UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
Commission
File No.
(Exact Name of Registrant as Specified in Its Charter)
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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.
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| ☒ | Smaller reporting company |
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INCEPTION MINING INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Inception Mining, Inc.
Condensed Consolidated Balance Sheets
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Right of use operating lease asset | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accrued interest - related parties | ||||||||
| Deferred revenue | ||||||||
| Operating lease liability - current portion | ||||||||
| Finance lease liabilities – current portion | ||||||||
| Note payable - current portion | ||||||||
| Notes payable - related parties | ||||||||
| Convertible notes payable - net of discount | ||||||||
| Derivative liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Long-term note payable | ||||||||
| Long-term notes payable - related parties, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Finance lease liabilities, net of current portion | ||||||||
| Mine reclamation obligation | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ( | ) | ( | ) | ||||
| Total Controlling Interest | ( | ) | ( | ) | ||||
| Non-Controlling Interest | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| F-1 |
Inception Mining, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Precious Metals Income | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Income (Loss) from Operations | ( | ) | ( | ) | ||||||||||||
| Other Income/(Expenses) | ||||||||||||||||
| Other income (expense) | ||||||||||||||||
| Gain on forgiveness of PPP loan | ||||||||||||||||
| Change in derivative liability | ||||||||||||||||
| Change in marketable securities | ||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income/(Expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss from Operations before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) - Non-Controlling Interest | ( | ) | ( | ) | ||||||||||||
| NET LOSS - Controlling Interest | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding during the period – basic and diluted | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Comprehensive Loss | ||||||||||||||||
| Exchange differences arising on translating foreign operations | ( | ) | ( | ) | ||||||||||||
| Total Comprehensive Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Comprehensive Loss - Non-Controlling Interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Comprehensive Loss - Controlling Interest | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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 | Additional | Other | Non- | Total | |||||||||||||||||||||||||||||||
| ($0.00001 Par) | ($0.00001 Par) | Paid-in | Accumulated | Comprehensive | Controlling | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Deficit | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Shares issued with note payable | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued with note payable | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued with note payable | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Preferred stock | Common stock | Additional | Other | Non- | Total | |||||||||||||||||||||||||||||||
| ($0.00001 Par) | ($0.00001 Par) | Paid-in | Accumulated | Comprehensive | Controlling | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Interest | Deficit | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Shares issued with note payable | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued with note payable | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued with note payable | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| F-3 |
Inception Mining, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operations | ||||||||
| Depreciation and amortization expense | ||||||||
| Loss on extinguishment of debt | ||||||||
| Change in derivative liability | ( | ) | ( | ) | ||||
| Gain on forgiveness of PPP loan | ( | ) | ||||||
| Change in marketable securities | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade receivables | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Accounts payable and accrued liabilities - related parties | ||||||||
| Secured borrowings | ||||||||
| Net Cash Provided By (Used In) Operating Activities | ( | ) | ||||||
| Cash Flows From Investing Activities: | ||||||||
| Proceeds on sale of marketable securities | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net Cash Provided By (Used In) Investing Activities | ( | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Repayment of notes payable-related parties | ( | ) | ( | ) | ||||
| Repayment of convertible notes payable | ( | ) | ||||||
| Repayment of secured borrowings | ( | ) | ||||||
| Payments on finance leases | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Proceeds from notes payable-related parties | ||||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Effects of exchange rate changes on cash | ( | ) | ||||||
| Net Change in Cash | ( | ) | ||||||
| Cash at Beginning of Period | ||||||||
| Cash at End of Period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued for conversion of debt | $ | $ | ||||||
| Finance leases to acquire equipment | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| F-4 |
Inception Mining, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2022
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 to . In 2020 the Company increased its authorized common stock from to .
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
On
February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly owned
subsidiary,
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 shares of common stock of Inception and
assumed promissory notes in the amount of $
| 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
COVID-19 - The challenges posed by the COVID-19 pandemic on the global economy increased significantly as the first quarter of 2020 progressed. COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Based on management’s assessment as of September 30, 2022, 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 $
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 disclosures 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 and the Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.
| F-6 |
In the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries, necessary to present fairly the consolidated financial position of the Company and subsidiaries as of September 30, 2022, the results of its consolidated statements of operations and comprehensive loss for the three and nine-month periods ended September 30, 2022, its condensed consolidated statement of stockholders’ deficit and its consolidated cash flows for the nine-month period ended September 30, 2022. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.
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.
Cash
and Cash Equivalents - The Company considers all highly liquid temporary cash investments with an original maturity of three months
or less to be cash equivalents. At September 30, 2022 and December 31, 2021, the Company had $
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.
| F-7 |
In-process Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process.
Finished Goods Inventories - Finished goods inventories include gold that has been processed through the Company’s ADR facility and are valued at the average cost of their production.
Exploration and Development Costs - Costs of acquiring mining properties and any exploration and development costs are expensed as incurred unless proven and probable reserves exist and the property is a commercially mineable property in accordance with FASB ASC 930, Extractive Activities- Mining. Mine development costs incurred either to develop new gold and silver deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.
The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain.
Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.
Mineral Rights and Properties - We defer acquisition costs until we determine the viability of the property. Since we do not have proven and probable reserves as defined by Securities and Exchange Commission (“SEC”) Industry Guide 7, exploration expenditures are expensed as incurred. We expense care and maintenance costs as incurred.
We review the carrying value of our mineral rights and properties for impairment whenever there are negative indicators of impairment. Our estimate of the gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties affecting the recoverability of our investment in the mineral claims and properties. Although we have made our best, most current estimate of these factors, it is possible that near term changes could adversely affect estimated net cash flows from our mineral claims and properties and possibly require future asset impairment write-downs.
Where estimates of future net operating cash flows are not available and where other conditions suggest impairment, we assess recoverability of carrying value from other means, including net cash flows generated by the sale of the asset. We use the units-of-production method to deplete the mineral rights and properties.
Settlement of Contracts in Company’s Equity– In accordance with ASC 815-40-25, the Company must meet certain requirements in order to report contracts as equity versus liabilities. These requirements must be met by the Company or the contracts need to be reported as liabilities. The Company has adopted the sequencing approach as guidance on contracts that permit partial net share settlement. The Company evaluates the contracts based on the earliest issuance date. Currently, the Company doesn’t have any items that are reported as equity instead of liabilities.
Fair Value Measurements - The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.
| F-8 |
Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
| Level 1: Quoted market prices in active markets for identical assets or liabilities. | |
| Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
The fair value of financial instruments on September 30, 2022 are summarized below:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Warrant liabilities | $ | $ | $ | $ | ||||||||||||
| Debt derivative liabilities | ||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
The fair value of financial instruments on December 31, 2021 are summarized below:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Warrant liabilities | $ | $ | $ | $ | ||||||||||||
| Debt derivative liabilities | ||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
The Company recognizes its marketable securities as level 1 and values its marketable securities using the methods discussed below in Note 4. 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.
| F-9 |
Long-Lived Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flows.
Properties, Plant and Equipment - We record properties, plant and equipment at historical cost. We provide depreciation and amortization in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value. We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful lives as follows:
| Building | ||||
| Vehicles and equipment | ||||
| Processing and laboratory | ||||
| Furniture and fixtures |
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.
| F-10 |
| For the Three Months Ended | ||||||||
| Numerator | September 30, 2022 | September 30, 2021 | ||||||
| Net Loss - Controlling Interest | $ | ( | ) | $ | ( | ) | ||
| Amortization of Debt Discounts | ||||||||
| Interest Expense | ||||||||
| Loss on Conversion | ||||||||
| Change in Derivative Liabilities | ||||||||
| Adjusted Net Loss - Controlling Interest | $ | ( | ) | $ | ( | ) | ||
| Denominator | Shares | Shares | ||||||
| Basic Weighted Average Number of Shares Outstanding during Period | ||||||||
| Dilutive Shares | ||||||||
| Diluted Weighted Average Number of Shares Outstanding during Period | ||||||||
| Diluted Net Loss per Share | $ | ( | ) | $ | ( | ) | ||
| For the Nine Months Ended | ||||||||
| Numerator | September 30, 2022 | September 30, 2021 | ||||||
| Net Loss - Controlling Interest | $ | ( | ) | $ | ( | ) | ||
| Amortization of Debt Discounts | ||||||||
| Interest Expense | ||||||||
| Loss on Conversion | ||||||||
| Change in Derivative Liabilities | ||||||||
| Adjusted Net Loss - Controlling Interest | $ | ( | ) | $ | ( | ) | ||
| Denominator | Shares | Shares | ||||||
| Basic Weighted Average Number of Shares Outstanding during Period | ||||||||
| Dilutive Shares | ||||||||
| Diluted Weighted Average Number of Shares Outstanding during Period | ||||||||
| Diluted Net Loss per Share | $ | ( | ) | $ | ( | ) | ||
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 and nine-months ending September 30, 2022 and 2021.
| F-11 |
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
Financial Statement Reclassification – Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications. Some related party notes payable were reclassified from current to long-term.
Operating Lease – The Company leases its corporate headquarters and administrative offices in Salt Lake City, Utah. This lease expires in August 2024.
The supplemental balance sheet information related to the operating lease for the periods is as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Operating leases | ||||||||
| Long-term right-of-use assets | $ | $ | ||||||
| Short-term operating lease liabilities | $ | $ | ||||||
| Long-term operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
Maturities of the Company’s undiscounted operating lease liabilities are as follows:
| Year Ending | Operating Lease | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total lease payments | ||||
| Less: imputed interest/present value discount | ( | ) | ||
| Present value of lease liabilities | $ | |||
The
Company incurred rent expense of $
| F-12 |
Finance Leases – The Company entered into two finance leases during the nine months ended September 30, 2022 and has included the finance lease assets in property and equipment.
The
Company leased a 2005 excavator with the option to buy for
The
Company leased a 2008 dump truck with the option to buy for
The supplemental balance sheet information related to these finance leases for the periods is as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Finance leases | ||||||||
| Short-term finance leases liabilities | $ | $ | ||||||
| Long-term finance leases liabilities | ||||||||
| Total finance leases liabilities | $ | $ | ||||||
Maturities of the Company’s undiscounted finance lease liabilities are as follows:
| Year Ending | Finance Leases | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total lease payments | ||||
| Less: imputed interest/present value discount | ( | ) | ||
| Present value of lease liabilities | $ | |||
The
Company incurred interest expense related to the finance leases of $
Non-Controlling Interest Policy – Non-controlling interest (NCI) is the portion of equity ownership in a subsidiary not attributable to the parent company, who has a controlling interest and consolidates the subsidiary’s financial results with its own. The amount of equity relating to the non-controlling interest is separately identified in the equity section of the balance sheet and the amount of the net income (loss) relating to the non-controlling interest is separately identified on the statement of operations.
Recently Issued Accounting Pronouncements – From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
3. Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories, stockpiles and mineralized materials on leach pads at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Supplies | $ | $ | ||||||
| Mineralized Material on Leach Pads | ||||||||
| ADR Plant | ||||||||
| Finished Ore | ||||||||
| Total Inventories | $ | $ | ||||||
Currently, the Company has been restricted in exporting its precious metals by the Honduran government (see the “Legal Proceedings” section in Part II of this report for more details). This has caused the increase in finished ore. The Company is currenlty looking at alternative sources to sell the finished ore in Honduras.
There
were
4. Derivative Financial Instruments
The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2022:
| Debt Derivative Liabilities | ||||
| Balance, December 31, 2021 | $ | |||
| Change in fair value of derivative liabilities and warrant liability | ( | ) | ||
| Balance, September 30, 2022 | $ | |||
Derivative Liabilities – The Company issued convertible promissory notes which are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.
At
September 30, 2022, the Company marked to market the fair value of the debt derivatives and determined a fair value of $
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
September 30, 2022, the Company had a warrant liability of $
5. Properties, Plant and Equipment, Net
Properties, plant and equipment at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Machinery and Equipment | ||||||||
| Office Equipment and Furniture | ||||||||
| Finance lease assets | ||||||||
| Vehicles | ||||||||
| Construction in Process | ||||||||
| Less Accumulated Depreciation | ( | ) | ( | ) | ||||
| Total Property, Plant and Equipment | $ | $ | ||||||
During
the nine months ended September 30, 2022 and 2021, the Company recognized depreciation expense of $
| Depreciation Allocation | September 30, 2022 | September 30, 2021 | ||||||
| Cost of Goods Sold | $ | $ | ||||||
| General and Administrative | ||||||||
| Total | $ | $ | ||||||
6. 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.
| F-13 |
The
fair value of the long-term liability of $
Changes to the asset retirement obligation were as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Balance, Beginning of Year | $ | $ | ||||||
| Liabilities incurred | ||||||||
| Disposal | ||||||||
| Balance, End of Year | $ | $ | ||||||
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Liabilities | ||||||||
| Accrued Salaries and Benefits | ||||||||
| Advances Payable | ||||||||
| Total Accrued Liabilities | $ | $ | ||||||
8. Notes Payable
Notes payable were comprised of the following as of September 30, 2022 and December 31, 2021:
| Notes Payable | September 30, 2022 | December 31, 2021 | ||||||
| Phil Zobrist | $ | $ | ||||||
| Small Business Administration | ||||||||
| Total Notes Payable | ||||||||
| Less Short-Term Notes Payable | ( | ) | ||||||
| Total Long-Term Notes Payable | $ | $ | ||||||
Phil
Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount of $
| F-14 |
Small
Business Administration – On April 17, 2020, the Company issued an unsecured Promissory Note to the Small Business Administration
in the principal amount of $
9. Notes Payable – Related Parties
Notes payable – related parties were comprised of the following as of September 30, 2022 and December 31, 2021:
| Notes Payable - Related Parties | Relationship | September 30, 2022 | December 31, 2021 | |||||||
| Clavo Rico, Inc. | $ | $ | ||||||||
| Claymore Management | ||||||||||
| Cluff-Rich PC 401K | ||||||||||
| Debra D’ambrosio | ||||||||||
| Francis E. Rich IRA | ||||||||||
| Legends Capital | ||||||||||
| LWB Irrev Trust | ||||||||||
| MDL Ventures | ||||||||||
| Pine Valley Investments | ||||||||||
| Total Notes Payable - Related Parties | ||||||||||
| Less Short-Term Notes Payable - Related Parties | ( | ) | ( | ) | ||||||
| Total Long-Term Notes Payable - Related Parties | $ | $ | ||||||||
Clavo
Rico, Incorporated – On April 5, 2019, GAIA Ltd and Silverbrook Corporation assigned
Claymore
Management – On October 2, 2016, the note was extended until
Cluff-Rich
PC 401K – On June 29, 2022, the Company issued an unsecured Short-Term Promissory Note to Cluff-Rich PC 401K in the principal
amount of
D.
D’Ambrosio – On January 1, 2022, there was three unsecured Short-Term Promissory Notes to D. D’Ambrosio in the
principal amount of $
| F-15 |
Francis
E. Rich – On May 24, 2021, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich in the principal amount
of
Francis
E. Rich – On November 25, 2021, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich in the principal
amount of $
Legends
Capital Group – On October 2, 2016, the notes were extended until
LW
Briggs Irrevocable Trust – On October 2, 2016, the notes were extended until
MDL
Ventures – The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is
Pine
Valley Investments, LLC – On December 6, 2021, the Company issued an unsecured Short-Term Promissory Note to Pine Valley Investments,
LLC in the principal amount of $
Pine
Valley Investments, LLC – On April 29, 2022, the Company issued an unsecured Short-Term Promissory Note to Pine Valley Investments,
LLC in the principal amount of $
Pine
Valley Investments, LLC – On August 15, 2022, the Company issued an unsecured Short-Term Promissory Note to Pine Valley Investments,
LLC in the principal amount of $
10. Convertible Notes Payable
Convertible notes payable were comprised of the following as of September 30, 2022 and December 31, 2021:
| Convertible Notes Payable | September 30, 2022 | December 31, 2021 | ||||||
| Antczak Polich Law LLC | $ | $ | ||||||
| Antilles Family Office LLC | ||||||||
| Scotia International | ||||||||
| Total Convertible Notes Payable | ||||||||
| Less Unamortized Discount | ( | ) | ||||||
| Total Convertible Notes Payable, Net of Unamortized Debt Discount | ||||||||
| Less Short-Term Convertible Notes Payable | ( | ) | ( | ) | ||||
| Total Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount | $ | $ | ||||||
| F-16 |
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 $
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 $
Antilles
Family Office LLC – On May 20, 2019, the Company issued a secured Convertible Promissory Note (“Note”) to an Investor,
in the principal amount of $
| F-17 |
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 $
11. Stockholders’ Deficit
Common Stock
On
January 25, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
February 17, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice.
The conversion was for $
On
March 2, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
March 18, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
April 5, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
April 18, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
April 25, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
May 20, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The conversion
was for $
On
June 2, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The conversion
was for $
On
June 13, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
June 17, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
| F-18 |
On
June 23, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
June 28, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The
conversion was for $
On
July 8, 2022, the Company issued to Antilles Family Office, LLC shares of its common stock under a conversion notice. The conversion
was for $
Warrants
The following tables summarize the warrant activity during the nine months ended September 30, 2022 and the year ended December 31, 2021:
| Stock Warrants | Number of Warrants | Weighted Average Exercise Price | ||||||
| Balance at December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Balance at December 31, 2021 | ||||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ( | ) | ||||||
| Balance at September 30, 2022 | $ | |||||||
| 2022 Outstanding Warrants | Warrants Exercisable | |||||||||||||||||||||
| Range of Exercise Price | Number Outstanding at September 30, 2022 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at September 30, 2022 | Weighted Average Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
12. 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. During the six-month period ended September 30, 2022 the
company accrued a tax liability of $
13. Related Party Transactions
Consulting
Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed
to pay $
| F-19 |
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 $
Notes
Payable – The Company took eight short-term notes payable from Debra D’ambrosio, an immediate family member related party
and one short-term note payable from Pine Valley Investment, an affiliate – controlled by director during the nine months ended
September 30, 2022. The Company received $
14. Commitments and Contingencies
Litigation
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On
December 30, 2021, the Company was served with a complaint filed by Antilles Family Office, LLC (“Antilles”) alleging an
amount of $
As
of June 10, 2022, Inception Mining, Inc. (the “Company”) entered into a Settlement Agreement (the “Settlement
Agreement”) with Antilles Family Office, LLC (the “Investor”), pursuant to which the Company agreed to settle
claims asserted by the Investor in the Verified Complaint filed by the Investor against the Company in the United States District Court
(the “Court”) for the District of Delaware (Case No. 1:21-CV-01822-CFC) on or about December 27, 2021. The Settlement
Agreement was conditioned upon the Court approving the Settlement Agreement. The Investor and the Company jointly requested, as required
by the Settlement Agreement, a stipulated order (a) finding that (i) under Section 3(a)(10) of the Securities Act of 1933, as amended
(the “Securities Act”) that the exchange of Note and the claims for shares of Company common stock provided for in
the Settlement Agreement is fair, (ii) the shares of Company common stock issued upon conversion of the Note previously issued by the
Investor are not required to be registered under the Securities Act, and (iii) the Investor is not required to register as a dealer pursuant
to Section 15(b) of the Exchange Act; (b) requiring shares of Defendant’s common stock to be immediately reserved for
issuance to Plaintiff, and all Conversion Shares to be authorized and reserved within 30 days of the order; and (c) requiring the immediate
issuance and delivery in electronic form of free trading shares of common stock by Defendant and its Transfer Agent, and any subsequent
transfer agent, at any time and from time to time on request by Plaintiff in accordance with the procedures and beneficial ownership
limitations of the Note, until all Conversion Shares are issued and delivered. Pursuant to the Settlement Agreement, the Company has
the right to terminate any then-remaining share reserve and any then-remaining obligation to issue Conversion Shares by paying to Investor
the sum of $
| F-20 |
Since the cancellation of the hearing regarding the Settlement, the litigation with Antilles has continued. On August 17, 2022, a hearing on the litigation was held and the Court granted in part the Company’s Motion to Dismiss. Specifically, Count II (Money Had and Received), Count IV (Injunctive Relief), and Count V (Replevin) were dismissed. The Court granted leave for Antilles to amend the Complaint to add requests for injunctive relief and replevin as remedies for breach of contract and will allow 21 days if Antilles wants to file an Amended Complaint. As a result of this ruling, the Complaint is reduced to one claim for breach of contract, and one claim for unjust enrichment. The Company plans to continue to defend the lawsuit aggressively.
On September 7, 2022, Antilles filed an Amended Complaint, which also added a new claim for declaratory judgment, seeking to have to Court issue a ruling declaring that Antilles and Discover are not dealers and have not violated securities laws. On September 21, 2022, the Company filed an Answer to the Amended Complaint denying liability. The Company also asserted Counterclaims against Antilles and a Third Party Complaint against Discover. The claims against both Antilles and Discover include counts for Violation of Section 29 of the Exchange Act, Breach of Contract, Market Manipulation, Unjust Enrichment, and Civil Conspiracy. The claims against Discover also include counts for Fraudulent Inducement and Equitable Estoppel. On October 21, 2022, Antilles and Discover filed a Motion to Dismiss the Counterclaims and Third Party Complaint. The Company filed an answering brief opposing the Motion to Dismiss on November 4, 2022. Antilles and Discover have until November 14, 2022 to file a reply in further support of their Motion to Dismiss.
On
June 28, 2021, one of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., settled a labor dispute
brought in Honduras by one of the Company’s former employees for an amount of $
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
$
The
Servicio de Administración de Rentas (“SAR,” the tax authority in Honduras) has completed an audit of the Company’s
tax returns for 2017 and 2018. The Company’s subsidiary, Compañía Minera Clavo Rico, S.A. de C.V. (“CMCS”),
has been served with a lawsuit filed by SAR in Honduras alleging additional tax liability due based on vendor use. The Complaint alleges
that HNL7,186,151,96 lempires are due in a demand for execution of a forced extrajudicial title and CMCS has filed a legal challenge
to this assessment. While this tax matter is pending, the Honduran authorities have disallowed CMCS’ ability to invoice its gold
dore, thus prohibiting them from exporting the gold to the United States. Since May 2022, the Company has been unable to import the gold
dore produced at the CMSC mine in Honduras. The Company has accrued $
15. Concentrations
We
generally sell a significant portion of our mineral production to a relatively small number of customers. For the nine months ended September
30, 2022, one hundred percent (
The Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine was disrupted or closed.
16. Subsequent Events
Management has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through the date which the financial statements were available to be issued and there are no material subsequent events, except as noted below:
On October 18, 2022, the Company filed an amendment to its Articles of Incorporation increasing the authorized shares of common stock of the Company to shares.
| F-21 |
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 2021 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 September 30, 2022, the results of its consolidated statements of operations and comprehensive loss for the three and nine month periods ended September 30, 2022 and 2021, and its consolidated cash flows for the nine-month periods ended September 30, 2022 and 2021. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.
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.
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