minera”), a Peruvian company and subsidiary of Rio Silver, and Magellan Gold Peru S.A.C. (“Magellan
Peru”), a Peruvian company and wholly owned subsidiary of the Company pursuant to which Rio Silver through Minera granted
to the Company a sole and exclusive option to acquire an undivided 50% interest in and to property located in central Peru. Effective
December 31, 2017, the Company agreed with Rio Silver to terminate the option agreement, thereby terminating the Company’s
option to earn an interest in the Niñobamba Silver/Gold Project. The Company retained its ownership of Rio Silver stock.
Further information regarding the Option Agreement is included in Note 4– Mining Option Agreement.
On November 30, 2017, the Company purchased from Rose Petroleum
plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA Mill”)
as well as its associated assets, licenses and agreements. Magellan previously paid a $50,000 option payment, and an additional
$100,000 option-to-purchase extension. The $100,000 option extension payment was applied against the cash portion of the purchase
price.
The purchase price for the
SDA Mill consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 previously
paid for the option-to-purchase extension, and 284,017 shares of common stock (the “Shares”) with a fair value of $426,025
at the closing date. The note is non-interest bearing and due on March 10, 2018. The Shares will be held in escrow for a period
of 12 months and the Company had the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months
and $550,000 in months 7 to 12.
Rose owned 1 share of Series A capital stock of Minerales Vane
S.A. de C.V. (“Minerales Vane 1”) and Vane Minerals (UK) Limited (“Vane UK”) owned 49,999 shares of Series
A capital stock and 26,524,000 shares of Series B capital stock of Minerales Vane 1.
Prior to closing, all of the assets and operations related to
the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Magellan
purchased 100% of the issued and outstanding shares of Minerales Vane 2. Effective November 30, 2017, the Company’s newly
incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”), acquired Minerales Vane 2.
On October 17, 2017, the Company amended the agreement to include
the acquisition of Minerales VANE Operaciones ("MVO") (the entity that provides labor to the Mill) for $2,500 as soon
as practicable following the closing of the acquisition of the SDA Mill. At December 31, 2017, the Company had not obtained control
of MVO. Magellan had not paid the purchase price of $2,500, had not received the outstanding shares of MVO and had not legally
acquired the assets and liabilities. The purpose of acquiring MVO is that it is the sister entity that employs all employees of
the SDA mill. In January 2018 the Company paid the purchase price and obtained legal control of MVO. The acquisition of MVO did
not result in the acquisition of any additional assets or liabilities.
Our primary focus with the acquisition of the SDA Mill in Mexico
is to transform Magellan into a production company with its El Dorado concession and to continue to advance our Arizona silver
project 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 significant revenue.
Liquidity and Going Concern
Our 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 December 31, 2018, we had a working capital deficit, we had not yet generated
any significant revenues or achieved profitable operations and we have accumulated losses of $6,706,524. We expect to incur further
losses in the development of our business, all of which raises substantial doubt as to 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 the necessary financing
to meet our obligations arising from normal business operations when they come due.
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 but
cannot assure than any future financings will occur.
Note 2 – 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., Magellan Acquistion Corporation, Minerales Vane 2,
S.A. de C.V., and Minerales VANE Operaciones. 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 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.
Reclassifications
Certain items in these consolidated financial statements have
been reclassified to conform to the current year's presentation.
Foreign Currency Translations
The Company maintains its accounting records in US Dollars.
Our operating subsidiary, Minerales Vane 2, S.A. de C.V and Minerales VANE Operaciones are located in Mexico and maintain its accounting
records in the Mexican Peso, which is its functional currency. Assets and liabilities of the 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 loss in the consolidated statements of operations and comprehensive loss. Foreign currency denominated transactions
are translated at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recognized
in income.
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, investments in available for sale securities,
accounts payable, accrued liabilities, derivative 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 third parties and related parties and other amounts due to related parties approximates fair value
because of the short-term nature of these financial instruments.
Concentrations
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. All sales during the year ended December 31, 2018 were to one customer.
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.
Investment Securities
We report investments in marketable equity securities at fair
value. Realized and unrealized gains and losses on equity securities are included net income (loss). We regularly review equity
securities for impairment using both quantitative and qualitative criteria.
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 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 December 31, 2018. Impairment charges of $323,200 and
$0 were recognized during the years ended December 31, 2018 and 2017, respectively.
Impairment of Long-lived Assets
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.
Property and Equipment
Property and equipment is recorded at cost, less accumulated
depreciation. Property and equipment is amortized on a straight-line basis over its estimated life:
|
·
|
SDA Mill – 10 years
|
|
·
|
Mill equipment – 10 years
|
|
·
|
Tailings Dam – 10 years
|
|
·
|
Office and Warehouse – 10 years
|
Goodwill
Goodwill was generated through the acquisition of the SDA Mill
in fiscal 2017 as the total consideration paid exceeded the fair value of the net assets acquired.
The Company tests its goodwill for impairment at least annually
and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved
in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in
the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated
competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability
of goodwill and the Company’s consolidated financial results. There was an impairment charge of $0 and $345,697 during the
years ended December 31, 2018 and 2017, respectively.
Asset Retirement Obligations
The Company accounts for asset retirement obligations in accordance
with ASC 410-20, Asset Retirement Obligations. ASC 410-20 requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and/or normal use of the assets. Asset retirement obligations
consists of estimated final mill closure and associated ground reclamation costs to be incurred by the Company in the future once
the economical life of its SDA Mill is reached. The estimated fair value of the asset retirement obligation is based on the current
cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of
the cost of the related asset and amortized over its useful life. The liability accretes until the Company settles the obligation.
Comprehensive Income/Loss
ASC 220, Comprehensive Income, establishes standards for the
reporting and display of comprehensive income/loss and its components in the financial statements. As of December 31, 2018 and
2017, the Company’s component of comprehensive income was foreign currency translation adjustments.
Notes Payable – Related Parties
Notes payable to related parties are classified as current liabilities
as either the note holders have the ability to control the repayment dates of the notes or maturity dates are within one year of
the reported balance sheet date.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic
606, Revenue From Contracts With Customers, which was adopted on January 1, 2018 using the modified retrospective method, with
no impact to the Company’s comparative financial statements. Revenues are recognized when control of the promised goods or
services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange
for transferring those goods or services. Revenue is recognized based on the following five step model:
|
·
|
Identification of the contact with a customer
|
|
·
|
Identification of the performance obligations in the contract
|
|
·
|
Determination of the transaction price
|
|
·
|
Allocation of the transaction price to the performance obligations in the contract
|
|
·
|
Recognition of revenue when, or as, the Company satisfies a performance obligation
|
All of the Company’s revenue is currently generated from
the sales of similar products. As such no further disaggregation of revenue information is provided.
Performance Obligations
Revenues are recognized when all the following criteria are
satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect
the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has received
the benefit of the services or when control of products has transferred to the end user. A contract with commercial substance exists
once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If collectibility is
not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products
typically transfers when title and risk of ownership of the product has transferred to the customer or the services are completed.
Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns. Shipping charges billed
to customers are included in net sales. Various taxes on the sale of products and services to customers are collected by the Company
as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability
until remitted to the respective taxing authority.
Contract Costs
Costs incurred to obtain a customer contract are not material
to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with
a duration of one year or less, which are expensed and included within cost of goods and services.
Contract Liabilities
The Company may at times receive payment at the time the customer places an order or requests services. Amounts received for undelivered
product are considered a contract liability and are recorded as deferred revenue. As of December 31, 2018 and 2017, the Company
had $15,000 and $0 of deferred revenue related to unsatisfied performance obligations included with accrued liabilities.
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 December 31, 2018 and 2017, the Company had no uncertain tax positions.
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
years ended December 31, 2018 and 2017, potential common shares associated with convertible notes payable and outstanding warrants
and options 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 but does not expect it to have a material impact.
Recently Adopted Accounting
Standards
In January 2016, the FASB issued ASU No. 2016-01, “Financial
Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which
addresses the recognition, measurement, presentation and disclosure of financial assets and liabilities. This ASU primarily affects
the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements
for financial instruments. In addition, this ASU clarifies the valuation allowance assessment when recognizing deferred tax assets
resulting from unrealized losses on available-for-sale debt securities. This standard became effective on January 1, 2018. At the
adoption of this standard the Company reclassified $8,518 from Accumulated Other Comprehensive Loss to Accumulated Deficit which
represented the cumulative impact of the new standard.
Accounting Standards Update No. 2014-09—Revenue from Contracts
with Customers (Topic 606). On May 28, 2014, the FASB issued guidance that requires an entity to recognize the amount of revenue
to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU was further amended by
ASU No. 2015-14, No. 2016-08, No. 2016-10, No. 2016-12 and No. 2016-20. The guidance provides a five-step approach to be applied
to all contracts with customers and also requires expanded disclosures about revenue recognition. The Company has performed an
assessment of the revised guidance and the impacts on the Company’s Consolidated Financial Statements and disclosures and
has determined that the adoption of this guidance did not have an impact. The Company adopted the new guidance effective January
1, 2018 using the modified retrospective approach.
Note 3 – Mineral Rights and Properties
El Dorado
The Company entered into an agreement giving it the right to
acquire the El Dorado Gold-Silver Property, a 50 hectare mining concession located near the village of Las Minitas, which lies
50 kilometers south of Magellan’s SDA Flotation Plant at Acaponeta, Nayarit State.
Magellan has concluded an agreement with Ingenieros Mineros,
S.A. de C.V., the owner of the El Dorado mining concession giving the Company the right to acquire the concession by making staged
six-monthly option payments over two years towards an end purchase price of $800,000 (plus 16% IVA). No royalties are payable.
Magellan has the right to begin production during the term of the agreement. The Company has made the initial option payment of
$50,000 (plus 16% IVA).
In addition, the Company entered into an agreement to purchase
a comprehensive El Dorado data package including diamond drill core and technical information for a price of $120,000, payable
in cash and Magellan common stock. As of December 31, 2018, $10,000 of cash and 20,261 shares of common stock, with an issuance
day fair value of $18,235, have been issued. As of December 31, 2018, $40,000 in cash and $60,000 in stock is due and payable under
this agreement in 2019.
At December 31, 2018 and December 31, 2017, our mineral rights
and properties were $48,164 and $0 (after currency adjustment), respectively associated with our El Dorado project. We updated
our impairment analysis as of December 31, 2018 and concluded that the carrying value is not impaired.
Silver District
In August 2012, we entered into an option agreement with Columbus
Exploration f/k/a Columbus Silver Corporation, which granted us the right to acquire all of Columbus’ interest in its Silver
District properties located in La Paz County, Arizona. We paid Columbus an initial $63,200 on signing of the option and a further
$50,000 in December 2012. We paid other patented and unpatented mining claim purchase and lease obligations in 2013 and 2014 to
maintain the project claims and leases in good standing. On December 31, 2014, we paid an additional $100,000 to Columbus Exploration
to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. The properties
acquired from Columbus were assigned into our subsidiary Gulf+Western Industries, Inc. and our total acquisition cost capitalized
was $323,200.
The Silver District property consists
of 110 unpatented lode and mill site mining claims, six patented lode claims, and an Arizona State Exploration Permit, all of which
are held directly or under lease agreements, totaling over 2,000 acres. Certain of the claims are subject to third party net smelter
royalties and/or net profits of varying percentages.
In August 2018, we renewed the BLM lode and mill site claims
in La Paz County, Arizona with the Bureau of Land Management and these claims will remain in good standing through August 31, 2019.
Additionally, in both August 2017 and 2018, we made advance minimum royalty payments of $10,000 to a third-party landowner on the
Red Cloud lease, which includes the Red Cloud Patented claim and two BLM lode claims. We also expanded the Arizona State Exploration
Permit to approximately 334.85 acres on the Arizona State section that comprises part of our Silver District land package and are
current on our obligations under this permit.
On July 9, 2015, G+W entered into two Lease and Purchase Agreements
(“Agreements”) with an individual that grant the Company certain exploration and mining rights for two patented lode
claims located in the Silver District, La Paz County, Arizona. The Agreements provide for scheduled variable annual advance minimum
royalty payments to the lessor. In addition, the Agreements have an initial term of 20 years, and provide for the purchase of the
properties for $125,000 each during the term of the lease, net of any advance royalty payments made up to the date of the purchase.
The Company paid the initial advance royalty payments totaling $3,000 and advance royalty payments of $3,000 to maintain these
Agreements. Due to an uncertainty associated with the clarification of the legal title for these two patented lode claims, these
payments have not been capitalized as mining rights, and therefore are included in exploration costs during the period in which
the obligation was due.
During the year ended December 31, 2018 the Company fully impaired
its capitalized asset of $323,200 related to the Sliver District project.
Note 4 –Mining Option Agreement
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 a condition of the LOI, the Company paid a refundable $12,000
deposit. This payment was recorded as a deposit and subsequently used to maintain certain mining concessions on the property.
In addition to the deposit, the Company was obliged to subscribe
to two private placement unit financings in Rio Silver, each for aggregate proceeds of Cdn$75,000. The Company completed the first
unit private placement on August 23, 2016. The first placement included 1,500,000 units priced at Cdn$0.05, which included one
share of Rio Silver common stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.05 preliminarily set
to expire on February 23, 2018. The cost of the units in the first private placement totaled USD $59,753. The second placement
included 1,250,000 units priced at Cdn$0.06, which was completed on January 19, 2017, and included one share of Rio Silver common
stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.06 preliminarily set to expire on July 19, 2018.
The cost of the units in the second private placement totaled USD $58,297. Each of these transactions were recorded as an investment
in Rio Silver equity securities and included on the accompanying consolidated balance sheets at December 31, 2018 and 2017. During
the year ended December 31, 2018, we have recorded an unrealized loss of $38,923 to write-down the investment. The shares of common
stock and warrants of Rio Silver have been pledged by the Company to John Power to secure repayment of a $125,000 loan.
Under the terms of the Agreement, the Company had the right
to earn an undivided 50% interest in the Niñobamba Silver/Gold Project in central Peru. To earn its 50% interest, the Company
was required to spend $2.0 million in exploration over three years. The Niñobamba project is comprised of five concessions
that total 36.5 square kilometers (9,026 acres). The concessions include the original Rio Silver concession, three concessions
recently acquired from a Peruvian company owned jointly by Newmont Mining Corporation and Southern Peru Copper Corporation, and
one concession for which application was made, and which was granted in 2017.
On January 5, 2018, Magellan entered
into a Termination Agreement, effective December 31, 2017, with Rio Silver Inc. to mutually terminate the Company’s option
to earn an interest in Rio Silver’s Niñobamba exploration property in Peru. In connection with the termination of
the agreement, Rio Silver agreed to apply to the TSX Venture Exchange for an 18-month extension of the 2,750,000 warrants that
Magellan holds in Rio Silver stock, which otherwise would expire in February and July 2018. The TSX Venture Exchange subsequently
approved the extensions.
In connection with the termination of the agreement, Magellan
agreed to grant Rio Silver a right of first refusal on any sale of the 2,750,000 shares of Rio Silver stock that Magellan currently
holds.
Additionally, effective in 2018, the Company sold its interest
in Magellan Gold Peru S.A.C. for consideration of $1.00. The Company realized a loss on disposition of $567.
Note 5 – Acquisition of SDA Mill
On March 3, 2017 the Company entered into a Memorandum of Understanding
(“MOU”) with Rose Petroleum plc (“Rose”), 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.
Prior to closing, all of the assets and operations related to
the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Effective
November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”),
acquired 100% of the issued and outstanding shares of Minerales Vane 2.
The total purchase price for the SDA Mill was determined to
be $1,476,025 which consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000
paid for the option-to-purchase extension, and 284,017 shares of common stock (the “Shares”) with a fair value of $426,025.
The note was non-interest bearing and was paid in full April 12, 2018. This note was grouped with Notes Payable Related Party due
to Rose’s share ownership in the Company. The Shares will be held in escrow for a period of 12 months and the Company has
the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months and $550,000 in months 7 to 12. The
Company did not exercise this option to repurchase the shares from Rose and the option is now expired.
On April 12, 2018, the Company satisfied its note payable in
the amount of $50,000 in favor of Rose Petroleum, plc in respect of the purchase of the SDA Mill, as required under terms of the
Stock Purchase Agreement.
Subsequent to the purchase of the SDA Mill, the Company and
Rose Petroleum executed an IVA Agreement which implemented the provisions of the Stock Purchase Agreement with respect to the payment
of the IVA Tax assessed by the Mexican taxing authorities on the sale and purchase of the IVA Mill. Under the terms of the IVA
Agreement, Rose Petroleum advanced the IVA tax, in Mexican Pesos, for the payment of the IVA tax, approximately $260,000. The Company
has agreed that all future tax credits or refunds that it receives from the Mexican taxing authority will be paid over to Rose
until such time as Rose has recouped the advance, in full. Mr. Carson executed a Guaranty of the Company's obligations under the
IVA Agreement effective March 8, 2018.
In March 2018, the Company and Rose Petroleum, plc satisfied
their respective obligations for payment of Mexican VAT on purchase of the SDA Mill, as required under terms of the Stock Purchase
Agreement. The acquisition of Minerales Vane 2 has been accounted for as a business combination whereby the purchase price was
allocated to assets acquired and liabilities assumed. The Company performed a valuation analysis of the fair market value the SDA
Mill’s assets and liabilities.
The following table summarizes the preliminary allocation of
the purchase price to the assets acquired and liabilities assumed as of the acquisition date:
Purchase Price
|
|
|
|
Cash
|
|
$
|
850,000
|
|
Note payable
|
|
|
50,000
|
|
Option payments
|
|
|
150,000
|
|
Common stock
|
|
|
426,025
|
|
Total Purchase Price
|
|
$
|
1,476,025
|
|
|
|
|
|
|
Allocation of Purchase Price
|
|
|
|
|
Crushing equipment
|
|
$
|
254,000
|
|
Grinding equipment
|
|
|
272,000
|
|
Flotation equipment
|
|
|
156,000
|
|
Tailings machinery
|
|
|
6,000
|
|
Concentrate machinery
|
|
|
17,000
|
|
Water machinery
|
|
|
12,000
|
|
Feed
|
|
|
14,000
|
|
Grinding machinery
|
|
|
218,000
|
|
Leaching machinery
|
|
|
54,000
|
|
Precipitation plant
|
|
|
130,000
|
|
Lab equipment
|
|
|
15,000
|
|
Tailings dam
|
|
|
50,000
|
|
Office and warehouse assets
|
|
|
35,000
|
|
Asset retirement obligation
|
|
|
(122,024
|
)
|
Goodwill
|
|
|
365,049
|
|
Net assets acquired
|
|
$
|
1,476,025
|
|
Unaudited pro forma results of operations for the years ended
December 31, 2017 as though the Company had acquired the SDA Mill on the first day of the fiscal year are set forth below:
|
|
December 31, 2017
|
|
|
|
Pro Forma
|
|
|
|
|
|
Net Sales
|
|
$
|
305,272
|
|
|
|
|
|
|
Operating Expenses
|
|
|
2,995,145
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,689,873
|
)
|
Note 6 – Interim Toll Milling Agreement
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 SDA
Mill acquisition, Rose shall cause its subsidiary, Minerales Vane S.A. de C.V., a Mexico corporation (“Vane”), to reopen
the SDA Mill and recommence operations on a toll milling basis for a third-party. Under the Agreement, the Company is required
to provide the working capital to fund the operations and is entitled to all the positive cash flow after covering the related
expenses.
The Agreement was completed and terminated during November 2017.
The Company has an outstanding receivable from Rose of $0 as of December 31, 2018 and $27,147 as of December 31, 2017.
Note 7 – Fair Value of
Financial Instruments
Financial assets and liabilities recorded at fair value in our
consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs
used to measure fair value into the following levels:
Level 1— Quoted market prices in active markets for identical
assets or liabilities at the measurement date.
Level 2— Quoted prices for similar assets or liabilities
in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs
that are observable and can be corroborated by observable market data.
Level 3— Inputs reflecting management’s best estimates
and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are
unobservable in the market and significant to the valuation of the instruments.
A financial instrument's categorization within the valuation
hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Financial assets and liabilities measured at fair value on a
recurring basis are summarized below:
|
|
Fair Value at
December 31,
|
|
|
Fair Value Measurement at December 31, 2018
|
|
|
|
2018
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investment in Rio Silver equities
|
|
$
|
70,609
|
|
|
$
|
70,609
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
Fair Value at
December 31,
|
|
|
Fair Value Measurement at December 31, 2017
|
|
|
|
2017
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investment in Rio Silver equities
|
|
$
|
109,532
|
|
|
$
|
109,532
|
|
|
$
|
–
|
|
|
$
|
–
|
|
A summary of the activity of the derivative liability is shown
below:
Balance December 31, 2016–
|
|
|
119,500
|
|
Total losses (unrealized, realized) included in net loss
|
|
|
657,776
|
|
Reclassifications of derivative liability to APIC
|
|
|
(777,276
|
)
|
Balance December 31, 2017
|
|
|
–
|
|
Convertible note discount from derivative liability
|
|
|
295,000
|
|
Warrant derivative liability
|
|
|
168,791
|
|
Resolution of derivative liability
|
|
|
(239,262
|
)
|
Total losses (unrealized, realized) included in net loss
|
|
|
(224,529
|
)
|
Balance December 31, 2018
|
|
|
–
|
|
A summary of the activity of the Investment in Rio Silver equities
is shown below:
Balance December 31, 2016
|
|
$
|
59,753
|
|
Total unrealized losses included in Other comprehensive loss
|
|
|
(8,518
|
)
|
Purchases of Rio Silver equities
|
|
|
58,297
|
|
Balance December 31, 2017
|
|
|
109,532
|
|
Change in fair value
|
|
|
(38,923
|
)
|
Balance December 31, 2018
|
|
$
|
70,609
|
|
The carrying values for cash and cash equivalents, prepaid assets,
accounts payable and accrued liabilities, related party line of credit and notes payable approximate their fair value due to their
short-term maturities.
Note 8 – Line of Credit –
Related Party
Effective December 31, 2012, we entered into a line of credit
arrangement with John D. Gibbs, a significant investor, to facilitate timely cash flows for the Company’s operations. The
line of credit originally provided for a maximum balance of $250,000, accrued interest at 6% annually, and matured on December
31, 2014.
On December 31, 2013 we amended our credit agreement with Mr.
Gibbs to increase the borrowing limit under the line of credit to $750,000. All other terms of the credit agreement, including
the interest rate and maturity date remained unchanged.
On December 31, 2014, we again amended the credit agreement
to increase the borrowing limit to $900,000 and extend the maturity date to December 31, 2015. As part of the 2014 amendment and
the subsequent appointment of Dr. Pierce Carson as the President, CEO and Director of G+W effective June 1, 2015, we had pledged
all of our 85% equity interest in G+W, which owns the Silver District properties, as security for all amounts outstanding under
the credit agreement. In July 2016, we completed a share exchange with Dr. Carson to re-acquire the 15% interest in G+W, and therefore
at December 31, 2017 our entire 100% interest in G+W remains pledged as security for outstanding amounts under this credit agreement.
On December 31, 2015 we again amended the credit agreement to
increase the borrowing limit to $1,000,000 and extended the maturity date to December 31, 2016. Finally, on March 31, 2017 with
an effective date of December 31, 2016 we again amended the credit agreement to extend the maturity date to December 31, 2018.
In April 2019 this credit facility was extended until December 31, 2019 in exchange for a fee equal to 2% of the outstanding balance.
All other terms of the agreement were unchanged. At December 31, 2018 the Company has an additional $147,500 available under the
credit line.
During the year ended December 31, 2018, $20,000 was received
under this agreement. During the same period Mr. Gibbs converted $100,000 of the outstanding balance on the line of credit into
100,000 shares of common stock at $1.00 per share. The outstanding balance under the line of credit was $852,500 and $932,500 at
December 31, 2018 and December 31, 2017, respectively. In addition, a total of $265,876 and $213,657 of interest has been accrued
on this obligation and is included in Accrued interest - related parties on the accompanying consolidated balance sheets at December
31, 2018 and December 31, 2017, respectively.
Note 9 – Notes Payable – Related Parties
In August 2011, we entered into an unsecured loan from John
Power, the Company’s Director, evidenced by a $20,000 promissory note. The promissory note bears interest at 6% per annum
and is payable on demand with thirty days’ notice from the lender. During 2014, the Company made payments totaling $5,000
to pay down the principal balance of the note. Effective December 31, 2017, the interest rate on the note increased to 12% per
annum. At both December 31, 2018 and 2017, the note balance was $15,000. At December 31, 2018 and 2017, accrued interest totaling
$1,800 and $1,576, respectively, is included in Accrued interest – related parties on the accompanying consolidated balance
sheets.
In January 2014, we entered into an additional unsecured loan
from Mr. Power, evidenced by a $50,000 promissory note. The promissory note bears interest at 6.75% per annum and is payable on
demand with thirty days’ notice from the lender. Effective December 31, 2017, the interest rate on the note increased to
12% per annum. At December 31, 2018 and 2017, accrued interest totaling $6,000 and $6,249, respectively, is included in Accrued
interest – related parties on the accompanying consolidated balance sheets. At both December 31, 2018 and December 31, 2017,
the note balance was $50,000.
On May 31, 2017 we entered into three short-term notes with
Mr. Gibbs, 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 matured on November 15, 2017. A total of $3,760 and $4,512 of interest is accrued on these notes as of December 31, 2018
and December 31, 2017, respectively. The note balances were subsequently rolled into the Series 2017 Notes.
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% per annum and
matured on December 31, 2017 and is currently in default. Effective December 31, 2017, the interest rate on the note increased
to 12% per annum. The note is collateralized by our investment in Rio Silver shares and warrants. At both December 31, 2018 and
December 31, 2017, the note balance was $125,000. A total of $15,000 and $3,781 of interest is accrued on these notes as of December
31, 2018 and December 31, 2017, respectively and is included in Accrued interest – related parties on the accompanying consolidated
balance sheets.
On November 30, 2017 we entered
into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate
amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.
Net proceeds on the issuance after reducing for the transfers
previously listed total $900,000. The notes are secured by a stock pledge agreement covering 100% of the outstanding common stock
of Magellan Acquisition Corporation, bear interest at 10% and mature on December 31, 2018.
The portion of the Series 2017 Notes from related parties totaled
$1,045,000, including financing fees of $95,000 recorded as discount to the notes. Mr. Gibbs, Dr. Carson, and Mr. Power transferred
$100,000, $25,000, and $25,000, respectively, from the May 31, 2017 short term related party notes into the Series 2017 Notes.
As of December 31, 2018 the balance on the Series 2017 Notes from related parties, net of unamortized discount of $0, is $1,045,000
with accrued interest of $113,375. As of December 31, 2017, the balance on the Series 2017 Notes from related parties, net of unamortized
discount of $87,563, is $957,437 with accrued interest of $8,875. During the year ended December 31, 2018 $87,563 of debt discount
related to the above notes was fully amortized to interest expense.
On March 12, 2019, the Company extended the Series 2017 Notes
to December 31, 2019 in exchange for an increase of the principal balance of $57,918.
During the quarter ended December 31, 2018, Mr. Gibbs participated
in the Series 2018A 10% Unsecured Convertible Note for $150,000. See below for further disclosure.
Bridge Note Offering
In October 2018 the Company sold $160,700 of Series 2018 36%
Unsecured Promissory Notes (“Notes”) (“Bridge Note Offering”) to Mr. Gibbs and Mr. Power. The purchase
price of the Note is equal to the principal amount of the Note. The Maturity Date of the Notes is December 31, 2018. During the
year ended December 31, 2018, $10,700 was repaid to Mr. Power leaving a balance of $0. As of December 31, 2018, the portion funded
by Mr. Gibbs of $150,000 remained outstanding. On January 18, 2019, the Note was extended until March 31, 2019 after which it was
in default.
Note 10 – Notes Payable
As discussed in Note 9 – Notes Payable – Related
Parties, on November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both
related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount
to the notes.
The total of portion of the Series 2017 Notes from non-related
parties totaled $110,000, including financing fees of $10,000 recorded as discount to the notes. As of December 31, 2018 the balance
on the notes from non-related parties, net of unamortized discount of $0, is $110,000 with accrued interest of $11,934. As of December
31, 2017, the balance on the notes from non-related parties, net of unamortized discount of $9,217 is $100,783 with accrued interest
of $934.
During the year ended December 31, 2018 $9,217 of debt discount
related to the above notes was fully amortized to interest expense.
On March 12, 2019, the Company extended the Series 2017 Notes
to December 31, 2019 in exchange for an increase of the principal balance of $6,097.
Note 11 – Convertible
Notes Payable and Derivative Liability
Auctus Note
On November 1, 2017, the Company sold a 10% Convertible Promissory
Note (“Auctus Note”) in a principal amount of $170,000. 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 can be converted into the Company’s common
stock after 180 days from the date the Note is issued. In early May 2018 when the note became convertible at a variable price the
conversion feature was valued and recorded as a derivative liability. The conversion option continued to qualify for derivative
treatment until the note was amended on June 8, 2018 (see below) and a minimum conversion price was added to the instrument. The
derivative was initially valued at $176,860 which was allocated $170,000 as a debt discount and $6,860 as a loss on derivative
liability. The debt discount was fully amortized and the derivative liability was adjusted to $0 as June 8, 2018 when the debt
was amended. The result was $170,000 of amortization of debt discount included in interest expense and $176,860 of gain on change
in derivative liability.
Effective June 8, 2018 the Company and Auctus Fund, LLC (“Auctus”)
signed an Amendment No. 1 to the Convertible Promissory Noted (the “Auctus Note”) dated November 1, 2017 (the “Auctus
Amendment”). Under the terms of the Auctus Amendment, the principal outstanding balance of the Auctus Note has been increased
from $170,000, to $212,500. Also, Auctus agreed to forbear from exercising rights arising from certain Events of Default (as defined
in the Note) unless a new Event of Default occurs or the Company fails to become current in its required SEC filings by June 30,
2018. Auctus also agreed not to exercise its conversion privileges under the Auctus Note at prices below $1.00 per share until
September 30, 2018. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting.
It was then determined that no beneficial conversion feature existed at the time of debt issuance. The Company recorded the change
in the debt instrument as an extinguishment and recorded the increase in principal balance of $42,500 as a loss on extinguishment
of debt. On August 16, 2018 the Auctus Note was again amended to decrease the minimum conversion price to $0.90. The amendment
was not considered to be a substantial modification. The Company re-evaluated the conversion feature and determined that no beneficial
conversion feature existed at the time of the amendment.
During the year ended December 31, 2018, 204,000 shares were
issued related to the conversion of $136,304 of notes and $22,144 of interest and fees. On October 31, 2018, the Company repaid
in full the remaining balance of the Auctus note with a payment of $86,217 which included $76,196 of principal.
EMA Note
On November 2, 2017, the Company sold a 10% Convertible Promissory
Note (“EMA Note”) in principal amount of $125,000. After deducting the investor’s discount and legal fees, net
proceeds to the Company were $113,500. The Note originally matured on November 2, 2018 but was amended to be November 2, 2019 and
can be converted into the Company’s common stock after 180 days from the date the Note is issued. In early May 2018 when
the note became convertible at a variable price the conversion feature was valued and recorded as a derivative liability. The conversion
option continued to qualify for derivative treatment until the note was amended on June 8, 2018 (see below) and a minimum conversion
price was added to the instrument. The derivative was initially valued at $225,711 which was allocated $125,000 as a debt discount
and $100,711 as a loss on derivative liability. The debt discount was fully amortized and the derivative liability was adjusted
to $0 as June 8, 2018 when the debt was amended. The result was $125,000 of amortization of debt discount included in interest
expense and $225,711 of gain on change in derivative liability.
Effective June 8, 2018 the Company and EMA Financial, LLC (“EMA”)
signed an Amendment No. 1 to the Convertible Promissory Noted (the “EMA Note”) dated November 2, 2017 (the “EMA
Amendment”). Under the terms of the EMA Amendment, the principal outstanding balance of the EMA Note has been increased from
$125,000, to $156,250. Also, EMA agreed to forbear from exercising rights arising from certain Events of Default (as defined in
the Note) unless a new Event of Default occurs or the Company fails to become current in its required SEC filings by June 30, 2018.
EMA also agreed not to exercise its conversion privileges under the EMA Note at prices below $1.00 per share until September 30,
2018. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting. It was then
determined that no beneficial conversion feature existed at the time of debt issuance. The Company recorded the change in the debt
instrument as an extinguishment and recorded the increase in principal balance of $31,250 as a loss on extinguishment of debt.
On August 16, 2018 the EMA Note was again amended to decrease the minimum conversion price to $0.90. The amendment was not considered
to be a substantial modification. The Company re-evaluated the conversion feature and determined that no beneficial conversion
feature existed at the time of the amendment.
The Company evaluated other convertible
instruments and determined that the outstanding common stock warrants were required to be treated as a derivative during the period
from May 1, 2018 through June 8, 2018 as a result of the variable conversion feature on the above notes. As a result, an initial
derivative liability of $62,569 was recorded and reclassified out of equity and a final derivative liability of $70,650 was reclassified
back into equity at the point the common stock warrants no longer qualified as a derivative. The impact was the recording of a
loss on derivative liability of $8,081. The following assumptions were used in the derivative liability valuation; Expected Term
0.23 years to 0.67 years, Expected Volatility 212% to 232%, Risk free rate 2.03% to 2.12%, Expected Dividend 0.
During the year ended December 31, 2018, 32,000 shares were
issued for the conversion of $26,550 of notes and $2,250 of interest and fees. In October 2018, the note and accrued interest was
repaid in full using cash proceeds from the Series 2018A Unsecured Convertible Notes.
Power Up Notes
On July 26, 2018, the Company sold a 10% Convertible Promissory
Note to Power Up Lending Group Ltd. (“July Power Up Note”) in a principal amount of $63,000. After deducting the investor’s
discount and legal fees, net proceeds to the Company were $60,000. The Note matures on July 26, 2019 and can be converted into
the Company’s common stock after 180 days from the date the Note is issued.
On August 20, 2018, the Company sold a 10% Convertible Promissory
Note to Power Up Lending Group Ltd. (“August Power Up Note”) in a principal amount of $38,000. After deducting the
investor’s discount and legal fees, net proceeds to the Company were $35,000. The Note matures on August 20, 2019 and can
be converted into the Company’s common stock after 180 days from the date the Note is issued.
In October 2018, the Power Up Notes were repaid in full with
a payment of $133,242. Of the payment, $101,000 was applied to the note balances and the remainder to interest and prepayment fees.
Series 2018A and Series 2018B 10% Unsecured Convertible Note
In the quarter ended December 31, 2018, the Company sold $205,000
of Series 2018A and $150,000 of Series B 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal
amount of the Note. The Series A and Series B Notes are convertible into shares of Common Stock at a conversion price of $1.00
and $1.25, respectively, during the life of the Note. The Company evaluated the conversion option and concluded it was not required
to be bifurcated as a derivative. The Company also concluded that no beneficial conversion feature was present at issuance. The
Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes mature twelve (12) months from
the date of issue. The maturity date can be extended at the option of the Company for an additional one (1) year. Within thirty
(30) days following the closing of an offering, the Company has agreed to prepare and file a Registration Statement on Form S-1
registering the resale of the shares of Common Stock issuable upon conversion of the Notes. Of the Series A issuance, $150,000
was sold to a related party, Mr. Gibbs.
As of December 31, 2018, the balance due under these notes is
$355,000 in principal and $5,692 in accrued interest.
Other
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 $1.95, 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 12,000 shares
of the Company’s common stock. As a result of the conversion, a total of $20,044 of the derivative liability associated with
the note was reclassified to additional paid in capital on the conversion date. At December 31, 2016 the remaining note balance
was $33,020.
On April 14, 2017 the Company and the note holder agreed to
modify the terms of the note to reduce the conversion rate from $1.95 to $0.50, and the maturity terms from five days written demand
to 180 days. Immediately subsequent to the modifications, the note holder converted $20,000 of the principal into 40,000 shares
of common stock. This transaction resulted in a total of $173,146 of the derivative liability reclassified to additional paid-in
capital. Immediately following the conversion, the note principal balance was $13,020 together with accrued interest of $1,830.
The Company agreed to pay the note holder $8,850 in cash consisting of a partial principal payment of $7,020 and the $1,830 accrued
interest. This resulted in a $76,621 reduction of the derivative liability, which was recorded as a gain on change of the derivative
liability. Following these transactions the note had a remaining principal balance of $6,000 and no accrued interest.
Immediately following the modifications and conversion, the
note holder agreed to sell the note to a third party, Bright Star International, Inc. (“Bright Star”), with which the
Company subsequently entered into an investor and public relations consulting agreement effective May 22, 2017. Upon the sale of
the note to Bright Star, the Company again agreed to further reduce the conversion rate from $0.50 to $0.05. All other provisions
of the note remained unchanged. Bright Star elected to convert $3,000 of the remaining principal into 60,000 shares of the Company’s
common stock. This transaction resulted in a total of $268,930 of the derivative liability transferred to Additional paid-in capital.
On August 3, 2017, Brightstar converted the remaining $3,000
of the note into an additional 60,000 shares of the Company’s stock. Accrued interest on the note of $55 was also converted.
This transaction resulted in a total of $335,200 of the derivative liability and $55 of accrued interest transferred to Additional
paid-in-capital. As of December 31, 2017, there are no additional principal or accrued interest amounts owed on the note.
The note contained certain anti-dilution provisions that would
reduce the conversion price should the Company issue common stock equivalents at a price less than the note conversion price. Accordingly,
the conversion features of the note are considered a discount to the note. However, since the note is payable upon demand
by the note holder, the value of the discount was considered interest expense at the time of its inception.
The note was evaluated quarterly or upon a triggering event,
and upon any valuations in which the value of the discount changes we recognized a gain or loss due to a decrease or increase,
respectively, in the fair value of the derivative liability. We estimated 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.
Based upon the above, the note was evaluated upon the initial
change in the conversion rate on April 14, 2017 from $1.95 to $0.50. This evaluation resulted in an increase of the liability and
a loss on change of the derivative liability of $239,640. The note was again evaluated upon the subsequent reduction of the
conversion rate from $0.50 to $0.05. This evaluation resulted in an increase of the liability and a loss on change of the derivative
liability of $485,917.
The following table summarizes the assumptions used to value
the derivative liability on April 14 for each change in the conversion rate:
Fair value assumptions – derivative:
|
|
April 14, 2017
|
Risk free interest rate
|
|
1.03%
|
Expected term (years)
|
|
1.0
|
Expected volatility
|
|
154%
|
Expected dividends
|
|
0%
|
On August 3, 2017, in accordance with the final conversion of
the remaining $3,000 principal of the note, the fair value of the derivative liability was determined to be $335,200 resulting
in an additional loss on change of the derivative liability of $1,900.
The following table summarizes the assumptions used to value
the derivative liability at August 3, 2017:
Fair value assumptions – derivative:
|
|
August 3, 2017
|
Risk free interest rate
|
|
1.22%
|
Expected term (years)
|
|
1.0
|
Expected volatility
|
|
137%
|
Expected dividends
|
|
0%
|
The quarterly and special evaluations combined with the gain
resulting from the agreement to pay a portion of the principal and interest to the original note holder have resulted in a total
loss on changes of the derivative liability of $657,776 for the year ended December 31, 2017.
Note 12 – Shareholders’ Deficit
Sales of common stock and warrants:
During the nine months ended September 30, 2018, the Company
raised $340,000 through the sale of 340,000 common stock and warrants (“Units”) at a price of $1.00 per Unit, each
Unit consisting of one share of common stock and one warrant to purchase one additional share of common stock at an exercise price
of $1.00 per share. The expiration date of the warrants varies from August 31, 2018 to December 31, 2018. A price protection feature
of the offering provides that if at December 31, 2018, the Company has issued common stock at a price less than $1.00 per share,
then the number of common shares issuable to each investor shall be increased so as to reduce the common share price to the lower
price. The allocation of relative fair values of the equity instruments at the dates of the sale transactions including those
disclosed below was as follows: common stock at 53% and the warrants at 47%. During the year ended December 31, 2018 pursuant
to the price protection provision discussed above the Company issued 298,636 shares of common stock and committed to issue an
additional 45,559 shares. This issuance was recorded as a deemed dividend and valued at $323,792.
During the quarter ended December 31, 2018, the Company raised
$120,000 through the sale of 120,000 common stock and warrants (“Units”) at a price of $1.00 per Unit, each Unit consisting
of one share of common stock and four warrants to purchase additional shares of common stock. 240,000 of the warrants have an exercise
price of $1.00 per share while the other 240,000 warrants have an exercise price of $3.00. The expiration date of the warrants
varies from May 8, 2019 to August 8, 2019. These Units in addition to $90,000 of the Units sold in the third quarter included a
feature that between the date the units were sold in November 2018 and December 31, 2018 the investors would receive additional
common shares and warrants should the Company sell stock at less than the unit offering price. This price protection feature resulted
in the warrants being classified as a derivative liability on the date of issuance. This resulted in a day one warrant liability
of $284,049, a day one loss on the derivative of $177,827 and a charge to additional paid in capital of $106,222. At the expiration
of the price protection feature the current fair value of the warrant liability of $168,612 was reclassified to additional paid
in capital resulting in a net impact to equity of $62,390. The following assumptions were used to value the derivative:
Fair value assumptions – derivative:
|
|
|
Risk free interest rate
|
|
2.51% - 2.56%
|
Expected term (years)
|
|
0.35 – 0.72
|
Expected volatility
|
|
192% - 228%
|
Expected dividends
|
|
0%
|
During the year ended December 31, 2018, of the raises above
$328,500 was purchased by directors or significant shareholders.
During the year ended December 31, 2018, the Company received
net proceeds of $120,000 from the exercise of 120,000 warrants.
During the year ended December 31, 2017, we completed private
placements of equity securities in which we sold a total of 25,000 units priced at $5.00 per unit, resulting in
total proceeds of $125,000. Each unit consisted of one share of common stock, and one warrant entitling the holder to purchase
one share of common stock at a price of $5.00 per share in cash. The expiration date of the warrants was initially December 30,
2017 but was subsequently extended to December 30, 2018 and include anti-dilution rights for stock splits, stock dividends and
the sale of substantially all the Company’s assets.
During the year ended December 31, 2017,
the Company issued 10,000 shares from the exercise of 10,000 warrants resulting in net proceeds of $50,000.
Conversion of liabilities into common stock:
During the year ended December 31, 2018, Convertible Note holders
converted $24,394 of accrued interest and fees and $162,854 of principal into 236,000 shares of common stock in accordance with
the note agreements.
During the year ended December 31, 2018, the Company issued
100,000 shares of common stock to Mr. Gibbs related to the conversion of $100,000 of the Line of Credit. The fair value of the
shares issued equaled to the amount of debt settled which resulted in no gain or loss.
Effective July 24, 2018, the Company and W. Pierce Carson, President,
executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued but unpaid executive compensation
for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash advance of $8,100 made to the Company
into an aggregate of 98,100 shares of Common Stock, valued at $1.00 per share. The fair value of the shares issued equaled to the
amount of debt settled which resulted in no gain or loss.
Effective July 24, 2018, the Company and W. Pierce Carson executed
a Restricted Stock Award Agreement pursuant to which the Company granted to Carson a restricted stock award consisting of 80,000
shares of Common Stock, valued at $1.00 per share. 20,000 of the shares will vest upon the Company completing a milestone, and
the remaining 60,000 shares are subject to ratable vesting over an 18-month period. During the year ended December 31, 2018 the
Company recognized an expense of $36,667 related to this issuance.
Issuance of share-based awards for services:
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 60,000 shares of the Company’s restricted common stock.
The stock was valued at $120,000 at the date of grant and recorded as prepaid expense. During 2018 and 2017, $99,616 and $20,384
was recognized as consulting expense, respectively.
On October 26, 2017, the Company issued 80,000 shares
of restricted common stock to its CEO and President. The stock was valued at $160,000 at the date of grant. Stock based compensation
of $160,000 was recognized during the year ended December 31, 2017.
On 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 72,000 shares having an exercise price of $1.00 per share, the closing price on the date of grant. The options have a term
of ten years from the date of grant and are immediately exercisable on the date of grant. Using the Black-Scholes option pricing
model, the options were valued at $143,642 with the following significant assumptions: risk-free interest rate 2.07% , expected
life of 5 years, stock price volatility of 269.11%, and expected dividend yield of zero. Stock based compensation of $143,642 was
recognized during the year ended December 31, 2017.
On September
25, 2017, the Company entered into an advertising agreement (“Agreement”) with Bright Star International, Inc. (“Bright
Star”). Pursuant to the terms of the Agreement, the Company issued Bright Star, as its sole compensation, an aggregate of
30,000 shares of the Company’s restricted common stock. The Agreement was subsequently cancelled and the shares were returned
to the Company.
Issuance of stock for the purchase of
SDA Mill and prepaid assets:
During the year ended December 31, 2018, the Company issued
20,261 shares of common stock as part of the acquisition of a data package related to the El Dorado project. The shares were valued
at $18,235 and recorded as an asset.
On November 30, 2017, the purchase of the SDA Mill closed
for the agreed upon price of US$1.5 million, consisting of $1,000,000 in cash and restricted common stock of the Company with a
fair value of $426,025 on the date of issuance. Based upon the volume weighted average price per share of Magellan Gold stock for
the 30 calendar days preceding the closing date 284,017 shares of stock were issued in connection with the transaction.
Stock Options and the 2017 Equity Incentive Plan:
Under the 2017 Equity Incentive Plan, the Company is authorized
to grant rights to acquire up to a maximum of 200,000 shares of common stock. The 2017 Plan provides for the grant of (1) both
incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation
rights.
During the year ended December 31, 2017, the Company granted
ten-year options to purchase 72,000 shares of common stock at an option exercise price of $2.00 per share, the closing price on
the date of grant. The Company recognized stock-based compensation expense from stock options of $143,642 for the year ended December
31, 2017. As of December 31, 2018 the Company had 128,000 shares available for future grant.
The options were valued using the following
significant assumptions:
|
Year ended
|
|
December 31,
|
|
2017
|
Expected Term
|
10.0 Years
|
Expected Volatility
|
269%
|
Expected Dividends
|
0.00
|
Risk-free rates
|
2.07%
|
Summary
Information on Stock Option and Stock Warrants:
Stock option activity within the 2017 Equity Incentive Plan
and warrant activity outside the plan, for the years ended December 31, 2018 and 2017 is as follows:
|
|
|
|
Stock Options
|
|
|
Stock Warrants
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2016
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
217,000
|
|
|
$
|
5.00
|
|
|
Granted
|
|
|
|
72,000
|
|
|
|
2.00
|
|
|
|
25,000
|
|
|
|
5.00
|
|
|
Cancelled
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(195,000
|
)
|
|
|
5.00
|
|
|
Exercised
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(10,000
|
)
|
|
|
5.00
|
|
Outstanding at December 31, 2017
|
|
|
|
72,000
|
|
|
|
2.00
|
|
|
|
37,000
|
|
|
|
5.00
|
|
|
Granted
|
|
|
|
–
|
|
|
|
–
|
|
|
|
820,000
|
|
|
|
2.00
|
|
|
Cancelled
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(257,000
|
)
|
|
|
1.50
|
|
|
Exercised
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(120,000
|
)
|
|
|
1.00
|
|
Outstanding at December 31, 2018
|
|
|
|
72,000
|
|
|
$
|
2.00
|
|
|
|
480,000
|
|
|
$
|
2.50
|
|
Exercisable at December 31, 2018
|
|
|
|
72,000
|
|
|
$
|
2.00
|
|
|
|
480,000
|
|
|
$
|
2.50
|
|
As of December 31, 2018 the outstanding stock options
have a weighted average remaining term of 8.82 years and no intrinsic value, and the outstanding stock warrants have a weighted
average remaining term of 0.48 years and no intrinsic value.
Note 13 – Commitments and Contingencies
Mining Claims
As part of our acquisition of the Silver District properties
from Columbus Exploration, we assumed the Red Cloud lease whose initial term expires in August 2026. The lease requires annual
advance minimum royalty payments of $10,000 through the term of the lease due on the annual anniversary of the agreement. The lease
is also subject to a 2% net production royalty to be paid to the lessor from the sale of precious metals extracted from the leased
property. In order to maintain the BLM lode and mill site claims, annual payments are required before the end of August of each
year. Payments are also due annually on two patented claims we leased in July 2015 and on our Arizona State Minerals Exploration
Permit. As of December 31, 2018, all of these claims and leases are in good standing except for the two patented claims leased
in 2015.
Leases
As part of our acquisition of MV2 in Mexico, we assumed the
following leases payable in local currency as follows:
|
a)
|
Ejido S.D.A, 10 year lease, 6 hectares, executed January 2016, expires December 2025. Annual payments 25,000 MX pesos. Renewable for 10 years.
|
|
b)
|
Silverio Medina Ozuna, 3 year lease, 1 hectare, executed May 2017, expires April 2020. Annual payments 15,000 MX pesos. Renewable for 3 year periods.
|
|
c)
|
Silverio Medina Ozuna, 10 year lease, 2 hectares, executed May 2010, expires April 2020. Payment $100,000 MX pesos paid in advance at lease execution. Renewable for 10 years.
|
The minimum future payments due on these leases are as
follows for the next five years and thereafter and have been translated to US dollars using an exchange rate at December 31, 2018
of 19.65 MX pesos to US dollars:
Payment Due Date
|
|
Minimum Due ($)
|
|
2019
|
|
|
2,036
|
|
2020
|
|
|
1,272
|
|
2021
|
|
|
1,272
|
|
2022
|
|
|
1,272
|
|
2023 and beyond
|
|
|
3,817
|
|
Other contractual arrangements
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 six months, or until the Company informs the consultant it has located
investors to purchase the securities. The consultant is to be compensated for the services by cash payments totaling $30,000, payable
at or before the termination of the Agreement. As of December 31, 2018, the Company paid approximately $23,500 in total to the
consultant pursuant to the Agreement, including $12,500 paid during year ended December 31, 2017 and $0 during the year ended December
31, 2018.
On October 24, 2016, the Company entered into an agreement with
Rio Silver, discussed in Note 4 – Mining Option Agreement, requiring the Company to spend $2,000,000 in exploration costs
over the three-year period commencing with the execution of the Agreement. Effective December 31, 2017, the Company agreed with
Rio Silver to terminate the option agreement, thereby terminating the requirement for exploration cost expenditures and the Company’s
option to earn an interest in the Niñobamba Silver/Gold Project.
Note 14 – Executive Employment Agreement
On June 1, 2016 we executed an employment agreement with Dr.
Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The agreement also
provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, and effective June 30, 2016, Dr. Carson was appointed
a Director of Magellan. The term of the agreement covered the period from June 1, 2016 to May 31, 2017 and is subject to annual
renewal. The agreement has subsequently been renewed each year and is currently effective from June 1, 2018 to May 31, 2019, with
all terms of the original agreement remaining unchanged.
During the term of the agreement, Magellan agreed to pay Dr.
Carson a base salary in equal semi-monthly installments less required withholding and other applicable taxes. 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. Until such time as Magellan is properly funded, Magellan may defer and accrue salary owed. If not properly funded before
the end of the term, Magellan may at its option issue shares of Magellan common stock as settlement of the accrued salary liability.
Dr. Carson shall have the right to voluntarily terminate his
employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan at least 60 days
advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through the date of termination,
including any amount that may have been deferred and accrued.
At December 31, 2018 a total of $60,000 and $13,870 of salary
and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities
on the accompanying consolidated balance sheets.
At December 31, 2017 a total of $30,000 and $2,796 of salary
and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities
on the accompanying consolidated balance sheets.
Note 15 – Related Party Transactions
Conflicts of Interests
Athena Silver Corporation (“Athena”)
is a company under common control. Mr. Power is also a director and CEO of Athena. Mr. Gibbs is a significant investor in both
Magellan and Athena. Magellan and Athena are both exploration stage companies involved in the business of acquisition and exploration
of mineral resources.
Silver Saddle Resources, LLC is also
a company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle. Magellan
and Silver Saddle are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.
The existence of common ownership and
common management could result in significantly different operating results or financial position from those that could have resulted
had Magellan, Athena and Silver Saddle been autonomous.
Management Fees
The Company previously maintained a
month-to-month management agreement with Mr. Power requiring a monthly payment, in advance, of $2,500 as consideration for his
services as CFO to Magellan. Effective August 31, 2017, Mr. Power resigned as CFO and Secretary of the Company and was replaced
by Michael P. Martinez on September 18, 2017 to serve as CFO, Secretary and Treasurer. Mr. Power continues to serve as a member
of the Board of Directors.
Management fees to Mr. Power for the
years ended December 31, 2018 and 2017, are $0 and $20,000, respectively. These fees are included in general and administrative
expenses in our consolidated statements of operations and comprehensive loss. At December 31, 2018 and 2017, $27,500 of the fees
had not been paid and are included in accrued liabilities on the accompanying consolidated balance sheets.
Management fees to Mr. Martinez for
the years ended December 31, 2018 and 2017, are $40,000 and $0, respectively. These fees are included in general and administrative
expenses in our statement of operations. At December 31, 2018 and 2017, $28,000 and $0 of the fees had not been paid and are included
in accounts payable on the accompanying consolidated balance sheets.
Accrued Interest - Related Parties
Accrued interest due to related parties is included in our consolidated
balance sheets as follows:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Accrued interest payable - Mr. Gibbs
|
|
$
|
340,218
|
|
|
$
|
221,103
|
|
Accrued interest payable - Mr. Power
|
|
|
76,504
|
|
|
|
16,562
|
|
Accrued interest payable - Dr. Carson
|
|
|
3,736
|
|
|
|
986
|
|
|
|
$
|
420,458
|
|
|
$
|
238,651
|
|
During the year ended December 31, 2018, we paid a total of
$12,357 to Mr. Power representing unpaid accrued interest on notes payable. During the year ended December 31, 2017, we paid a
total of $382 to Mr. Power representing unpaid accrued interest on notes payable.
Advances
Payable – Related Party
We borrowed and repaid non-interest bearing advances from/to
related parties as follows:
|
|
Year Ended December 31, 2018
|
|
|
|
Advances
|
|
|
Repayments (including transfers)
|
|
|
Balance
|
|
Mr. Power
|
|
|
19,300
|
|
|
|
19,300
|
|
|
$
|
–
|
|
Mr. Carson
|
|
|
–
|
|
|
|
8,100
|
|
|
|
–
|
|
Totals
|
|
$
|
19,300
|
|
|
$
|
27,400
|
|
|
$
|
–
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
Advances
|
|
|
Repayments (including transfers)
|
|
|
Balance
|
|
Mr. Power
|
|
$
|
26,050
|
|
|
$
|
26,050
|
|
|
$
|
–
|
|
Mr. Carson
|
|
|
8,100
|
|
|
|
–
|
|
|
|
8,100
|
|
Totals
|
|
$
|
34,150
|
|
|
$
|
26,050
|
|
|
$
|
8,100
|
|
In addition to the above, during the year ended December 31,
2017, Mr. Power loaned the Company $25,000 in a short term note that was subsequently transferred into the Series 2017 Notes. Mr.
Power used personal credit cards during the year ended December 31, 2018 to fund Company operations. During 2018 a total of $125,945
was charged on the credit cards and $101,181 was repaid by the Company. As of December 31, 2018, a balance of $24,764 remained
outstanding and is included in Advances payable, related party.
Note 16 – Income Taxes
Our net operating loss carry forward as of December 31, 2018
was approximately $6,850,000, which may be used to offset future income taxes through 2038. Our net operating loss carry forward
as of December 31, 2017 was $5,162,768. Included in these numbers are loss carry-forwards of $2,320,171 that were obtained through
the acquisition of Minerales Vane 2, S.A. de C.V. Our reconciliation between the expected federal income tax benefit computed by
applying the federal statutory rate to our net loss and the actual benefit for taxes on net loss for 2018 and 2017 is as follows:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Expected federal income tax benefit at statutory rate
|
|
|
407,997
|
|
|
|
458,525
|
|
State taxes
|
|
|
38,324
|
|
|
|
31,628
|
|
Change in valuation allowance
|
|
|
(446,321
|
)
|
|
|
(490,153
|
)
|
Income tax benefit
|
|
$
|
–
|
|
|
$
|
–
|
|
Our deferred tax assets as of December 31, 2018 and 2017 were
as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax asset
|
|
|
1,838,816
|
|
|
|
1,392,495
|
|
Valuation allowance
|
|
|
(1,838,816
|
)
|
|
|
(1,392,495
|
)
|
Deferred tax assets, net of allowance
|
|
$
|
–
|
|
|
$
|
–
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. We have provided a valuation allowance of 100% of our net deferred tax asset due to the uncertainty of generating
future profits that would allow us to realize our deferred tax assets. Tax returns filed for the years 2015 through 2017 are open
for examination from taxing authorities.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Tax
Reform Act") was signed into law by President Trump. The Tax Reform Act significantly revised the U.S. corporate income tax
regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. Under ASC 740, the
tax effects of changes in tax laws must be recognized in the period in which the law was enacted. ASC 740 also requires deferred
tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized
or settled. The Company re-measured its deferred tax assets and liabilities at the 21% federal corporate tax rate.
Note 17 – Subsequent Events
On January 3, 2019, the Financial Industry Regulatory Authority
(“FINRA”) informed Magellan Gold Corporation, a Nevada corporation (the “Company”) that a 1-for-50 reverse
split of the Company’s common stock, previously disclosed in the Company’s Definitive Information Statement on Schedule
14C filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2017, would be effective at the
market open on January 7, 2019. The stock split has been retroactively adjusted throughout these financial statements and footnotes.
In January 2019 the Company issued Mr. Martinez 14,118 shares
in settlement of liabilities for services provided in 2018.
In January 2019 the Company issued 7,574 shares in satisfaction
of accounts payable for services rendered in 2017.
Effective January 1, 2019 the Company entered into an investor
relations agreement and committed to issue a total of 40,000 shares in exchange for a two year service period. In the first quarter
of 2019 all 40,000 shares were issued under this agreement.
In January 2019 the Company and Rose Petroleum entered into
an agreement whereby any and all obligations of Magellan or its subsidiaries to make truck installment purchase payments shall
be deemed satisfied in full, and Magellan shall be deemed released from any further liability therefor. The personal guaranty of
W. Pierce Carson under the provisions of the IVA Agreement dated November 30, 2017 shall be deemed released and discharged.
In January 2019, the Company issued 30,000 shares of common
stock in exchange for $30,000 to one investor. The investor had previously subscribed to purchase the shares.
In the first quarter of 2019 Mr. Gibbs was issued 30,594 and
Mr. Powers was issued 14,965 shares of common stock related to the price protection feature discussed in Note 12.
In the first quarter of 2019 Mr. Carson was issued 20,000 shares
of common stock for services pursuant to the vesting terms from the July 24, 2018 issuance discussed in Note 12.
In the first quarter of 2019 Mr. Gibbs and Mr. Power advanced
$90,000 and $28,500 to the Company, respectively. In addition $20,000 was received from a third party with the intention to convert
to a note payable of which the terms are still being finalized.
Effective April 1, 2019 the Company entered into an investor
relations agreement and committed to issue a total of 100,000 shares in exchange for a 6 month service period. All 100,000 shares
have been issued under this agreement.
In April 2019 the Company issued 7,000 shares to consultants
in satisfaction for services rendered in 2019.
You should rely on the information contained in this document
or that we have referred you to. We have not authorized anyone to provide you with information that is different. This prospectus
is not an offer to sell common stock and is not soliciting an offer to buy common stock in any state where the offer or sale is
not permitted.
Until May 25, 2019 (25 days after the date of
this prospectus), all dealers effecting transactions in the shares offered by this prospectus whether or not participating in
the offering may be required to deliver a copy of this prospectus. Dealers may also be required to deliver a copy of this
prospectus when acting as underwriters and for their unsold allotments or subscriptions.
MAGELLAN GOLD CORPORATION
1,075,000 SHARES COMMON STOCK
April 30, 2019
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