UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 000-55219

 

Inception Mining Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   35-2302128

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification Number)

 

5330 South 900 East, Suite 280

Murray, Utah

  84117
(Address of Principal Executive Offices)   (Zip Code)

 

801-312-8113

(Registrant’s telephone number, including area code)

 

Copies to:

Brunson Chandler & Jones, PLLC

175 South Main Street

Suite 1410

Salt Lake City, Utah 84111

(801) 303-5721

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-3 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X]   Smaller reporting company [X]
      Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Securities registered to Section 12(b) of the Act: None.

 

As of May 21, 2021, there were 125,650,818 shares of the registrant’s common stock issued and outstanding.

 

 

 

 

 

 

INCEPTION MINING INC.

FORM 10-Q

TABLE OF CONTENTS 

 

PART I – FINANCIAL INFORMATION  
   
Item 1. Financial Statements F-1
     
  Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020 F-1
     
  Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three months ended March 31, 2021 and 2020 (Unaudited) F-2
     
  Condensed Consolidated Statements of Stockholders’ Deficit for the Three months ended March 31, 2021 and 2020 (Unaudited) F-3
     
  Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021 and 2020 (Unaudited) F-4
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) F-5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 7
     
Item 4. Controls and Procedures 7
     
PART II – OTHER INFORMATION  
   
Item 1. Legal Proceedings 7
     
Item 1A. Risk Factors 8
     
Item 2. Unregistered Sales of Equity Securities and use of Proceeds 8
     
Item 3. Defaults Upon Senior Securities 10
     
Item 4. Mine Safety Disclosures 10
     
Item 5. Other Information 10
     
Item 6. Exhibits 10
     
Signature Page 13

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Inception Mining, Inc.

Condensed Consolidated Balance Sheets

 

    March 31, 2021     December 31, 2020  
    (Unaudited)        
ASSETS            
Current Assets                
Cash and cash equivalents   $ 83,329     $ 34,358  
Accounts receivable     18,090       11,870  
Inventories     276,068       736,749  
Marketable securities     -       118,166  
Prepaid expenses and other current assets     17,959       22,281  
Total Current Assets     395,446       923,424  
                 
Property, plant and equipment, net     424,048       413,811  
Other assets     163,681       163,095  
Total Assets   $ 983,175     $ 1,500,330  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities                
Accounts payable and accrued liabilities   $ 3,424,818     $ 3,454,485  
Accrued interest - related parties     8,772,178       8,537,442  
Secured borrowings, net     124,956       149,590  
Notes payable - related parties     6,968,553       7,105,019  
Convertible notes payable     3,326,156       2,176,677  
Derivative liabilities     10,983,359       7,564,307  
Total Current Liabilities     33,600,020       28,987,520  
                 
Long-term note payable     160,000       160,000  
Convertible notes payable, net of current portion     279,943       1,217,715  
Mine reclamation obligation     604,508       602,337  
Total Liabilities     34,644,471       30,967,572  
                 
Commitments and Contingencies     -       -  
                 
Stockholders’ Deficit                
Preferred stock, $0.00001 par value; 10,000,000 shares authorized, 51 shares issued and outstanding     1       1  
Common stock, $0.00001 par value; 500,000,000
shares authorized, 111,713,581 and 78,668,420 shares issued
and outstanding as of March 31, 2021 and December 31, 2020, respectively
    1,117       787  
Additional paid-in capital     7,090,926       5,882,614  
Accumulated deficit     (40,074,763 )     (34,668,784 )
Accumulated other comprehensive loss     (669,746 )     (673,185 )
Total Controlling Interest     (33,652,465 )     (29,458,567 )
Non-Controlling Interest     (8,831 )     (8,675 )
Total Stockholders’ Deficit     (33,661,296 )     (29,467,242 )
Total Liabilities and Stockholders’ Deficit   $ 983,175     $ 1,500,330  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 1

 

 

Inception Mining, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

    For the Three Months Ended  
    March 31, 2021     March 31, 2020  
Precious Metals Income   $ 1,529,329     $ 1,128,706  
Cost of goods sold     1,241,648       944,091  
Gross profit     287,681       184,615  
                 
Operating Expenses                
General and administrative     290,104       332,229  
Depreciation and amortization     2,028       3,218  
Total Operating Expenses     292,132       335,447  
Income (Loss) from Operations     (4,451 )     (150,832 )
                 
Other Income/(Expenses)                
Other income (expense)     12,402       1,278  
Gain on sale of mine property     -       471,084  
Change in derivative liability     (3,419,052 )     2,056,662  
Change in marketable securities     328,970       (57,042 )
Loss on extinguishment of debt     (1,096,752 )     (218,547 )
Interest expense     (1,069,562 )     (973,332 )
Total Other Income/(Expenses)     (5,243,994 )     1,280,103  
                 
Net Income (Loss) from Operations before Income Taxes     (5,248,445 )     1,129,271  
Provision for Income Taxes     157,690       -  
NET INCOME (LOSS)     (5,406,135 )     1,129,271  
NET (INCOME) LOSS - Non-Controlling Interest     156       1,236  
NET INCOME (LOSS) - Controlling Interest   $ (5,405,979 )   $ 1,130,507  
                 
Net income (loss) per share - Basic   $ (0.06 )   $ 0.02  
Net income (loss) per share - Diluted   $ (0.06 )   $ (0.00 )
Weighted average number of shares outstanding during the period - Basic     93,514,974       62,872,206  
Weighted average number of shares outstanding during the period - Diluted     93,514,974       319,205,052  
                 
NET INCOME (LOSS)   $ (5,406,135 )   $ 1,129,271  
Other Comprehensive Income (Loss)                
Exchange differences arising on translating foreign operations     3,439       (84,631 )
Total Comprehensive Income (Loss)     (5,402,696 )     1,044,640  
Total Comprehensive Income (Loss) - Non-Controlling Interest     (164 )     62  
Total Comprehensive Income (Loss) - Controlling Interest   $ (5,402,860 )   $ 1,044,702  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 2

 

 

Inception Mining, Inc.

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

 

    Preferred stock     Common stock                              
    ($ 0.00001 Par)   ($ 0.00001 Par)      

Additional

Paid-in

      Accumulated      

Other

 Comprehensive

      Non-Controlling      

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Income     Interest     Deficiency  
Balance, December 31, 2020     51     $ 1       78,668,420     $ 787     $ 5,882,614     $ (34,668,784 )   $ (673,185 )   $ (8,675 )   $ (29,467,242 )
Shares issued for conversion of note payable     -                -       33,045,161       330       1,208,312       -       -       -       1,208,642  
Foreign currency translation adjustment     -       -       -       -       -       -       3,439       -       3,439  
Net loss for the period     -       -       -       -       -       (5,405,979 )     -       (156 )     (5,406,135 )
Balance, March 31, 2021     51     $ 1       111,713,581     $ 1,117     $ 7,090,926     $ (40,074,763 )   $ (669,746 )   $ (8,831 )   $ (33,661,296 )

 

      Preferred stock       Common stock                                          
    ($ 0.00001 Par)     ($ 0.00001 Par)      

Additional

Paid-in

      Accumulated      

Other

Comprehensive

      Non-Controlling      

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Income     Interest     Deficiency  
Balance, December 31, 2019     51     $ 1       60,035,102     $ 600     $ 5,309,544     $ (37,011,083 )   $ (525,951 )   $ (7,953 )   $ (32,234,842 )
Shares issued for services     -       -       600,000       6       28,994       -       -       -       29,000  
Shares issued for cash     -       -       -       -       -       -       -       -       -  
Shares issued for conversion of note payable     -       -       5,340,000       54       218,493       -       -       -       218,547  
Shares issued with settlement of A/P     -       -       -       -       -       -       -       -       -  
Foreign currency translation adjustment     -       -       -       -       -       -       (84,631 )     -       (84,631 )
Net income (loss) for the period     -       -       -       -       -       1,130,507       -       (1,236 )     1,129,271  
Balance, March 31, 2020     51     $ 1       65,975,102     $ 660     $ 5,557,031     $ (35,880,576 )   $ (610,582 )   $ (9,189 )   $ (30,942,655 )

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 3

 

 

Inception Mining, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    For the Three Months Ended  
    March 31, 2021     March 31, 2020  
Cash Flows From Operating Activities:                
Net Income (Loss)   $ (5,406,135 )   $ 1,129,271  
Adjustments to reconcile net income (loss) to net cash used in operations                
Depreciation and amortization expense     12,163       19,349  
Common stock issued for services     -       29,000  
Loss on extinguishment of debt     1,096,752       218,547  
Change in derivative liability     3,419,052       (2,056,662 )
Change in marketable securities     (328,970 )     57,042  
Gain on sale of mine property     -       (471,084 )
Amortization of debt discount     482,453       504,351  
Changes in operating assets and liabilities:                
Accounts receivables     (6,168 )     746  
Inventories     461,533       199,957  
Prepaid expenses and other current assets     4,368       5,489  
Accounts payable and accrued liabilities     (32,987 )     30,174  
Accounts payable and accrued liabilities - related parties     306,322       224,241  
Secured borrowings     58,372       55,429  
Net Cash Provided By (Used In) Operating Activities     66,755       (54,150 )
                 
Cash Flows From Investing Activities:                
Proceeds on sale of mine property     -       249,660  
Proceeds on sale of marketable securities     447,136       -  
Purchase of marketable securities     -       (119 )
Purchase of property, plant and equipment     (23,477 )     (5,648 )
Net Cash Provided By Investing Activities     423,659       243,893  
                 
Cash Flows From Financing Activities:                
Repayment of notes payable-related parties     (572,713 )     (854,576 )
Repayment of convertible notes payable     (158,857 )     (9,000 )
Repayment of secured borrowings     (83,006 )     -  
Proceeds from notes payable-related parties     373,000       655,500  
Net Cash Used in Financing Activities     (441,576 )     (208,076 )
Effects of exchange rate changes on cash     133       (115 )
Net Change in Cash     48,971       (18,448 )
Cash at Beginning of Period     34,358       47,996  
Cash at End of Period   $ 83,329     $ 29,548  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 162,204     $ 116,042  
Cash paid for taxes   $ 33,832     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Common stock issued for conversion of debt   $ 1,208,642     $ -  
Marketable securities received from sale of mine property   $ -     $ 221,424  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 4

 

 

Inception Mining, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2021

 

1. Nature of Business

 

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

 

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

 

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

 

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

 

On November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented.

 

On February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the Company’s operations were then focused on the ownership and operation of the mine acquired from Inception Resources and the Company then ceased to be a shell company as it no longer has nominal operations. On February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange for $250,000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian company.

 

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

 

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

 

F- 5

 

 

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

 

COVID-19 - The challenges posed by the COVID-19 pandemic on the global economy increased significantly as the first quarter of 2020 progressed. COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Based on management’s assessment as of March 31, 2021, the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

 

2. Summary of Significant Accounting Policies

 

Going Concern - The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company had net loss of $5,406,135 during the period ended March 31, 2021 and had a working capital deficit of $33,204,574 as of March 31, 2021. These factors among others indicate that the Company may be unable to continue as a going concern for a period of one year from the issuance of these financial statements.

 

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

 

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

 

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

 

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

 

Condensed Financial Statements - The interim consolidated financial statements included herein have been prepared by Inception Mining Inc. (“Inception Mining” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this filing.

 

In the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries, necessary to present fairly the consolidated financial position of the Company and subsidiaries as of March 31, 2021, the results of its consolidated statements of operations and comprehensive income (loss) for the three-month period ended March 31, 2021, and its consolidated cash flows for the three month period ended March 31, 2021. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.

 

F- 6

 

 

Cash and Cash Equivalents - The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At March 31, 2021 and December 31, 2020, the Company had $0 and $0 in cash equivalents, respectively. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has never experienced any losses in such accounts.

 

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

 

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

 

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

 

The estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage.

 

Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the quantities and grades of material placed on leach pads to the quantities and grades quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored, and estimates are refined based on actual results over time. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.

 

In-process Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process.

 

Finished Goods Inventories - Finished goods inventories include gold that has been processed through the Company’s ADR facility and are valued at the average cost of their production.

 

F- 7

 

 

Exploration and Development Costs - Costs of acquiring mining properties and any exploration and development costs are expensed as incurred unless proven and probable reserves exist and the property is a commercially mineable property in accordance with FASB ASC 930, Extractive Activities- Mining. Mine development costs incurred either to develop new gold and silver deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.

 

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain.

 

Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.

 

Mineral Rights and Properties - We defer acquisition costs until we determine the viability of the property. Since we do not have proven and probable reserves as defined by Securities and Exchange Commission (“SEC”) Industry Guide 7, exploration expenditures are expensed as incurred. We expense care and maintenance costs as incurred.

 

We review the carrying value of our mineral rights and properties for impairment whenever there are negative indicators of impairment. Our estimate of the gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties affecting the recoverability of our investment in the mineral claims and properties. Although we have made our best, most current estimate of these factors, it is possible that near term changes could adversely affect estimated net cash flows from our mineral claims and properties and possibly require future asset impairment write-downs.

 

Where estimates of future net operating cash flows are not available and where other conditions suggest impairment, we assess recoverability of carrying value from other means, including net cash flows generated by the sale of the asset. We use the units-of-production method to deplete the mineral rights and properties.

 

Settlement of Contracts in Company’s Equity – In accordance with ASC 815-40-25, the Company must meet certain requirements in order to report contracts as equity versus liabilities. These requirements must be met by the Company or the contracts need to be reported as liabilities. The Company has adopted the sequencing approach as guidance on contracts that permit partial net share settlement. The Company evaluates the contracts based on the earliest issuance date. Currently, the Company doesn’t have any items that are reported as equity instead of liabilities.

 

Fair Value Measurements - The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.

 

Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.
   
Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

F- 8

 

 

Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

 

The carrying value of the Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

 

The fair value of financial instruments on March 31, 2021 are summarized below:

 

    Level 1     Level 2     Level 3     Total  
Marketable Securities   $ -     $ -     $ -     $ -  
Total Assets   $ -     $ -     $ -    

$

-  
                                 
Warrant Liabilities     -       -       29,230       29,230  
Debt Derivative Liabilities          -             -       10,954,129       10,954,129  
Total Liabilities   $ -     $ -     $ 10,983,359     $ 10,983,359  

 

The fair value of financial instruments on December 31, 2020 are summarized below:

 

    Level 1     Level 2     Level 3     Total  
Marketable Securities   $ 118,166     $ -     $ -     $ 118,166  
Total Assets   $ 118,166     $ -     $ -     $ 118,166  
                                 
Warrant Liabilities   $ -     $ -     $ 22,914     $ 22,914  
Debt Derivative Liabilities     -       -       7,541,393       7,541,393  
Total Liabilities   $ -     $       -     $ 7,564,307     $ 7,564,307  

 

The Company recognizes its marketable securities as level 1 and values its marketable securities using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

 

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.

 

Marketable Securities - We measure the fair value of marketable securities in accordance with ASC 825-10 – Financial Instruments. Any change in the fair value is recognized in net income in the period being reported.

 

Long-Lived Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flows.

 

F- 9

 

 

Properties, Plant and Equipment - We record properties, plant and equipment at historical cost. We provide depreciation and amortization in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value. We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful lives as follows:

 

Building 7 to 15 years
Vehicles and equipment 3 to 7 years
Processing and laboratory 5 to 15 years
Furniture and fixtures 2 to 3 years

 

Reclamation Liabilities and Asset Retirement Obligations - Minimum standards for site reclamation and closure have been established for us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site.

 

Revenue Recognition - In accordance with ASC 606-10, revenue is measured based on a consideration specified in a contract with a customer and recognized when we satisfy the performance obligation specified in each contract.

 

The Company generates revenue by selling gold and silver produced from its mining operations. The majority of the Company’s sales come from the sale of refined gold; however, the end product at the Company’s gold operations is generally doré bars. Doré is an alloy consisting primarily of gold but also containing silver and other metals. Doré is sent to refiners to produce bullion that meets the required market standard of 99.95% gold. Under the terms of the Company’s refining agreements, the doré bars are refined for a fee, and the Company’s share of the refined gold and silver is credited to its bullion account.

 

The Company recognizes revenue for gold and silver from doré production when it satisfies the performance obligation of transferring gold and silver inventory to the customer, which generally occurs upon transfer of gold and silver bullion credits as this is the point at which the customer obtains the ability to direct the use and obtain substantially all of the remaining benefits of ownership of the asset.

 

The Company generally recognizes the sale of gold bullion credits at the prevailing market price when gold bullion credits are delivered to the customer. The transaction price is determined based on the agreed upon market price and the number of ounces delivered. Payment is due upon delivery of gold bullion credits to the customer’s account.

 

As gold can be sold through numerous gold market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product.

 

Stock Issued for Goods and Services - Common and preferred shares issued for goods and services are valued based upon the fair market value of our common stock or the goods and services received, whichever is the most reliably measurable on the date of issue.

 

Stock-Based Compensation - For stock-based transactions, compensation expense is recognized over the requisite service period, which is generally the vesting period, based on the estimated fair value on the grant date of the award.

 

Income (Loss) per Common Share - Basic net income (loss) per common share is computed by dividing net income (loss), less the preferred stock dividends, by the weighted average number of common shares outstanding. Dilutive income (loss) per share includes any additional dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not antidilutive. 391,899,821 common share equivalents have been excluded from the diluted loss per share calculation for the three-month period ended March 31, 2021 because it would be anti-dilutive.

 

F- 10

 

 

The following tables summaries the changes in the net earnings per common share for the three-month periods ended March 31, 2021 and 2020:

 

    For the Three Months Ended  
Numerator   3/31/2021     3/31/2020  
Net Income (Loss) - Controlling Interest   $ (5,406,135 )   $ 1,129,271  
Amortization of Debt Discounts     -       504,351  
Interest Expense     -       112,333  
Change in Derivative Liabilities     -       (1,964,401 )
Adjusted Net Loss - Controlling Interest   $ (5,406,135 )   $ (218,446 )

 

Denominator   Shares     Shares  
Basic Weighted Average Number of Shares Outstanding during Period     93,514,974       62,872,206  
Dilutive Shares     -       256,332,846  
Diluted Weighted Average Number of Shares Outstanding during Period     93,514,974       319,205,052  
                 
Diluted Net Loss per Share   $ (0.06 )   $ (0.00 )

 

Other Comprehensive Loss – Other Comprehensive loss is made up of the exchange differences arising on translating foreign operations, unrealized losses on marketable securities and the net loss for the three-months ending March 31, 2021 and March 31, 2020.

 

Derivative Liabilities - Derivative liabilities are recorded at fair value when issued and the subsequent change in fair value each period is recorded in other income (expense) in the consolidated statements of operations.

 

Income Taxes - The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense.

 

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than not.

 

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.

 

Business Segments – The Company operates in one segment and therefore segment information is not presented.

 

Use of Estimates – In preparing financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenditures during the reported periods. Actual results could differ materially from those estimates. Estimates may include those pertaining to valuation of inventories and mineralized material on leach pads, the estimated useful lives and valuation of properties, plant and equipment, mineral rights and properties, deferred tax assets, convertible preferred stock, derivative assets and liabilities, reclamation liabilities, stock-based compensation and payments, and contingent liabilities.

 

F- 11

 

 

Non-Controlling Interest Policy – Non-controlling interest (NCI) is the portion of equity ownership in a subsidiary not attributable to the parent company, who has a controlling interest and consolidates the subsidiary’s financial results with its own. The amount of equity relating to the non-controlling interest is separately identified in the equity section of the balance sheet and the amount of the net income (loss) relating to the non-controlling interest is separately identified on the statement of operations.

 

Recently Issued Accounting Pronouncements – From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

 

3. Inventories, Stockpiles and Mineralized Materials on Leach Pads

 

Inventories, stockpiles and mineralized materials on leach pads at March 31, 2021 and December 31, 2020 consisted of the following:

 

    March 31, 2021     December 31, 2020  
Supplies   $ 39,232     $ 69,768  
Mineralized Material on Leach Pads     14,917       112,207  
ADR Plant     59,254       153,307  
Finished Ore     162,665       401,467  
Total Inventories   $ 276,068     $ 736,749  

 

There were no stockpiles at March 31, 2021 and December 31, 2020.

 

4. Marketable Securities Financial Instruments

 

The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The following table provides a summary of changes in fair value of the Company’s Level 1 financial assets as of March 31, 2021:

 

    Marketable Securities  
Balance, December 31, 2020   $ 118,166  
Change in fair value of marketable securities     328,970  
Sale of marketable securities     (447,136 )
Balance, March 31, 2021   $ -  

 

F- 12

 

 

5. Derivative Financial Instruments

 

The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2021:

 

    Derivative Liabilities  
Balance, December 31, 2020   $ 7,564,307  
Change in fair value of derivative liabilities and warrant liability     3,419,052  
Balance, March 31, 2021   $ 10,983,359  

 

Debt derivatives – The Company issued convertible promissory notes which are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.

 

At March 31, 2021, the Company marked to market the fair value of the debt derivatives and determined a fair value of $10,954,129. The Company recorded a loss from change in fair value of debt derivatives of $3,412,736 for the period ended March 31, 2021. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model and the Monte Carlo Valuation Model. The Binomial Option Pricing Model was based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 152.61%, (3) weighted average risk-free interest rate of 0.07% (4) expected life of 0.78 years, and (5) the quoted market price of the Company’s common stock at each valuation date. The Monte Carlo Valuation Model was based on the following assumptions: (1) expected volatility of 154.0%, (2) weighted average risk-free interest rate of 0.08% and (3) expected life of 1.14 years.

 

Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.

 

Warrant liabilities – Prior to the periods being reported, the Company issued warrants in conjunction with the issuance of three Crown Bridge Convertible Notes and a Convertible Note with an investor. These warrants contained certain reset provisions. The accounting treatment of derivative financial instruments required that the Company record fair value of the derivatives as of the inception date (issuance date) and to fair value as of each subsequent reporting date.

 

At March 31, 2021, the Company had a warrant liability of $29,230. The Company recorded a loss from change in fair value of warrant liability of $6,316 for the period ended March 31, 2021. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model and the Monte Carlo Valuation Model. The Binomial Option Pricing Model was based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 146.04% to 211.87%, (3) weighted average risk-free interest rate of 0.07% to 0.35% (4) expected life of 1.36 to 2.57 years, and (5) the quoted market price of the Company’s common stock at each valuation date. The Monte Carlo Valuation Model was based on the following assumptions: (1) expected volatility of 154.0%, (2) weighted average risk-free interest rate of 0.08% and (3) expected life of 1.14 years.

 

F- 13

 

 

6. Properties, Plant and Equipment, Net

 

Properties, plant and equipment at March 31, 2021 and December 31, 2020 consisted of the following:

 

    March 31, 2021     December 31, 2020  
Land   $ 274,233     $ 273,248  
Buildings     2,396,882       2,388,274  
Machinery and Equipment     974,783       971,374  
Office Equipment and Furniture     50,668       48,827  
Vehicles     103,420       85,921  
Construction in Process     11,141       9,015  
      3,811,127       3,776,659  
Less Accumulated Depreciation     (3,387,079 )     (3,362,848 )
Total Property, Plant and Equipment   $ 424,048     $ 413,811  

 

During the three months ended March 31, 2021 and 2020, the Company recognized depreciation expense of $12,163 and $19,349, respectively. The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative expenses.

 

Depreciation Allocation   March 31, 2021     March 31, 2020  
Cost of Goods Sold   $ 10,135     $ 16,131  
General and Administrative     2,028       3,218  
Total   $ 12,163     $ 19,349  

 

7. Mineral Properties

 

On February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly known as the U.P. and Burlington Gold Mine (“UP & Burlington” or the “Mine”) pursuant to that certain asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its wholly owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). UP & Burlington contains two Federal patented mining claims which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises UP & Burlington. The property was recorded at cost and the Company recognized $950,160 impairment expense on the property as of July 31, 2015. On February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange for $249,660 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian company that was valued at $221,424, for a net gain of $471,084 on the sale of the mine property.

 

8. Mine Reclamation Obligation

 

The Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and revegetating various portions of our site after mining and mineral processing operations are completed. These reclamation efforts are conducted in accordance with plans reviewed and approved by the appropriate regulatory agencies.

 

The fair value of the long-term liability of $604,508 and $602,337 as of March 31, 2021 and December 31, 2020, respectively, for our obligation to reclaim our mine facility is based on our most recent reclamation plan, as revised, submitted and approved by the Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA). Such costs are based on management’s current estimate of then expected amounts for the remediation work, assuming the work is performed in accordance with current laws and regulations and using a credit adjusted risk-free rate of 18.00% and an inflation rate of 5.3%. It is reasonably possible that, due to uncertainties associated with the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology, the ultimate cost of reclamation and remediation could change in the future. We periodically review the accrued reclamation obligation for information indicating that our assumptions should change.

 

F- 14

 

 

Changes to the asset retirement obligation were as follows:

 

    March 31, 2021     December 31, 2020  
Balance, Beginning of Year   $ 602,337     $ 513,051  
Liabilities incurred     -       89,286  
Change due to foreign currency translation     2,171       -  
Balance, End of Year   $ 604,508     $ 602,337  

 

9. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities at March 31, 2021 and December 31, 2020 consisted of the following:

 

    March 31, 2021     December 31, 2020  
Accounts Payable   $ 683,456     $ 719,070  
Accrued Liabilities     1,914,983       1,619,763  
Accrued Salaries and Benefits     645,277       618,257  
Advances Payable     181,102       497,395  
Total Accrued Liabilities   $ 3,424,818     $ 3,454,485  

 

10. Secured Borrowings

 

On June 25, 2020, the Company entered into two new financing arrangements with third parties for a combined principal amount of $172,663. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $17,266, for a total expected remittance of $189,929. The maturity date of the notes is December 26, 2020. On December 26, 2020, the Company entered into two new financing arrangements with third parties for a combined principal amount of $118,757. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $11,876, for a total expected remittance of $130,633. Also on that day, one of the lenders chose to liquidate a portion of his balance amounting to $83,006. This amount was paid to the lender in January 2021. The maturity date of the notes is June 26, 2021. The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the Company expects to liquidate gold held and satisfy the liability in cash.

 

Secured Borrowings   March 31, 2021     December 31, 2020  
Secured obligations   $ 118,757     $ 201,763  
Guaranteed interest     11,876       11,876  
Deferred interest     (5,677 )     (11,550 )
      124,956       202,089  
Gold held as security             (52,499 )
Secured Borrowings, net   $ 124,956     $ 149,590  

 

F- 15

 

 

11. Notes Payable

 

Notes payable were comprised of the following as of March 31, 2021 and December 31, 2020:

 

Notes Payable   March 31, 2021     December 31, 2020  
Phil Zobrist   $ 60,000     $ 60,000  
Small Business Administration     100,000       100,000  
Total Notes Payable     160,000       160,000  
Less Short-Term Notes Payable     -       -  
Total Long-Term Notes Payable   $ 160,000     $ 160,000  

 

Phil Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount of $60,000 (the “Note”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $60,000. On October 2, 2015, the Company entered into a new convertible note with Phil Zobrist that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $29,412 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December 31, 2024. The Company recognized a gain on the extinguishment of debt of $121,337 for the remaining derivative liability and of $11,842 for the remaining debt discount. As of March 31 2021, the gross balance of the note was $60,000 and accrued interest was $89,797.

 

Small Business Administration – On April 17, 2020, the Company issued an unsecured Promissory Note to the Small Business Administration in the principal amount of $100,000 (the “Note”) that matures on April 16, 2022 and bearing 1.00% per annum interest as part of the Covid-19 Cares Act. The total net proceeds the Company received was $100,000. As of March 31, 2021, the gross balance of the note was $100,000 and accrued interest was $953.

 

12. Notes Payable – Related Parties

 

Notes payable – related parties were comprised of the following as of March 31, 2021 and December 31, 2020:

 

Notes Payable - Related Parties   Relationship   March 31, 2021     December 31, 2020  
Clavo Rico, Inc.   Affiliate - Controlled by Director   $ 3,377,980     $ 3,377,980  
Claymore Management   Affiliate - Controlled by Director     185,000       185,000  
Debra D’ambrosio   Immediate Family Member     30,000       50,000  
Francis E. Rich IRA   Immediate Family Member     50,000       50,000  
Legends Capital   Affiliate - Controlled by Director     715,000       715,000  
LWB Irrev Trust   Affiliate - Controlled by Director     1,101,000       1,101,000  
MDL Ventures   Affiliate - Controlled by Director     1,509,573       1,476,039  
Pine Valley Investments   Affiliate - Controlled by Director     -       150,000  
Cluff-Rich PC   Affiliate - Controlled by Director     -       -  
Total Notes Payable - Related Parties       $ 6,968,553     $ 7,105,019  

 

F- 16

 

 

Clavo Rico, Incorporated – Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to GAIA Ltd. for a total principal amount of $1,150,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $1,150,000. On October 2, 2015, the Company entered into a new convertible note with GAIA Ltd. that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $724,463 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment of debt of $2,524,747 for the remaining derivative liability and of $226,974 for the remaining debt discount. On April 5, 2019, the entire outstanding balance of $1,150,000 and accrued interest was assigned to Clavo Rico, Incorporated.

 

Between March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook Corporation for a total principal amount of $2,227,980 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $2,227,980. On October 2, 2015, the Company entered into a new convertible note with Silverbrook Corporation that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $1,209,606 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment of debt of $4,656,189 for the remaining derivative liability and of $439,733 for the remaining debt discount. On April 5, 2019, the entire outstanding balance of $2,227,980 and accrued interest was assigned to Clavo Rico, Incorporated.

 

On April 5, 2019, GAIA Ltd and Silverbrook Corporation assigned 100% of the outstanding principal balance of their notes and all accrued interest to Clavo Rico, Incorporated. The GAIA Ltd and Silverbrook Corporation notes had been extended until December 31, 2024 and bear 18% per annum interest. As of March 31, 2021, the gross balance of the notes was $3,377,980 and accrued interest was $5,277,436.

 

Claymore Management – On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management in the principal amount of $185,000 (the “Note”) due on demand and bore 0% per annum interest. The total net proceeds the Company received was $185,000. On October 2, 2015, the Company entered into a new convertible note with Claymore Management that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from March 18, 2011 in the amount of $151,355 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December 31, 2024. The Company recognized a gain on the extinguishment of debt of $448,369 for the remaining derivative liability and of $36,513 for the remaining debt discount. As of March 31, 2021, the gross balance of the note was $185,000 and accrued interest was $334,460.

 

D. D’Ambrosio – On July 17, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio in the principal amount of $50,000 (the “Note”) due on January 15, 2021 and bears a 5.00% interest rate. The Company made a payment of $2,500 towards the principal balance of $2,500 on February 2, 2021. The Company made a payment of $47,500 towards the principal balance and accrued interest of $47,500 on February 22, 2021. As of March 31, 2021, the outstanding balance of the Note was $0 and accrued interest was $0.

 

D. D’Ambrosio – On January 5, 2021, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio in the principal amount of $145,000 (the “Note”) due on February 7, 2021 and bears a 5.00% interest rate. The Company made a payment of $152,250 towards the principal balance and accrued interest of $7,250 on February 2, 2021. As of March 31, 2021, the outstanding balance of the Note was $0 and accrued interest was $0.

 

D. D’Ambrosio – On February 1, 2021, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio in the principal amount of $88,000 (the “Note”) due on March 1, 2021 and bears a 5.00% interest rate. The Company made a payment of $92,400 towards the principal balance and accrued interest of $4,400 on March 1, 2021. As of March 31, 2021, the outstanding balance of the Note was $0 and accrued interest was $0.

 

F- 17

 

 

D. D’Ambrosio – On February 25, 2021, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio in the principal amount of $70,000 (the “Note”) due on April 1, 2021 and bears a 5.00% interest rate. The Company made a payment of $73,500 towards the principal balance and accrued interest of $3,500 on March 23, 2021. As of March 31, 2021, the outstanding balance of the Note was $0 and accrued interest was $0.

 

D. D’Ambrosio – On March 31, 2021, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio in the principal amount of $30,000 (the “Note”) due on May 1, 2021 and bears a 5.00% interest rate. As of March 31, 2021, the outstanding balance of the Note was $30,000 and accrued interest was $1,500.

 

Diamond 80, LLC – On April 3, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal amount of $50,000 (the “Note”) due on December 31, 2019 and bears a 7.0% interest rate. The Company made a payment of $1,075 towards the principal balance of $1,000 and accrued interest of $75 on September 30, 2018. The Company made a payment of $49,000 towards the principal balance on May 21, 2019. As of March 31, 2021, the outstanding balance of the Note was $0 and accrued interest was $0.

 

Francis E. Rich IRA – On October 23, 2020, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA in the principal amount of 50,000 (the “Note”) due on April 23, 2021 and bears a 5.0% interest rate. As of March 31, 2021, the outstanding balance of the Note was $50,000 and accrued interest was $1,534.

 

Legends Capital Group – Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends Capital Group for a total principal amount of $765,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $765,000. On October 2, 2015, the Company entered into a new convertible note with Legends Capital Group that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $504,806 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December 31, 2024. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and of $150,987 for the remaining debt discount. As of March 31, 2021, the gross balance of the note was $715,000 and accrued interest was $1,252,746.

 

LW Briggs Irrevocable Trust – Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes to LW Briggs Irrevocable Trust for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December 31, 2024. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and of $217,303 for the remaining debt discount. As of March 31, 2021, the gross balance of the note was $1,101,000 and accrued interest was $1,904,503.

 

MDL Ventures – The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is 100% owned by a Company officer, effective October 1, 2014, due on December 31, 2016 and bears 18% per annum interest, due at maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of the lower of $0.99 (0.18 pre-split) or 50% of the lowest three daily volume weighted average prices of the Company’s common stock during the 20 consecutive days prior to the date of conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed, and the note was extended until December 31, 2024. The Company recognized a gain on the extinguishment of debt of $1,487,158 for the remaining derivative liability. As of March 31, 2021, the gross balance of the note was $1,509,573 and accrued interest was $0.

 

F- 18

 

 

Pine Valley Investments, LLC – On November 30, 2020, the Company issued an unsecured Short-Term Promissory Note to Pine Valley Investments, LLC in the principal amount of $200,000 (the “Note”) due on December 31, 2020 and bears a 5.0% interest rate. The Company made a payment of $60,000 towards the principal balance and accrued interest of $10,000 on December 31, 2020. The Company made a payment of $25,000 towards the principal balance on January 29, 2021. The Company made a payment of $125,000 towards the principal balance on February 28, 2021. As of March 31, 2021, the outstanding balance of the Note was $0 and accrued interest was $0.

 

Cluff-Rich PC – On January 29, 2021, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in the principal amount of $40,000 (the “Note”) due on February 28, 2021 and bears a 5.0% interest rate. The Company made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on March 1, 2021. As of March 31, 2021, the outstanding balance of the Note was $0 and accrued interest was $0.

 

13. Convertible Notes Payable

 

Convertible notes payable were comprised of the following as of March 31, 2021 and December 31, 2020:

 

Convertible Notes Payable   March 31, 2021     December 31, 2020  
Antczak Polich Law LLC   $ 304,123     $ 320,123  
Investor     3,179,943       3,448,700  
Scotia International     400,000       400,000  
Total Convertible Notes Payable     3,884,066       4,168,823  
Less Unamortized Discount     (277,967 )     (774,431 )
Total Convertible Notes Payable, Net of Unamortized Debt Discount     3,606,099       3,394,392  
Less Short-Term Convertible Notes Payable     (3,326,156 )     (2,176,677 )
Total Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount   $ 279,943     $ 1,217,715  

 

Antczak Polich Law, LLC – On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $300,000 (the “Note”) due on August 1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $300,000 in legal fees due to Antczak for its services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s option, at a fixed conversion price of $0.75 per share. As of March 31, 2021, the gross balance of the note was $300,000 and accrued interest was $66,016.

 

Antczak Polich Law, LLC – On December 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $130,000 (the “Note”) due on December 1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $130,000 in legal fees due to Antczak for its services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s option, at a fixed conversion price of $0.75 per share. During the years ended December 31, 2020 and 2019 and the three months ended March 31, 2021, the Company made several payments amounting to $125,877. As of March 31, 2021, the gross balance of the note was $4,123 and accrued interest was $15,134.

 

F- 19

 

 

Investor – On May 20, 2019, the Company issued a secured Convertible Promissory Note (“Note”) to Investor, in the principal amount of $4,250,000 (the “Note”) due on May 20, 2022 and bears 20% (24% default) per annum interest, due at maturity. The total net proceeds the Company received was $3,000,000. The Note is convertible into common stock, at holder’s option, at 100% of market price less $0.01 per share. Market price means the mathematical average of the five lowest individually daily volume weighted average prices of the common stock from the period beginning on the issuance date and ending on the maturity date. The conversion price has a floor price of $0.01 per share of common stock. The Company issued 9,250,000 warrants to purchase shares of common stock in connection with this note. The warrants have a three-year life and an exercise price as follows: 3,750,000 at an exercise price of $0.40 per share, 3,000,000 at an exercise price of $0.50 per share and 2,500,000 at an exercise price of $0.60 per share. The proceeds were allocated between the note for $1,788,038 and the warrants for $1,211,962. The note has an early payoff penalty of 140% of the then outstanding face value. On July 29, 2019, the investor converted $265,000 of the principal balance into 2,986,597 shares of common stock valued at $0.11 per share. The Company recognized a loss on the extinguishment of debt of $40,350. During 2020, the investor converted $36,300 of the principal balance into 17,833,942 shares of common stock. The Company recognized a loss on the extinguishment of debt of $531,194. The Company also made cash payments of $500,000 towards the principal balance of the note. The Company has required payments as follows: $2,400,000 in 2021 and the remaining balance due in 2022. During 2020, the Company experienced a triggering event. As a result, the interest rate increased to 20% for the life of the note. On April 14, 2020, the Company entered into a Forbearance Agreement with Investor in which Investor agreed to rescind its prior declaration of an Event of Default under the May 20, 2019 Note Purchase Agreement and the Company agreed to pay certain monthly and quarterly redemptions of the May 20, 2019 Note through 2022. Specifically, the Company has agreed to pay $900,000 during 2020, $2,400,000 during 2021 and $500,000 delivered during each quarter of 2022 until the Note is converted or redeemed in full. During the three-months ended March 31, 2021, the investor converted $125,900 of the principal balance into 33,045,161 shares of common stock. The Company recognized a loss on the extinguishment of debt of $1,096,752. The Company also made cash payments of $142,857 towards the principal balance of the note. The Company has made payments according to the agreement, but is not current with all payments due thereunder. For the three months ended March 31, 2021, the Company amortized $475,026 of debt discount to current period operations as interest expense. As of March 31, 2021, the gross balance of the note was $3,179,973 and accrued interest was $1,428,358.

 

Scotia International of Nevada, Inc. – On January 10, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”) to Scotia International of Nevada, Inc. (“Scotia”), in the principal amount of $400,000 (the “Note”) due on January 10, 2022 and bears 6% per annum interest, due at maturity. The Note was issued as part of a buyout agreement on the net smelter royalty due Scotia on the precious metals mined from the Company’s mining operation in Honduras. The Note is convertible into common stock, at holder’s option, at $0.50 per share as long as the Company’s common stock’s bid price is less than $0.75 per share. If the bid price is more than $0.75 per share, then Scotia may elect to convert at the average bid price of the common stock during the 10-trading day period prior to conversion. For the three months ended March 31, 2021, the Company amortized $7,436 of debt discount to current period operations as interest expense. As of March 31, 2021, the gross balance of the note was $400,000 and accrued interest was $53,326.

 

14. Stockholders’ Deficit

 

Common Stock

 

On January 5, 2021, the Company issued to an Investor 2,493,479 shares of its common stock under a conversion notice. The conversion was for $9,500 in principal. The shares were valued at $0.022 per share for a total value of $54,857. The Company recognized a loss of extinguishment of debt of $46,971 on this conversion.

 

On January 15, 2021, the Company issued to an Investor 2,598,468 shares of its common stock under a conversion notice. The conversion was for $9,900 in principal. The shares were valued at $0.0224 per share for a total value of $58,206. The Company recognized a loss of extinguishment of debt of $49,847 on this conversion.

 

On January 26, 2021, the Company issued to an Investor 2,624,715 shares of its common stock under a conversion notice. The conversion was for $10,000 in principal. The shares were valued at $0.024 per share for a total value of $62,993. The Company recognized a loss of extinguishment of debt of $54,409 on this conversion.

 

On February 5, 2021, the Company issued to an Investor 2,598,468 shares of its common stock under a conversion notice. The conversion was for $9,900 in principal. The shares were valued at $0.029 per share for a total value of $75,356. The Company recognized a loss of extinguishment of debt of $66,730 on this conversion.

 

On February 9, 2021, the Company issued to an Investor 2,755,951 shares of its common stock under a conversion notice. The conversion was for $10,500 in principal. The shares were valued at $0.035 per share for a total value of $96,458. The Company recognized a loss of extinguishment of debt of $87,254 on this conversion.

 

On February 17, 2021, the Company issued to an Investor 2,677,209 shares of its common stock under a conversion notice. The conversion was for $10,200 in principal. The shares were valued at $0.046 per share for a total value of $123,152. The Company recognized a loss of extinguishment of debt of $114,106 on this conversion.

 

F- 20

 

 

On February 22, 2021, the Company issued to an Investor 2,703,456 shares of its common stock under a conversion notice. The conversion was for $10,300 in principal. The shares were valued at $0.0535 per share for a total value of $144,635. The Company recognized a loss of extinguishment of debt of $135,434 on this conversion.

 

On March 2, 2021, the Company issued to an Investor 2,677,209 shares of its common stock under a conversion notice. The conversion was for $10,200 in principal. The shares were valued at $0.04 per share for a total value of $107,088. The Company recognized a loss of extinguishment of debt of $97,873 on this conversion.

 

On March 8, 2021, the Company issued to an Investor 2,834,692 shares of its common stock under a conversion notice. The conversion was for $10,800 in principal. The shares were valued at $0.0399 per share for a total value of $113,104. The Company recognized a loss of extinguishment of debt of $103,264 on this conversion.

 

On March 11, 2021, the Company issued to an Investor 2,913,434 shares of its common stock under a conversion notice. The conversion was for $11,100 in principal. The shares were valued at $0.0522 per share for a total value of $152,081. The Company recognized a loss of extinguishment of debt of $141,925 on this conversion.

 

On March 15, 2021, the Company issued to an Investor 3,018,422 shares of its common stock under a conversion notice. The conversion was for $11,500 in principal. The shares were valued at $0.039 per share for a total value of $117,718. The Company recognized a loss of extinguishment of debt of $107,137 on this conversion.

 

On March 25, 2021, the Company issued to an Investor 3,149,658 shares of its common stock under a conversion notice. The conversion was for $12,000 in principal. The shares were valued at $0.0327 per share for a total value of $102,994. The Company recognized a loss of extinguishment of debt of $91,802 on this conversion.

 

Warrants

 

The following tables summarize the warrant activity during the three months ended March 31, 2021 and the year ended December 31, 2020:

 

Stock Warrants   Number of Warrants     Weighted Average Exercise Price  
Balance at December 31, 2019     9,613,637     $ 0.53  
Forfeited     (63,637 )     -  
Balance at December 31, 2020     9,550,000       0.49  
Balance at March 31, 2021     9,550,000     $ 0.49  

 

2021 Outstanding Warrants   Warrants Exercisable  
Range of Exercise Price   Number Outstanding at March 31, 2021    

Weighted Average Remaining Contractual

Life

    Weighted Average Exercise Price    

Number Exercisable at March 31,

2021

   

Weighted Average

Exercise

Price

 
$ 0.40 - 0.75     9,550,000       1.16 years     $ 0.49       9,550,000     $ 0.49  

 

F- 21

 

 

15. Income Taxes

 

The Company’s subsidiaries, Compania Minera Cerros del Sur and Compania Minera Clavo Rico, which are located in Honduras, are required to pay income tax and solidarity tax on their income and/or assets annually. The annual report was completed during the three-month period ended March 31, 2021 and the company recognized a tax liability of $157,690 during the period and paid $33,832 of this tax liability.

 

16. Related Party Transactions

 

Consulting Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $18,000 per month for twelve months. This agreement was renegotiated in October 2017 and the Company agreed to pay the stockholder/director $25,000 per month starting in October 2017. This agreement was superseded by an Employment Agreement as of April 1, 2019 (see Employment Agreements below). As of March 31, 2021, the Company owed $1,035,000 to the stockholder/director in accrued consulting fees.

 

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

 

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

 

Notes Payable – The Company took several short-term notes payable from related parties during the three months ended March 31, 2021. The Company received $373,000 in cash from related parties and paid out $572,713 in cash to related parties on notes payable.

 

17. Commitments and Contingencies

 

Litigation

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

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

 

18. Concentrations

 

We generally sell a significant portion of our mineral production to a relatively small number of customers. For the three months ended March 31, 2021, one hundred percent (100%) of our consolidated product revenues were attributable to A-Mark Precious Metals and to Asahi Refining, Inc., our current and only two customers as of March 31, 2021. We are not dependent upon any one purchaser and have alternative purchasers readily available at competitive market prices if there is a disruption in services or other events that cause us to search for other ways to sell our production.

 

The Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine was disrupted or closed.

 

19. Subsequent Events

 

Management has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through the date which the financial statements were available to be issued and there are no material subsequent events, except as noted below:

 

On April 5, 2021, the Company issued to an Investor 3,307,141 shares of its common stock under a conversion notice.

 

On April 20, 2021, the Company issued to an Investor 3,412,130 shares of its common stock under a conversion notice.

 

On April 28, 2021, the Company issued to an Investor 3,569,612 shares of its common stock under a conversion notice.

 

On May 11, 2021, the Company issued to an Investor 3,648,354 shares of its common stock under a conversion notice.

 

F- 22

 

 

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

 

Forward Looking Statements

 

The statements contained in the following MD&A and elsewhere throughout this Quarterly Report on Form 10-Q, including any documents incorporated by reference, that are not historical facts, including statements about our beliefs and expectations, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar words or expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

 

These forward-looking statements, which reflect our management’s beliefs, objectives, and expectations as of the date hereof, are based on the best judgement of our management. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following: economic, social and political conditions, global economic downturns resulting from extraordinary events such as the COVID-19 pandemic and other securities industry risks; interest rate risks; liquidity risks; credit risk with clients and counterparties; risk of liability for errors in clearing functions; systemic risk; systems failures, delays and capacity constraints; network security risks; competition; reliance on external service providers; new laws and regulations affecting our business; net capital requirements; extensive regulation, regulatory uncertainties and legal matters; failure to maintain relationships with employees, customers, business partners or governmental entities; the inability to achieve synergies or to implement integration plans and other consequences associated with risks and uncertainties detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Q.

 

We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws.

 

This discussion should be read in conjunction with our financial statements on our 2020 Form 10-K, and our financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.

 

Introduction to Interim Consolidated Financial Statements.

 

The interim consolidated financial statements included herein have been prepared by Inception Mining Inc. (“Inception Mining” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this filing.

 

In the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries, necessary to present fairly the consolidated financial position of the Company and subsidiaries as of March 31, 2021, the results of its consolidated statements of operations and comprehensive loss for the three- and three month periods ended March 31, 2021 and 2020, and its consolidated cash flows for the three month periods ended March 31, 2021 and 2020. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.

 

3

 

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Overview and Plan of Operation

 

We are a mining company that was formed in Nevada on July 2, 2007. As a mining company, we are engaged in the production of precious metals. Our activities are not limited to production and they also include production, acquisition, exploration, and development of mineral properties, primarily for gold, from owned mining properties.

 

Clavo Rico Mine

 

On October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. and holds other mining concessions. Its workings include several historical underground mining operations dating back to the early Mayan and Spanish occupation.

 

The Company’s primary mine is located on the 200-hectare Clavo Rico Concession, located in southern Honduras. This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía Minera Cerros del Sur, S. de R.L. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest and later increased its ownership to 99.9%. This company has since invested over five million dollars in the expansion and development of the mine and surrounding properties. Today, the Company operates this mine through exploration of surface-level material.

 

Mining operations begin by crushing extracted material to approximately 3/8-inch size pebbles, which is then mixed with additional material and loaded on the recovery pad for processing. The pebble material is sprinkled with a solution that leaches the gold from the rock, and the solution is collected and processed on-site at Clavo Rico’s own ADR plant. The doré bars that result from this process are shipped to the USA for refining.

 

Prior to the expansion, the mine had only been processing approximately less than 500 tons of extracted material per day. The current recovery operational increase has been sized to handle from 500 to 750 tons of extracted material per day on a recovery bed that has the capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012 and believes that sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity by the end of March 31, 2022.

 

The Company has engaged in preliminary drilling of this area, and the resulting assays of samples indicate that the material should have grades in the range of 0-5 grams of gold per ton.

 

4

 

 

Results of Operations

 

Three Months ended March 31, 2021 compared to the Three Months ended March 31, 2020

 

We had net loss of $5,406,135 for the three-month period ended March 31, 2021, and a net income of $1,129,271 for the three month period ended March 31, 2020. This change in our results over the two periods is primarily the result of an increase in revenue, a decrease in general and administrative expenses, the change in the derivative liabilities, the sale of the mine property in Idaho, and the change in marketable securities. The following table summarizes key items of comparison and their related increase (decrease) for the three month periods ended March 31, 2021 and 2020:

 

    Three Months Ended March 31,     Increase/  
    2021     2020     (Decrease)  
                   
Revenues   $ 1,529,329     $ 1,128,706     $ 400,623  
Cost of Sales     1,241,648       944,091       297,557  
General and Administrative     290,104       332,229       (42,125 )
Depreciation and Amortization Expenses     2,028       3,218       (1,190 )
Total Operating Expenses     292,132       335,447       (43,315 )
Income (Loss) from Operations     (4,451 )     (150,832 )     146,381  
Other Income (expense)     12,402       1,278       (11,124 )
Gain on Sale of Mine Property     -       471,084       471,084  
Change in Derivative Liabilities     (3,419,052 )     2,056,662       5,475,714  
Change in Marketable Securities     328,970       (57,042 )     (386,012 )
Loss on Extinguishment of Debt     (1,096,752 )     (218,547 )     878,205  
Interest Expense     (1,069,562 )     (973,332 )     96,230  
Income (Loss) from Operations Before Taxes     (5,406,135 )     1,129,271       6,535,406  
Net Income (Loss)   $ (5,406,135 )   $ 1,129,271     $ 6,535,406  

 

Revenues increased because of the lessened restrictions from the Covid-19 mandated shut-down that slowed the production in the last month of the first quarter of 2020 because no new material was placed on the leach pads for several weeks.

 

Cost of sales increased in relation to the increase in revenue for the three-month period ended March 31, 2021. Cost of sales were different in the three-month period ended March 31, 2020 because of the lower amounts of ore placed on the leach pad during the Covid-19 shutdown period. Many of the fixed costs of the Company remained the same. Even though most of the plant was closed during a portion of the first quarter, the Company was still required to pay salaries and wages while the employees were not working, and no revenues were being produced. Cost of sales decreased as a percentage of revenue from 84% in the three-month period ended March 31, 2020 to 81% in the three-month period ended March 31, 2021 because of the increased price of gold for the three-month period ended March 31, 2021.

 

General and administrative expenses decreased because of lower consulting fees and investor relations expenses.

 

Changes in derivative liabilities were because of the higher stock prices during this quarter.

 

Interest expense increased in 2021 because of the default interest rate on the secured senior convertible note.

 

Liquidity and Capital Resources

 

Our balance sheet as of March 31, 2021 reflects assets of $983,175. We had cash in the amount of $83,329 and working capital deficit in the amount of $33,204,574 as of March 31, 2021. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.

 

Working Capital

 

    March 31, 2021     December 31, 2020  
Current assets   $ 395,446     $ 923,424  
Current liabilities     33,600,020       28,987,520  
Working capital deficit   $ (33,204,574 )   $ (28,064,096 )

 

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

 

5

 

 

Going Concern Consideration

 

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company and has an accumulated deficit of $40,074,763. In addition, there is a working capital deficit of $33,204,574 as of March 31, 2021. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

    Three Months Ended March 31,  
    2021     2020  
Net Cash Provided by (Used in) Operating Activities   $ 66,755     $ (54,150 )
Net Cash Provided by (Used in) Investing Activities     423,659       243,893  
Net Cash Provided by (Used in) Financing Activities     (441,576 )     (208,076 )
Effects of Exchange Rate Changes on Cash     133       (115 )
Net Increase (Decrease) in Cash   $ 48,971     $ (18,448 )

 

Operating Activities

 

Net cash flow provided by operating activities during the three months ended March 31, 2021 was $66,755, an increase of $120,905 from the $54,150 net cash used in during the three months ended March 31, 2020. This increase in the cash provided by operating activities was primarily due to the decrease in inventory and an increase in accounts payable and accrued liabilities.

 

Investing Activities

 

Investing activities during the three months ended March 31, 2021 provided $423,659, an increase of $179,766 from the $243,893 used by investing activities during the three months ended March 31, 2020. During the three months ended March 31, 2021, the Company purchased $23,477 in fixed assets but also received proceeds of $447,136 from the sale of marketable securities.

 

Financing Activities

 

Financing activities during the three months ended March 31, 2021 used cash of $441,576, an increase of $233,500 from the $208,076 used in financing activities during the three-months ended March 31, 2020. During the three months ended March 31, 2021, the Company received $373,000 in proceeds from notes payable - related parties. The Company made $572,713 in payments on notes payable – related parties, $158,857 in payments on convertible notes payable and $83,006 in secured borrowings.

 

Critical Accounting Policies

 

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.

 

Costs of acquiring mining properties and any exploration and development costs are expensed as incurred unless proven and probable reserves exist, and the property is a commercially mineable property. Mine development costs incurred either to develop new gold and silver deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.

 

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.

 

6

 

 

Recent Accounting Pronouncements

 

For recent accounting pronouncements, please refer to the notes to financial statements in Part I, Item 1 of this Quarterly Report.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to include disclosure under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective as of March 31, 2021.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

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

 

7

 

 

On March 4, 2020, one of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., was served with notice of a civil litigation brought in Honduras by Empresa Agregados y Concretos S.A. (“Agrecon”) for an amount of approximately $930,000. The complaint alleges a dispute regarding the amounts owed by the Company to Agrecon under a certain Material Crushing Agreement. The Company has responded disputing the amount owed and placed $125,000 in a dedicated account while the case is being litigated and until the court makes its determination on any amounts owed.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to include disclosure under this item. We refer readers to our Form 10-K for additional risk factor disclosures.

 

An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations.

 

The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On January 5, 2021, the Company issued to an Investor 2,493,479 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On January 15, 2021, the Company issued to an Investor 2,598,468 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On January 26, 2021, the Company issued to an Investor 2,624,715 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On February 5, 2021, the Company issued to an Investor 2,598,468 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On February 9, 2021, the Company issued to an Investor 2,755,951 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

8

 

 

On February 17, 2021, the Company issued to an Investor 2,677,209 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On February 22, 2021, the Company issued to an Investor 2,703,456 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On March 2, 2021, the Company issued to an Investor 2,677,209 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On March 8, 2021, the Company issued to an Investor 2,834,692 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On March 11, 2021, the Company issued to an Investor 2,913,434 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On March 15, 2021, the Company issued to an Investor 3,018,422 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On March 25, 2021, the Company issued to an Investor 3,149,658 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On April 5, 2021, the Company issued to an Investor 3,307,141 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

9

 

 

On April 20, 2021, the Company issued to an Investor 3,412,130 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On April 28, 2021, the Company issued to an Investor 3,569,612 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

On May 11, 2021, the Company issued to an Investor 3,648,354 shares of its common stock under a conversion notice pursuant to the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable as the Company conducts no mining operations in the U.S. or its territories.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit Number   Exhibit Description
     
3.1   Articles of Incorporation (1)
     
3.2   Certificate of Amendment, effective March 5, 2010(2)
     
3.3   Certificate of Amendment, effective June 23, 2010(3)
     
3.4   Articles of Merger, effective May 17, 2013 (4)
     
3.5   Bylaws (1)

 

4.1   Form of Subscription Agreement entered by and between Inception Mining Inc. and Accredited Investors (5)
     
4.2   Letter Amendment dated November 1, 2013 to Promissory Note dated January 17, 2013 between Inception Resources, LLC and U.P and Burlington Development, LLC (8)

 

10

 

 

     
4.3   Securities Purchase Agreement with Typenex Co-Investment, LLC dated February 27, 2017(13)
     
4.4   Convertible Promissory Note issued to Typenex Co-Investment, LLC dated February 27, 2017(13)
     
4.5   Warrant to Purchase Shares of Common Stock issued to Labrys Fund LP dated March 7, 2017(13)
     
4.6   Convertible Promissory Note issued to Labrys Fund LP dated March 7, 2017(13)
     
4.7   Securities Purchase Agreement with Labrys Fund LP dated March 7, 2017 (13)
     
4.8   Convertible Promissory Note issued to Power Up Lending Group Ltd. on April 21, 2017(14)
     
4.9   Securities Purchase Agreement with Power Up Lending Group Ltd. dated April 21, 2017 (14)
     
10.1   Asset Purchase Agreement dated February 25, 2013, by and between Gold American, its majority shareholder Brett Bertolami, and its wholly owned subsidiary, Inception Development Inc. on one hand, and Inception Resources, LLC on the other hand (6)
     
10.2   Employment Agreement by and between the Company and Michael Ahlin dated February 25, 2013 (6)
     
10.3   Employment Agreement by and between the Company and Whit Cluff dated February 25, 2013 (6)
     
10.4   Employment Agreement by and between the Company and Brian Brewer dated February 25, 2013 (6)
     
10.5   Employment Agreement with Michael Ahlin dated August 1, 2015 (11)
     
10.6   Consulting Agreement by and between the Company and Michael Ahlin dated January 1, 2018 (13)
     
10.8   Debt Exchange Agreement by and between Gold American Mining Corp. and Brett Bertolami dated February 25, 2013 (6)
     
10.9   Agreement by and between Crawford Cattle Company LLC, as seller, and, Inception Mining Inc., as Buyer dated as of August 30, 2013 (7)
     
10.10   Agreement and Plan of Merger dated August 4, 2015 (11)
     
10.11   Addendum to Agreement and Plan of Merger (11)
     
10.12   List of Subsidiaries (12)
     
10.13   Joint Venture Agreement with Corpus Mining and Exploration, LTD dated as of October 1, 2018. (15)
     
10.14   Employment Agreement with Trent D’Ambrosio (16)
     
10.15   Note Purchase Agreement (16)
     
10.16   Senior Secured Redeemable Convertible Note (16)
     
10.17   Warrant (16)

 

10.18   Forbearance Agreement (17)
     
31.1*   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

11

 

 

32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of Chief Financial Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
*   Filed herewith.
     
(1)   Incorporated by reference from Form SB-2 filed with the SEC on October 31, 2007.
     
(2)   Incorporated by reference from Form 8-K filed with the SEC on March 10, 2010.
     
(3)   Incorporated by reference from Form 8-K filed with the SEC on June 28, 2010.
     
(4)   Incorporated by reference from Form 10-Q filed with the SEC on May 20, 2013.
     
(5)   Incorporated by reference from Form 8-K filed with the SEC on August 5, 2013.
     
(6)   Incorporated by reference from Form 8-K filed with the SEC on March 1, 2013.
     
(7)   Incorporated by reference from Form 8-K filed with the SEC on September 6, 2013.
     
(8)   Incorporated by reference from Form 10-Q filed with the SEC on June 20, 2014.
     
(9)   Incorporated by reference from Form 8-K filed with the SEC on March 12, 2014.
     
(10)   Incorporated by reference from Form 8-K filed with the SEC on October 7, 2014.
     
(11)   Incorporated by reference from Form 8-K filed with the SEC on October 7, 2015.
     
(12)   Incorporated by reference from the Form 10-K filed with the SEC on May 3, 2016.
     
(13)   Incorporated by reference from the Form 10-K filed with the SEC on April 17, 2017.
     
(14)   Incorporated by reference from the Form 10-Q filed with the SEC on May 16, 2017.
     
(15)   Incorporated by reference from the Form 8-K filed with the SEC on October 19, 2018.
     
(16)   Incorporated by reference from the Form S-1 filed with the SEC on June 3, 2019.
     
(17)   Incorporated by reference from the Form 10-Q filed with the SEC on May 29, 2020.

 

12

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  INCEPTION MINING INC.
     
Date: May 24, 2021 By: /s/ Trent D’Ambrosio
  Name: Trent D’Ambrosio
  Title: Chief Executive Officer (Principal Executive Officer)
    Chief Financial Officer (Principal Financial and Accounting Officer)

 

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