Company Quick10K Filing
Magellan Gold
Price2.30 EPS-1
Shares4 P/E-2
MCap8 P/FCF-23
Net Debt-0 EBIT-4
TEV8 TEV/EBIT-2
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
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S-1 2018-12-20 Public Filing
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8-K 2020-11-24
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8-K 2018-06-08
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8-K 2018-05-08
8-K 2018-03-05
8-K 2018-01-05

MAGE 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Organization, Basis of Presentation, and Nature of Operations
Note 2 - Mineral Rights and Properties
Note 3 - Disposition of Business
Note 4 - Fair Value of Financial Instruments
Note 5 - Notes Payable - Related Parties
Note 6 - Notes Payable
Note 7 - Convertible Note Payable
Note 8 - Stockholders' Deficit
Note 9 - Commitments and Contingencies
Note 10 - Executive Employment Agreement
Note 11 - Related Party Transactions
Note 12 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 magellan_10q-ex3101.htm
EX-31.2 magellan_10q-ex3102.htm
EX-32 magellan_10q-ex32.htm

Magellan Gold Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
2.21.10.1-1.0-2.0-3.12012201420172020
Assets, Equity
0.2-0.6-1.4-2.2-3.0-3.82016201720182020
Rev, G Profit, Net Income
1.10.70.3-0.1-0.5-0.92012201420172020
Ops, Inv, Fin

10-Q 1 magellan_10q-093020.htm FORM 10-Q

 

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number: 333-174287

 

MAGELLAN GOLD CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada

(State or other jurisdiction of incorporation or organization)

27-3566922

(IRS Employer Identification Number)

   

602 Cedar Street, Suite 205

Wallace, Idaho

(Address of principal executive offices)

83873

(Zip Code)

 

Registrant's telephone number, including area code: (707) 291-6198

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☒   Smaller reporting company ☒
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 ☒

 

On November 13, 2020, there were 7,018,344 shares of the registrant’s common stock, $.001 par value, issued and outstanding.

 

 

 

 

 

MAGELLAN GOLD CORPORATION

Form 10-Q September 30, 2020

Table of Contents

 

  Page
PART I. FINANCIAL INFORMATION
   
Item 1. Financial Statements 3
Consolidated Balance Sheets (unaudited) 3
Consolidated Statements of Operations and Comprehensive Loss (unaudited) 4
Consolidated Statements of Shareholders’ Deficit (unaudited) 5
Consolidated Statements of Cash Flows (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
   
Item 4. Controls and Procedures 26
   
PART II. OTHER INFORMATION
   
Item 1. Legal Proceedings 27
   
Item 1A. Risk Factors 27
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
   
Item 3. Defaults Upon Senior Securities 27
   
Item 4. Mine Safety Disclosures 27
   
Item 5. Other Information 27
   
Item 6. Exhibits 27
   
Signatures 28

 

 

 

 2 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

   September 30, 2020   December 31, 2019 
ASSETS          
Current assets          
Cash  $12,645   $167 
Prepaid expenses and other current assets   5,417    18,667 
Current assets of discontinued operations       42,379 
           
Total current assets   18,062    61,213 
           
Mineral rights and properties   1,000,000     
Development costs   57,916     
Other assets of discontinued operations       1,464,070 
           
Total assets  $1,075,978   $1,525,283 
           
LIABILITIES AND SHAREHOLDERS' DEFICIT          
Current liabilities:          
Accounts payable  $128,098   $75,792 
Accounts payable - related party   25,139    30,000 
Accrued liabilities   468,281    280,870 
Convertible note payable, net - related party   85,880     
Convertible note payable, net - third party   346,655    373,395 
Accrued interest - related parties   3,315    752 
Accrued interest   25,472    25,305 
Advances payable - related party   25,602    134,559 
Advances payable - third party       32,500 
Current liabilities of discontinued operations       1,602,466 
           
Total current liabilities   1,108,442    2,555,639 
           
Long term liabilities:          
Long term liabilities of discontinued operations       130,735 
           
Total liabilities   1,108,442    2,686,374 
           
Commitments and contingencies          
           
Shareholders' deficit:          
Preferred shares, 25,000,000 shares          
Series A preferred stock - $10.00 stated value; 2,500,000 authorized; 192,269 and 242,269 shares issued and outstanding, respectively   1,922,690    2,422,690 
Series B preferred stock - $1,250.00 stated value; 5,000 authorized; none shares issued and outstanding        
Common shares, $0.001 par value; 1,000,000,000 shares authorized; 7,018,344 and 3,651,042 shares issued and outstanding, respectively   7,019    3,651 
Additional paid-in capital   13,214,500    8,383,929 
Accumulated other comprehensive loss       (68,636)
Accumulated deficit   (15,176,673)   (11,902,725)
Shareholders' equity deficit:   (32,464)   (1,161,091)
           
Total liabilities and shareholders' deficit  $1,075,978   $1,525,283 

 

 

See accompanying notes to the unaudited consolidated financial statements

 

 3 

 

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2020   2019   2020   2019 
                 
Operating expenses:                    
General and administrative expenses  $393,468   $321,067   $686,589   $770,291 
                     
Total operating expenses   393,468    321,067    686,589    770,291 
                     
Loss from continuing operations   (393,468)   (321,067)   (686,589)   (770,291)
                     
Other income (expense):                    
Interest expense   (156,309)   (116,981)   (305,282)   (287,012)
Other income           26,980     
Loss on settlement of liabilities   (34,800)   (3,151,314)   (2,110,047)   (3,151,314)
Change in fair value of derivative liability       9,735        12,457 
                     
Total other income (expense)   (191,109)   (3,258,560)   (2,388,349)   (3,425,869)
                     
Net loss from continuing operations   (584,577)   (3,579,627)   (3,074,938)   (4,196,160)
                     
Net loss from discontinued operations, net of tax   (906)   (168,316)   (31,599)   (403,892)
                     
Net loss   (585,483)   (3,747,943)   (3,106,537)   (4,600,052)
                     
Series A preferred stock dividend   (47,935)       (167,411)    
                     
Net loss attributable to common shareholders   (633,418)   (3,747,943)   (3,273,948)   (4,600,052)
                     
Other comprehensive income:                    
Foreign currency translation       (30,508)   68,636    (10,420)
Total other comprehensive income       (30,508)   68,636    (10,420)
                     
Net comprehensive loss  $(633,418)  $(3,778,451)  $(3,205,312)  $(4,610,472)
                     
Basic and diluted net loss per common share:                    
Continuing operations  $(0.10)  $(1.00)  $(0.68)  $(1.19)
Discontinued operations  $   $(0.05)  $(0.01)  $(0.11)
Net loss attributable to common shareholders  $(0.10)  $(1.05)  $(0.69)  $(1.30)
                     
Basic and diluted weighted-average:                    
common shares outstanding   6,299,381    3,578,620    4,751,512    3,519,308 

 

 

See accompanying notes to the unaudited consolidated financial statements

 

 4 

 

 

MAGELLAN GOLD CORPORATION

Consolidated Statements of Shareholders' Deficit

For the nine months ended September 30, 2020 and 2019

(unaudited)

 

   Series A       Additional   Accumulated Other Comprehensive         
   Preferred Stock   Common Stock   Paid - in   Income   Accumulated     
   Shares   Amount   Shares   Par Value   Capital   (Loss)   Deficit   Total 
                                 
Balance, December 31, 2019   242,269   $2,422,690    3,651,042   $3,651   $8,383,929   $(68,636)  $(11,902,725)  $(1,161,091)
                                         
Stock issued for services                   5,500            5,500 
Stock based compensation                   76,650            76,650 
Series A preferred stock dividend                           (59,738)   (59,738)
Disposition of assets, related party                   206,860            206,860 
Net loss                           (274,410)   (274,410)
Other comprehensive income                       68,636        68,636 
Balance, March 31, 2020   242,269    2,422,690    3,651,042    3,651    8,672,939        (12,236,873)   (1,137,593)
                                         
Debt discount from warrants and beneficial conversion feature                   102,263            102,263 
Stock issued for services                   5,500            5,500 
Stock and warrants issued for liabilities           773,770    774    962,774            963,548 
Stock and warrants issued for convertible notes and accrued interest           1,183,635    1,184    1,545,132            1,546,316 
Series A preferred stock dividend                           (59,738)   (59,738)
Net loss                           (2,246,644)   (2,246,644)
Balance, June 30, 2020   242,269    2,422,690    5,608,447    5,609    11,288,608        (14,543,255)   (826,348)
                                         
Debt discount from warrants and beneficial conversion feature                   222,500            222,500 
Stock based compensation                   70,480            70,480 
Stock issued for purchase of Clearwater Gold Mining Corp           750,000    750    849,250            850,000 
Stock and warrants issued for cash           75,000    75    22,425            22,500 
Stock and warrants issued for services           500,000    500    166,625            167,125 
Stock and warrants issued for convertible notes and accrued interest           84,897    85    94,612            94,697 
Preferred shares returned and cancelled in exchange for Gulf + Western Industries Inc   (50,000)   (500,000)           500,000             
Series A preferred stock dividend                           (47,935)   (47,935)
Net loss                           (585,483)   (585,483)
Balance, September 30, 2020   192,269   $1,922,690    7,018,344   $7,019   $13,214,500   $   $(15,176,673)  $(32,464)
                                         
Balance, December 31, 2018  $   $   $3,264,752   $3,265   $4,310,699   $(108,858)  $(6,706,524)  $(2,501,418)
                                         
Sales of common stock and warrants           30,000    30    29,970            30,000 
Stock issued for services           60,000    60    35,040            35,100 
Stock issued for liabilities           21,692    22    37,611            37,633 
Stock issued for deemed dividend           45,559    45    (45)            
Net loss                           (336,891)   (336,891)
Other comprehensive income                       10,217        10,217 
Balance, March 31, 2019           3,422,003    3,422    4,413,275    (98,641)   (7,043,415)   (2,725,359)
                                         
Stock issued for services           177,000    177    154,323            154,500 
Net loss                           (515,218)   (515,218)
Other comprehensive loss                       9,871        9,871 
Balance, June 30, 2019           3,599,003    3,599    4,567,598    (88,770)   (7,558,633)   (3,076,206)
                                         
Stock issued for services                   179,000            179,000 
Stock issued for liabilities   242,269    2,422,690            3,149,497            5,572,187 
Debt discount from warrants and beneficial conversion feature                   100,000            100,000 
Net loss                           (3,747,943)   (3,747,943)
Other comprehensive loss                       (30,508)       (30,508)
Balance, September 30, 2019   242,269   $2,422,690    3,599,003   $3,599   $7,996,095   $(119,278)  $(11,306,576)  $(1,003,470)

 

See accompanying notes to the unaudited consolidated financial statements

 

 5 

 

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   Nine Months ended September 30, 
   2020   2019 
Operating activities:          
Net loss from continuing operations  $(3,074,938)  $(4,600,052)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:          
Accretion of discounts on notes payable   238,903    29,823 
Stock based compensation   325,255    368,600 
Loss on settlement of liabilities   2,153,183    3,152,072 
Gain on investment       (12,457)
Changes in operating assets and liabilities:          
Prepaid expenses and other assets   13,250    (6,250)
Accounts payable and accrued liabilities   166,830    358,003 
Accrued interest   34,354    122,662 
           
Net cash used in operating activities from continuing operations   (143,163)   (587,599)
Net cash used in operating activities from discontinued operations   (51,491)   228,134 
Net cash used in operating activities   (194,654)   (359,465)
           
Investing activities:          
Cash paid for development costs   (46,276)    
Cash paid for mineral rights   (12,500)    
           
Net cash used in investing activities from continuing operations   (58,776)    
Net cash used in investing activities from discontinued operations       (75,000)
Net cash used in investing activities   (58,776)   (75,000)
           
Financing activities:          
Payments on convertible debt from third parties   (10,000)    
Proceeds from convertible debt from third parties   235,000    100,000 
Proceeds from convertible debt from related parties   60,000     
Proceeds from advances from related parties   23,300    383,600 
Payments on advances from related parties   (143,528)   (116,521)
Proceeds from advances from third parties   10,000    42,500 
Proceeds from sale of common stock and warrants   22,500    30,000 
           
Net cash provided by financing activities from continuing operations   197,272    439,579 
Net cash provided by financing activities from discontinued operations        
Net cash provided by financing activities   197,272    439,579 
           
Effect of foreign currency exchange   68,636    (8,153)
           
Net change in cash   12,478    (3,039)
Cash at beginning of period   167    4,436 
           
Cash at end of period  $12,645   $1,397 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $3,250   $ 
Cash paid for income taxes  $   $ 
           
Non-cash financing and investing activities:          
Series A preferred stock dividend  $167,411   $ 
Expenses paid by related party credit cards  $106,271   $119,984 
Common stock and warrants issued for the settlement of liabilities  $137,500   $36,875 
Additions of assets under operating lease obligations  $   $6,968 
Preferred stock issued for settlement of liabilities  $   $2,420,873 
Transfer of investment to related party for settlement of liabilities  $   $83,066 
Disposition of assets, related party  $206,860   $ 
Conversion of debt and accrued interest  $296,624   $ 
Debt discount from warrants and beneficial conversion feature  $324,763   $100,000 
Common stock issued for accounts payable  $17,254   $ 
Preferred stock returned and cancelled  $500,000   $ 
Noncash consideration for purchase of Clearwater Gold Mining Corp  $987,500   $ 
Noncash consideration for development costs  $11,640   $ 

 

 

See accompanying notes to the unaudited consolidated financial statements

 

 6 

 

 

MAGELLAN GOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Note 1 – Organization, Basis of Presentation, and Nature of Operations

 

Organization and Nature of Operations

 

Magellan Gold Corporation (“we” “our”, “us”, the “Company” or “Magellan”) was incorporated on September 28, 2010, under the laws of the State of Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which we have mining rights contain mineral reserves that are economically recoverable.

 

Our primary focus is to explore and develop mineral properties in the United States. Effective March 31, 2020, we divested our subsidiary holding all of our international assets and plan to advance our recently acquired Idaho Gold project towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities. Our mineral lease payments, permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any significant revenue.

 

Basis of Presentation

 

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the full year. While we believe that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto contained in our annual report on Form 10-K for the year ended December 31, 2019.

 

On July 1, 2020, the Company entered into a Stock Purchase Agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County, Idaho. The Company will be evaluating the historic mine data to assess the potential to develop a gold resource at Center Star. The project area is located 45 miles from Grangeville, Idaho and near the town of Elk City, Idaho.

 

On August 25, 2020, the Company, a new wholly owned subsidiary, M Gold Royalty (“M Gold”), to expand into the royalty business. M Gold Royalty will engage in organically generating royalties derived from a portfolio of mineral property interests in North America. Royalties from this portfolio will be complemented by royalties from selected acquisitions as well as income from other strategic investments.

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Clearwater and M Gold. All intercompany transactions and balances have been eliminated. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

 

 

 7 

 

 

Reclassification

 

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation, including the discontinued operations presentation resulting from the disposition of the Company’s Mexico operations in March 2020 and Gulf + Western Industries, Inc. in September 2020. See Note 3.

 

Recent Accounting Pronouncements

 

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

  

Liquidity and Going Concern

 

Our consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At September 30, 2020 we had a working capital deficit of $1,090,380, we had not yet generated any significant revenues or achieved profitable operations and we have accumulated losses of $15,176,673. We expect to incur further losses in the development of our business, all of which raises substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.

 

We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure than any future financings will occur.

 

Note 2 – Mineral Rights and Properties

 

Center Star Gold Mine

 

On July 1, 2020, the Company entered into a Stock Purchase Agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County, Idaho that include the historic Center Star Gold Mine (“Center Star”) near Elk City, Idaho. As a result of the Clearwater acquisition, Gregory Schifrin, the sole shareholder of Clearwater, was appointed to serve as a member of the Company’s Board on July 1, 2020. In consideration for 100% of the issued and outstanding shares of Clearwater, the Company has agreed to pay Clearwater’s sole shareholder 1,000,000 shares of Magellan common stock, $125,000 convertible note and $25,000 in cash. The 1,000,000 shares are to be issued to the shareholder on and under the terms as follows: 250,000 shares at the time of closing, 250,000 shares at the time the Center Mine receives its permit to reopen the main portal of the mine, 250,000 shares at the point the main portal has been reopened and 250,000 shares two-years from closing concurrent the pay-off of the $125,000 convertible note. As of September 30, 2020, the total purchase price for the Clearwater was determined to be $1,000,000 which consisted of $12,500 cash paid, $12,500 accrued in accounts payable – related party, a $125,000 convertible promissory note, and 1,000,000 shares of common stock with a fair value of $850,000. The Company concluded the transaction qualified as an asset acquisition and all such acquisition costs have been capitalized.

 

During the nine months ended September 30, 2020, the Company has paid $46,276 and accrued $11,640 in capitalized development cost to develop gold resources at Center Star.

 

 

 

 8 

 

 

Silver District

 

In August 2012, we entered into an option agreement with Columbus Exploration f/k/a Columbus Silver Corporation, which granted us the right to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. We paid Columbus an initial $63,200 on signing of the option and a further $50,000 in December 2012. We paid other patented and unpatented mining claim purchase and lease obligations in 2013 and 2014 to maintain the project claims and leases in good standing. On December 31, 2014, we paid an additional $100,000 to Columbus Exploration to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. The properties acquired from Columbus were assigned into our subsidiary Gulf+Western Industries, Inc. and our total acquisition cost capitalized was $323,200.

 

The Silver District property consists of 110 unpatented lode and mill site mining claims, six patented lode claims, and an Arizona State Exploration Permit, all of which are held directly or under lease agreements, totaling over 2,000 acres. Certain of the claims are subject to third party net smelter royalties and/or net profits of varying percentages.

 

On July 9, 2015, G+W entered into two Lease and Purchase Agreements (“Agreements”) with an individual that grant the Company certain exploration and mining rights for two patented lode claims located in the Silver District, La Paz County, Arizona. The Agreements provide for scheduled variable annual advance minimum royalty payments to the lessor. In addition, the Agreements have an initial term of 20 years, and provide for the purchase of the properties for $125,000 each during the term of the lease, net of any advance royalty payments made up to the date of the purchase. The Company paid the initial advance royalty payments totaling $3,000 and advance royalty payments of $3,000 to maintain these Agreements. Due to an uncertainty associated with the clarification of the legal title for these two patented lode claims, these payments have not been capitalized as mining rights, and therefore are included in exploration costs during the period in which the obligation was due. The lease requires annual payments totaling $1,000 until the legal title can be perfected.

 

In January 2020, the Company and NV Gold Corporation (“NVX”) and its wholly-owned subsidiary NV Gold Corporation (USA) (“NV Gold”) entered into a binding letter of intent (“LOI”), whereby NV Gold has the exclusive right to purchase an undivided 100% right, title and interest in and to the Silver District Property and the Property Data in consideration of NV Gold completing certain payments and work commitments. In January 2020, NVX accepted the terms of the LOI and paid the Company $25,000. NVX had until May 11, 2020 to exercise their option to acquire the Silver District project under these terms. NVX did not exercise their option on May 11, 2020 and Magellan retained the $25,000 payment as liquidated damages which was recorded in other income.

 

In July 2020 G + W was disposed of as further discussed in Note 3.

  

Note 3 – Disposition of Business

 

Mexico Operations

 

On March 3, 2017 the Company entered into a Memorandum of Understanding (“MOU”) with Rose Petroleum plc (“Rose”), a multi-asset natural resource business, to purchase an operating floatation plant that also includes a precious metals leach circuit and associated assets, licenses and agreements (together, the “SDA Mill”) located in the State of Nayarit, Mexico.

 

 

 

 9 

 

 

Prior to closing, all of the assets and operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2 (“MV2”).

 

Effective March 31, 2020 the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with certain holders of Promissory Notes (the “Lenders”) due December 31, 2019 (the “Notes”) in the aggregate principal amount of $1.05 million. The Company is indebted under the Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of Magellan Acquisition Corporation and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. Magellan Acquisition Corp. and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Notes matured on December 31, 2019 and    remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.

 

Silver District

 

On July 21, 2020, the Company entered into a Stock Purchase agreement with Tri Power Resources, LLC to sell 1,000 shares representing 100% ownership of Gulf+Western Industries, Inc (“Gulf+Western”) to Tri Power in consideration for the return and cancellation of 50,000 shares of the Company’s Series A Preferred Stock with a stated value of $10 per share. John Gibbs, a majority shareholder in the Company, is the Managing Member and Chief Executive Officer of Tri Power Resources, LLC.

 

Due to the related party nature of the above transactions, the gain of $206,860 associated with the disposals were recorded to additional paid in capital.

 

Summary

 

As a result of the agreements above, the assets and liabilities of the Gulf+Western , MAC and MV2 operations have been reflected as assets and liabilities of discontinued operations in the Company’s consolidated balance sheets as of September 30, 2020 and December 31, 2019 as follows:

 

   September 30, 2020   December 31, 2019 
         
Cash  $   $5,165 
Prepaid expenses and other current assets       37,214 
Current assets of discontinued operations       42,379 
Mineral rights, net of impairment       101,672 
Property, plant and equipment, net       973,930 
Prepaid expenses and other assets       388,468 
Other assets of discontinued operations       1,464,070 
Total assets of discontinued operations  $    1,506,449 
           
Accounts payable  $   $338,231 
Accrued liabilities       145,766 
Accrued interest - related parties       29,160 
Accrued interest       23,377 
Notes payable, related party       953,876 
Notes payable, third party       115,500 
Current liabilities of discontinued operations       1,605,910 
Other long-term liabilities       9,857 
Asset retirement obligation       120,878 
Long term liabilities of discontinued operations       130,735 
Total liabilities of discontinued operations  $   $1,736,645 

  

 

 

 10 

 

The agreements qualify as a discontinued operation in accordance with U.S. GAAP. As a result, operating results and cash flows related to the Gulf+Western, MAC and MV2 operations have been reflected as discontinued operations in the Company’s consolidated statements of operations and comprehensive loss and consolidated statements of cash flows.

 

   September 30, 2020   September 30, 2019 
         
Revenue  $   $32,500 
Cost of sales       (264,174)
Exploration costs       (10,000)
General and administrative expenses   (31,599)   (160,279)
Operating loss   (31,599)   (401,953)
Other expense       (1,939)
Net loss from discontinued operations  $(31,599)  $(403,892)

 

Note 4 – Fair Value of Financial Instruments

 

Financial assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:

 

Level 1 – Quoted market prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

 

Level 3 – Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

 

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

The carrying values for cash and cash equivalents, prepaid assets, accounts payable and accrued liabilities, related party line of credit and notes payable approximate their fair value due to their short-term maturities.

 

The carrying values for cash and cash equivalents, prepaid assets, accounts payable and accrued liabilities, related party line of credit and notes payable approximate their fair value due to their short-term maturities.

 

 

 

 11 

 

 

Note 5 – Notes Payable – Related Parties

 

On May 31, 2017 we entered into three short-term notes with Mr. Gibbs, Dr. Carson and Mr. Power in the principal amounts of $100,000, $25,000 and $25,000, respectively. The notes bear interest at 6% and matured on November 15, 2017. The note balances were subsequently rolled into the Series 2017 Notes. A total of $752 of interest is accrued on these notes as of September 30, 2020 and December 31, 2019, respectively.

  

On November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes. During the year ended December 31, 2019, a total of $57,750 of additional fees were added to the principal amount and recorded as a discount to the notes related of an extension of the maturity date to December 31, 2019. Of the additional fees $52,250 was related to the related party portion of these notes and $5,500 was related to their third party portion. The balance on these notes, net of discount of $0, was $1,069,376 as of December 31, 2019. During the year ended December 31, 2019 $ 57,750 of debt discount related to the above notes was amortized to interest expense. The notes are secured by a stock pledge agreement covering 100% of the outstanding common stock of Magellan Acquisition Corporation, bear interest at 10%.

 

The total of portion of the Series 2017 Notes from related parties totaled $1,045,000, including financing fees of $95,000 recorded as discount to the notes. Mr. Gibbs, Dr. Carson, and Mr. Power transferred $100,000, $25,000, and $25,000, respectively, from the May 31, 2017 short term related party notes into the Series 2017 Notes.

 

The Series 2017 Notes were in default as of December 31, 2019. Consequently, on March 31, 2020, the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with the holders of the Series 2017 Notes (the “Lenders”) due December 31, 2019 in the aggregate principal amount of $1.14 million. The Company is indebted under the Series 2017 Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of MAC and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. MAC and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Series 2017 Notes matured on December 31, 2019 and remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Series 2017 Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.

 

Unsecured advances – related party

 

During the nine months ended September 30, 2020, Mr. Gibbs advanced $20,000 to the Company. During the nine months ended, Mr. Power advanced $3,300 cash and paid expenses using his personal credit card on behalf of the Company of $106,271 and the Company made repayments to Mr. Power and/or his credit card of $143,528. On May 31, 2020, the Company issued 475,000 shares of common stock to Mr. Gibbs with a fair value of $332,500 for the settlement of advances in the amount of $95,000, resulting in a loss on settlement of $237,500. In addition, the Company issued 475,000 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share. The Company recognized an additional $288,046 loss related to the issuance of warrants for the settlement of liabilities. Amounts due to Mr. Gibbs and Powers related to cash advances and expense paid on behalf of the Company was $25,602 and $134,559 as of September 30, 2020 and December 31, 2019, respectively.

 

Note 6 – Notes payable

 

During the nine months ended September 30, 2020, $10,000 was received from third parties with the intention to convert to shares in the Company. On May 31, 2020, the Company converted $42,500 of advances from third parties into 212,500 shares of common stock. The common shares had a fair value of $153,750, resulting in a loss on settlement of $111,250. In addition, the Company issued 212,500 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share. The Company recognized an additional $128,863 loss related to the issuance of warrants for the settlement of liabilities.

 

 

 12 

 

 

As discussed in Note 5 – Notes Payable – Related Parties, on November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.

 

The total of portion of the Series 2017 Notes from non-related parties totaled $110,000, including financing fees of $10,000 recorded as discount to the notes. The note maturity date was extended to December 31, 2019 in exchange for an increase in the principal balance of $5,500. As of December 31, 2019, the balance on the notes from non-related parties, net of unamortized discount of $0, was $115,500 with accrued interest of $23,377. On March 31, 2020, the Series 2017 Notes were settled. See Note 5.

  

Note 7 – Convertible Note Payable

 

Series 2018A and 2018B 10% Unsecured Convertible Notes

 

In 2018, the Company sold $205,000 of Series 2018A and $150,000 of Series B 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal amount of the Note. The Series A and Series B Notes are convertible into shares of Common Stock at a conversion price of $1.00 and $1.25, respectively, during the life of the Note. The Company evaluated the conversion option and concluded it was not required to be bifurcated as a derivative. The Company also concluded that no beneficial conversion feature was present at issuance. The Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes matured twelve (12) months from the date of issue but were extended at the option of the Company for an additional one (1) year. Within thirty (30) days following the closing of an offering, the Company has agreed to prepare and file a Registration Statement on Form S-1 registering the resale of the shares of Common Stock issuable upon conversion of the Notes. Of the Series A issuance, $150,000 was sold to a related party, Mr. Gibbs. In December 2019, $25,000 of Series 2018A 10% Unsecured Convertible Notes and $2,039 of accrued interest were converted into 27,039 shares of common stock at a conversion price of $1.00 per share. On May 31, 2020, the Company converted $150,000 of principal and $22,412 of accrued interest into 862,055 shares of common stock. The common shares had a fair value of $603,439, resulting in a loss on conversion of debt of $431,028. The Company issued 862,055 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share and recognized an additional $522,761 loss related to the issuance of warrants for the conversion of debt. In September 2020, the Company converted the remaining $30,000 of principal and $4,897 of accrued interest into 34,897 shares of common stock with a fair value of $34,897. The Company issued 30,000 warrants exercisable for a period of thirty days at an exercise price of $0.20 per share and recognized an additional $34,800 loss related to the issuance of warrants for the conversion of debt. As of September 30, 2020, the principal and interest balance due under the Series 2018A and 2018B notes were settled.

 

Series 2019A 10% Unsecured Convertible Notes

 

In 2019 the Company sold $135,000 of Series 2019A 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal amount of the Note. The Series 2019A Notes are convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. The lenders were issued 100,000 common stock warrants with an exercise price of $2.00 per share. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in August and December 2019. The $135,000 debt discount is amortized over the term of the loan. The Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes mature twelve (12) months from the date of issue. The maturity date can be extended at the option of the Company for an additional one (1) year. There are two Series 2019A 10% Unsecured Convertible Notes that were due and payable in August 2020 and are currently past due. If a default notice is received the interest rate will be 12%. Amortization expense of $78,361 was recognized during the nine months ended September 30, 2020. On May 31, 2020, the Company converted $60,000 of principal and $4,316 of accrued interest into 321,580 shares of common stock. The common shares had a fair value of $225,106, resulting in a loss on conversion of debt of $160,790. In addition, the Company issued 321,580 warrants exercisable for a period of twelve months at an exercise price of $0.20 per share. The Company recognized an additional $195,010 loss related to the issuance of warrants for the conversion of debt. As of September 30, 2020, the balance due under these notes net of unamortized discount of $0, is $75,000, with accrued interest of $6,611.

 

 

 

 13 

 

 

On October 1, 2019, the Company sold a 10% Unsecured Convertible Note for $145,978 due on demand to settle accounts payable. The purchase price of the 10% Unsecured Convertible Note is equal to the principal amount of the Note. The 10% Unsecured Convertible Note is convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature as a debt discount and additional paid in capital in October 2019. The debt discount will be amortized over the term of the loan. The 10% Unsecured Convertible Note will accrue interest at the rate of 10% per annum payable quarterly, accruing from the date of issuance. Amortization expense of $145,978 was recognized during the year ended December 31, 2019. As of September 30, 2020, the balance due under these notes net of unamortized discount of $0, is $145,978, with accrued interest of $14,598.

 

Series 2020A 8% Unsecured Convertible Notes

 

During the nine months ended September 30, 2020, the Company sold $285,000 of Series 2020A 8% Unsecured Convertible Notes with a maturity date of November 30, 2020. The purchase price of the Note is equal to the principal amount of the Note. The Series 2020A Notes are convertible into shares of Common Stock at a conversion price of $0.50 during the life of the Note. The lenders were issued 142,500 common stock warrants with an exercise price of $0.50 per share for a term of 5 years. Two related parties purchased $60,000 of the 2020A notes. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature as a debt discount and additional paid in capital as of September 30, 2020. The $237,263 debt discount will be amortized over the term of the loan. The Notes will accrue interest at the rate of 8% per annum, payable quarterly in arrears. In July 2020, $25,000 of Series 2020A 8% Unsecured Convertible Notes were converted into 50,000 shares of common stock at a conversion price of $0.50 per share. Amortization expense of $140,412 was recognized during the nine months ended September 30, 2020. As of September 30, 2020, the balance due to a related party under these notes net of unamortized discount of $22,528, is $37,462, with accrued interest of $1,628. As of September 30, 2020, the balance due to a third party under these notes net of unamortized discount of $74,323, is $125,677, with accrued interest of $4,263.

 

3% Secured Convertible Note

 

On July 1, 2020, the Company issued a $125,000 Secured Convertible Note to a related party for the as part of the purchase of Clearwater Mining Corporation. The secured convertible note matures on July 1, 2022 and will accrue interest at the rate of 3% per annum, payable yearly in arrears beginning July 1, 2021. The Note is convertible into shares of Common Stock at a conversion price of $0.50 during the life of the Note. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in July 2019. The $87,500 debt discount will be amortized over the term of the loan. Amortization expense of $10,908 was recognized during the nine months ended September 30, 2020. As of September 30, 2020, the balance due to a related party under this note net of unamortized discount of $76,592, is $48,408, with accrued interest of $935.

 

Note 8 – Stockholders’ Deficit

 

Common Stock

 

On May 31, 2020, the Company agreed to issue 86,270 common shares to settle of accounts payable related to services provided in 2019 and 2020 of $17,254. The common shares had a fair value of $60,389 resulting in a loss on settlement of accounts payable of $43,135.

 

On May 31, 2020, the Company agreed to issue 687,500 common shares and warrants to settle advances from third parties of $42,500 and settle advances from related parties of $95,000. Additionally, the Company issued 1,183,635 common shares and warrants to settle convertible notes payable of $236,727 including accrued interest.

 

During the nine months ended September 30, 2020, the Company received net proceeds of $22,500 from the exercise of 75,000 warrants.

 

 

 

 14 

 

 

On July 15, 2020, the Company issued 500,000 shares for services rendered pursuant to two investor relations agreements: 200,000 shares under a Services Agreement and 300,000 shares under a Consulting Agreement. The shares were valued at $1.29, the closing price of the Company’s stock on July 15, 2020. The Services Agreement is $7,500 per month and has a term of twelve months The Consulting Agreement is $7,500 per month and has an initial term of six months. If the Consulting Agreement is not terminated at least thirty days prior to the end of the initial term, the term will continue for an additional six months. During the nine months ended September 30, 2020 the Company recognized $161,625 of expense related to these shares.

 

On December 9, 2019, the Company entered into a three month consulting agreement and paid $25,000. In addition, the Company issued 100,000 warrants with an exercise price of $1.00 per share that expire on December 9, 2020. During the nine months ended September 30, 2020, the Company recognized $76,650 of expense related to the warrants issued from this agreement.

 

In January 2019, 40,000 shares were issued for services rendered pursuant to an investor relations agreement. The shares were valued at $1.10, the closing price of the Company’s stock on December 31, 2018. The services will be provided over a two year service period. During the nine months ended September 30, 2020 and 2019 the Company recognized $16,500 of expense related to these shares.

 

Preferred Stock

 

During the nine months ended September 30, 2020, the Company accrued $167,411 for the Series A preferred stock dividend.

 

In September 2020, the Company established a Series B Convertible Preferred Stock (“Series B Preferred”) and authorized an aggregate of 5,000 shares with a par value of $0.001 per share and a stated value of $1,250.00 per share. The holders of outstanding Series B Preferred shall be entitled to receive dividends at the annual rate of 10% based on the stated value per share. Dividends on the share of Series B Preferred shall be cumulative.

 

Stock Options and the 2017 Equity Incentive Plan:

 

Under the 2017 Equity Incentive Plan, the Company is authorized to grant rights to acquire up to a maximum of 200,000 shares of common stock. The 2017 Plan provides for the grant of (1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation rights. As of September 30, 2020, the Company had 128,000 shares available for future grant.

 

On September 15, 2020, John Gibbs, a related party, transferred 330,000 warrants to purchase common stock back to the Company. Deepak Malhotra, a member of the board, received 300,000 of the transferred warrants as compensation for services to be performed over a one year term. The warrants were valued $386,764 and will recognized over the one year service period. During the nine months ended September 30, 2020, the Company recognized $32,230 of expense related to the issuance of these warrants. The remaining 30,000 warrants were transferred to three 2018A 10% Unsecured Convertible noteholder as inducements to convert their notes. See Note 7 – Convertible Note Payable.

 

Stock option activity within the 2017 Equity Incentive Plan and warrant activity outside the plan, for the nine months ended September 30, 2020 is as follows:

 

    Stock Options     Stock Warrants  
    Shares    

Weighted Average

Exercise Price

    Shares    

Weighted Average

Exercise Price

 
Outstanding at December 31, 2019     72,000     $ 2.00       335,000     $ 1.70  
Granted                 2,343,635       0.22  
Cancelled                 (565,000)       0.95  
Expired                        
Exercised                 (75,000)       0.30  
Outstanding at September 30, 2020     72,000     $ 2.00       2,038,635     $ 0.26  
Exercisable at September 30, 2020     72,000     $ 2.00       2,038,635     $ 0.26  

 

 

 

 15 

 

 

The Company valued the warrants using the Black-Scholes model with the following key assumptions ranging from: Stock price, $0.85 - $1.57, Exercise price, $0.20-$0.50, Term 5 years, Volatility 195.66% - 225.13%, and Discount rate 0.12% - 0.36%.

 

As of September 30, 2020, the outstanding stock options have a weighted average remaining term of 7.07 years and $0 intrinsic value, and the outstanding stock warrants have a weighted average remaining term of 0.86 years and an intrinsic value of $1,780,681.

 

Note 9 – Commitments and Contingencies

 

Mining Claims

 

As part of our acquisition of the Center Star gold mine project, we acquire 15 Bureau of Land Management (“BLM”) unpatented mining claims and subsequently staked another 16 unpatented mining claims. In order to maintain the BLM lode \ claims, annual payments are required before the end of August of each year. As of September 30, 2020, all of these claims are in good standing.

 

On August 6, 2020, the Company entered into a one-year investor relations consulting agreement. As consideration for its services under the Agreement, the Company agreed to pay to the consultant 261,538 restricted shares of the Company’s common stock. The shares were valued at $1.56, the closing price of the Company’s stock on August 6, 2020. As of September 30, 2020, the Company have not issued the shares and has accrued $34,000 related to this agreement.

 

Note 10 – Executive Employment Agreement

 

Effective June 1, 2019, the Company and David E. Drips, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Drips, in consideration of services to be rendered as President, CEO and Director, restricted stock units consisting of 10,000 units for each month of service. The units will vest upon successful completion of a $1.25 million financing on or before November 30, 2019. Upon settlement if the common stock is less than $1.50 addition shares will be issued such that each month of service will have a value of $15,000. The agreement was extended through May 31, 2020 and eliminated the $1.25 million in financing as a condition of vesting and clarified that a total of 120,000 shares of stock will be issued to settle all services received. As of September 30, 2020, $78,000 has been accrued under this arrangement. On June 2, 2020, the Company received the written resignation of David E. Drips as President, CEO and Director of the Company, effective May 31, 2020.

 

Effective August 1, 2020, the Company and Michael Lavigne, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Lavigne, in consideration of services to be rendered as President, CEO and Director, restricted stock units consisting of 15,000 units for each month of service. The vested stock units will be settled in shares of common stock upon or as soon as practicable (a) upon written request any time after December 31, 2020 or (b) following the termination date, whichever occurs first. As of September 30, 2020, 30,000 restricted stock units may be settled in shares of common stock. During the nine months ended September 30, 2020, the Company recognized $38,250 of expense related to the agreement.

 

Note 11 – Related Party Transactions

 

Conflicts of Interests

 

Athena Silver Corporation (“Athena”) is a company under common control. Mr. Power is also a director and CEO of Athena. Mr. Gibbs is a significant investor in both Magellan and Athena. Magellan and Athena are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

 

 

 16 

 

 

Silver Saddle Resources, LLC is also a company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle. Magellan and Silver Saddle are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

The existence of common ownership and common management could result in significantly different operating results or financial position from those that could have resulted had Magellan, Athena and Silver Saddle been autonomous.

 

Accrued Interest - Related Parties

 

Accrued interest due to related parties is included in our consolidated balance sheets as follows:

 

   September 30, 2020   December 31, 2019 
Accrued interest payable – Mr. Gibbs  $1,589   $11,973 
Accrued interest payable – Mr. Power       11,342 
Accrued interest payable – Dr. Carson   752    6,597 
Accrued interest payable – Mr. Schifrin   935     
Accrued interest payable – Mr. Malhotra   39     
   $3,315   $29,912 

 

The accrued interest related to the Series 2017 Notes was settled on March 31, 2020. See Note 5.

 

Note 12 – Subsequent Events

 

In October 2020, the Company received net proceeds of $16,000 from the exercise of 80,000 warrants.

 

Subsequent to September 30, 2020, Mr. Power has made advances of $10,750.

 

Effective November 1, 2020, the Company and William Luckman, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Luckman, in consideration of services to be rendered as President, restricted stock units consisting of 42,000 units for each month of service. The vested stock units will be settled in shares of common stock upon or as soon as practicable (a) upon written request any time after June 30, 2021 or (b) following the termination date, whichever occurs first.


 

 

 

 

 

 

 

 

 

 17 

 

 

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

 

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

 

The following discussion and analysis provides information that management believes is relevant for an assessment and understanding of our results of operations and financial condition. This information should be read in conjunction with our audited financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and our interim unaudited financial statements and notes thereto included with this report in Part I, Item 1.

 

COVID-19 Pandemic

 

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak has now spread to the United States and infections have been reported globally.

 

The COVID-19 pandemic is rapidly evolving. The information in this Annual Report is based on data currently available to us and will likely change as the pandemic progresses. As COVID-19 continues to spread throughout areas in which we operate, we believe the outbreak has the potential to have a material negative impact on our operating results and financial condition.  The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operators, employees and vendors, and the impact on the Company’s ability to obtain debt and equity financing to fund ongoing exploration activities, all of which are uncertain and cannot be predicted.  Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results and financial condition.

 

We expect the trends highlighted above with respect to the impact of the COVID-19 pandemic to continue and, in some cases, accelerate. The extent of the COVID-19 pandemic’s continued effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift, the availability of government financial support to our business, tenants and operators and whether a resurgence of the outbreak occurs. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows but it could be material.

 

Forward-Looking Statements

 

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

 

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

 

 

 

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Overview

 

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

 

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

 

Magellan entered into a stock purchase agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County. Idaho that include the historic Center Star Gold Mine near Elk City, Idaho. The Center Star Mine hosts high grade gold mineralization that was discovered in the early 1900’s. There was periodic historic production and development work done under different ownership through the 1980s. With the high-grade gold mineralization present, Magellan will be evaluating the historic mine data to assess the potential to develop a gold resource at Center Star. The project area is located 45 miles from Grangeville, Idaho and near the town of Elk City, Idaho.

in consideration for 100% of the issued and outstanding shares of Clearwater, Magellan has agreed to pay its sole shareholder 1,000,000 shares of Magellan common stock and $150,000. The 1,000,000 shares will be issued (i) 250,000 shares at closing (ii) 250,000 shares at the time the Center Mine receives its permit to reopen the main portal of the mine, (iv) 250,000 shares at the point the main portal has been reopened and (iv) 250,000 shares two years from the closing concurrent with the pay-off of the secured promissory note. The cash consideration of $25,000 will be paid within 30 days of closing and the balance of $125,000 to be evidenced by a secured promissory note due in two years. The Note will be secured by the Clearwater shares and assets. Magellan has issued 750,000 of the 1,000,000 shares and has paid $12,500 of the required $25,000 payment.

 

Effective March 31, 2020, we divested our subsidiary holding all of our international assets and plan to advance our Idaho gold project towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities. Our mineral lease payments, permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any significant revenue.

  

Effective March 31, 2020 the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with certain holders of Promissory Notes (the “Lenders”) due December 31, 2019 (the “Notes”) in the aggregate principal amount of $1.05 million. The Company is indebted under the Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of Magellan Acquisition Corporation and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. Magellan Acquisition Corp. and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Notes matured on December 31, 2019 and   remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.

 

On July 21, 2020, the Company entered into a Stock Purchase agreement with Tri Power Resources, LLC to sell 1,000 shares representing 100% ownership of Gulf+Western Industries, Inc (“Gulf+Western”) to Tri Power in consideration for the return and cancellation of 50,000 shares of the Company’s Series A Preferred Stock with a stated value of $10 per share. John Gibbs, a majority shareholder in the Company, is the Managing Member and Chief Executive Officer of Tri Power Resources, LLC.

 

As a result of these agreements, the assets, liabilities and operations of the Gulf+Western, MAC and MV2 have been reflected as discontinued operations in the Company’s consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flows and consolidated statements of other comprehensive income (loss) for the periods presented.

 

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation, including the discontinued operations presentation resulting from the disposition of the Company’s Gulf+Western , MAC and MV2 operations in 2020.

 

 

 

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Results of Operations for the three months Ended September 30, 2020 and 2019

 

   Three Months Ended September 30, 
   2020   2019 
         
Operating expenses:          
General and administrative expenses  $393,468   $321,067 
Total operating expenses   393,468    321,067 
           
Loss from continuing operations   (393,468)   (321,067)
           
Other income (expense)          
Interest expense   (156,309)   (116,981)
Loss on settlement of liabilities   (34,800)   (3,151,314)
Change in fair value       9,735 
Total other income (expense)   (191,109)   (3,258,560)
           
Net loss from continuing operations   (584,577)   (3,579,627)
           
Net loss from discontinued operations, net of tax   (906)   (168,316)
           
Net loss  $(585,483)  $(3,747,943)

 

Operating expenses

 

During the three months ended September 30, 2020, our total operating expenses included general and administrative expenses of $393,468 as compared to $321,067 during the three months ended September 30, 2019. The $72,401 increase is primarily associated with increases in investor relations, stock based compensation and legal fees offset with decreases in travel expenses

  

Other income (expense)

 

During the three months ended September 30, 2020, total other expense was $191,109 as compared to $3,258,560 during the three months ended September 30, 2019. The $3,067,451 change is primarily related to the $3,151,314 loss on debt extinguishment of debt for the three months ended September 30, 2019 offset with increases in amortization of debt discount for the three months ended September 30, 2020.

 

 

 

 20 

 

 

Discontinued operations

 

The net loss from discontinued operations during the three months ended September 30, 2020 and 2019 totaled $906 and $168,316, respectively. Net loss from discontinued operations represent the Mexico operations and Gulf+Western that were disposed of in March 2020 and July 2020, respectively. The $167,410 change is due to the limited operations of the Mexico and Gulf+Western assets in 2020.

 

Results of Operations for the nine months Ended September 30, 2020 and 2019

 

   Nine Months Ended September 30, 
   2020   2019 
         
Operating expenses:          
General and administrative expenses  $686,589   $770,291 
Total operating expenses   686,589    770,291 
           
Loss from continuing operations   (686,589)   (770,291)
           
Other income (expense)          
Interest expense   (305,282)   (287,012)
Other income   26,980     
Loss on settlement of liabilities   (2,110,047)   (3,151,314)
Change in fair value       12,457 
Total other income (expense)   (2,388,349)   (3,425,869)
           
Net loss from continuing operations   (3,074,938)   (4,196,160)
           
Net loss from discontinued operations, net of tax   (31,599)   (403,892)
           
Net loss  $(3,106,537)  $(4,600,052)

 

Operating expenses

 

During the nine months ended September 30, 2020, our total operating expenses included general and administrative expenses of $686,589 as compared to $770,291 during the nine months ended September 30, 2019. The $83,702 decrease is primarily associated with increases in consulting, stock based compensation offset with decreases investor relations, officer compensation travel expense and audit fees.

  

 

 

 21 

 

 

Other income(expense)

 

During the nine months ended September 30, 2020, total other expense was $2,388,349 as compared to $3,425,869 during the nine months ended September 30, 2019. The $1,037,520 decrease is primarily related to $1,041,267 decrease in loss on settlement of liabilities offset with an increase in interest expense and other income related to the NVX option and Small Business Administration Economic Injury Disaster Loan Grant.

 

Discontinued operations

 

The net loss from discontinued operations during the three months ended September 30, 2020 and 2019 totaled $31,599 and $403,892, respectively. Net loss from discontinued operations represent the Mexico operations and Gulf+Western that were disposed of in March 2020 and July 2020, respectively. The $372,293 change is due to the limited operations of the Mexico and Gulf+Western assets in 2020.

 

Liquidity and Capital Resources

 

Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At September 30, 2020, we had not yet generated sufficient revenues or achieved profitable operations and we have accumulated losses of $15,176,673. We expect to incur further losses in the development of our business, all of which raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.

  

During the nine months ended September 30, 2020, the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations with the holders of the Series 2017 Notes due December 31, 2019 in the aggregate principal amount of $1.14 million.

 

Additionally, the Company received $22,500 of proceeds from the sale of common stock and warrants, $295,000 of proceeds from convertible debt from related and third parties and $33,300 of proceeds from advances from related and third parties.

 

We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure that any future financings will occur.

 

 

 

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Cash Flows

 

A summary of our cash provided by and used in operating, investing and financing activities is as follows:

 

   Nine Months Ended September 30, 
   2020   2019 
         
Net cash used in operating activities from continuing operations  $(143,163)  $(587,599)
Net cash used in operating activities from discontinued operations   (51,491)   228,134 
Net cash used in operating activities   (194,654)   (359,465)
           
Net cash used in investing activities from continuing operations   (58,776)    
Net cash used in investing activities from discontinued operations       (75,000)
Net cash used in investing activities   (58,776)   (75,000)
           
Net cash provided by financing activities from continuing operations   197,272    439,579 
Net cash provided by financing activities from discontinued operations        
Net cash provided by financing activities   197,272    439,579 
           
Effect of foreign currency exchange   68,636    (8,153)
           
Net change in cash and cash equivalents   12,478    (3,039)
Cash and cash equivalents beginning of period   167    4,436 
           
Cash and cash equivalents end of period  $12,645   $1,397 

 

At September 30, 2020, we had $12,645 in cash and a $1,090,380 working capital deficit. This compares to cash of $167 and a working capital deficit of $2,494,426 at December 31, 2019.

 

Net cash used in operating activities from continuing operations during the nine months ended September 30, 2020 was $143,163 and was mainly comprised of our $3,074,938 net loss during the period, adjusted by a non-cash charges of $2,153,183 for loss on settlement of liabilities, $325,255 of stock compensation and accretion of discounts on notes payable of $238,903. In addition, it reflects changes in operating assets and liabilities of $214,434.

 

Net cash used in operating activities from discontinued operations of $51,491 related to the Mexico and Gulf+Western operations which was disposed of on September 30, 2020.

 

During the nine months ended September 30, 2020, net cash provided by financing activities from continuing operations was $197,272 comprised of $235,000 proceeds from convertible debt from third parties, $60,000 proceeds from convertible debt from related parties, $23,300 proceeds from advances from related parties, $10,000 proceeds on advances from third parties, offset by $10,000 payments on convertible notes from third parties and $143,528 payments on advances from related parties.

 

 

 

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Off Balance Sheet Arrangements

 

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

  

Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Clearwater Gold Mining Corporation and M Gold Royalty. All intercompany transactions and balances have been eliminated. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Use of Estimates

 

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

 

We make our estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

 

Fair Value of Financial Instruments

 

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

 

Concentrations of Credit Risk

 

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

 

 

 

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Cash and Cash Equivalents

 

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

 

Notes Payable – Related Parties

 

Notes payable to related parties are classified as current liabilities as the note holders either have the ability to control the repayment dates of the notes or the notes are due within twelve months of the balance sheet date.

  

Net Loss per Common Share

 

We compute basic net loss per common share by dividing our net loss attributable to common shareholders by our weighted-average number of common shares outstanding during the period. Computation of diluted net loss per common share adds the weighted-average number of potential common shares outstanding to the weighted-average common shares outstanding, as calculated for basic net loss per share, except for instances in which there is a net loss. For the three and nine months ended September 30, 2020 and 2019, potential common shares associated with convertible notes payable and outstanding warrants to purchase common stock have been omitted from the net loss per common share computation as they are anti-dilutive due to the net loss for these periods.

 

Stock-based Compensation 

 

The Company measures the cost of employee services received in exchange for an award of equity instruments (share-based payments, or SBP) based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the SBP award—the requisite service period (vesting period). For SBP awards subject to conditions, compensation is not recognized until the performance condition is probable of occurrence. The grant-date fair value of share options is estimated using the Black-Scholes-Merton option-pricing model. The Company adopted ASU 2018-07 which aligns the accounting for share-based payment awards issued to employees and nonemployees.

 

Recently Adopted Accounting Standards

 

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

 

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to management, including David E. Drips, our President, and John Power, our Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

 

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of such date as a result of material weaknesses in our internal control over financial reporting due to lack of segregation of duties, a limited corporate governance structure, and lack of a formal review process that includes multiple levels of review as discussed in Item 9A of our Form 10-K for the fiscal year ended December 31, 2019.

 

While we strive to segregate duties as much as practicable, there is an insufficient volume of transactions at this point in time to justify additional full time staff. We believe that this is typical in many exploration stage companies. We may not be able to fully remediate the material weakness until we commence mining operations at which time we would expect to hire more staff. We will continue to monitor and assess the costs and benefits of additional staffing.

 

Changes in Internal Control Over Financial Reporting:

 

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes from the risk factors disclosed in Item 1A. to Part I. of our Annual Report on Form 10-K for the year ended December 31, 2019.

 

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

 

All sales of unregistered securities were reported on Form 8-K during the period.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit

Number

  Exhibit Description
     
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
     
32 * Certification of the President, Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS * XBRL Instance Document
     
101.SCH * XBRL Taxonomy Extension Schema Document
     
101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF * XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB * XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed or furnished herewith.

 

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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.

 

Dated: November 13, 2020

 

MAGELLAN GOLD CORPORATION

 

By: /s/ Michael Lavigne                           

Michael Lavigne

Chief Executive Officer

(Principal Executive Officer)

 

 

By: /s/ John C. Power                           

John C. Power

Interim Chief Financial Officer

(Principal Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

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