State the aggregate market value of the voting
and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold,
or the average bid and asked price of such common stock, as of the last business day of the Registrant’s most recently completed
second quarter: $1,754,170.
PART
I
ITEM
1. BUSINESS
As
used in this Annual Report on Form 10-K, unless otherwise indicated, the terms “we,” “us,” “our”
and “the Company” refer to Inception Mining, Inc., a Nevada corporation.
Forward-Looking
Statements and Associated Risks. This Annual Report on Form 10-K contains forward-looking statements.
Such
forward-looking statements include statements regarding, among other things, (1) discussions about mineral resources and mineralized
material, (2) our projected sales and profitability, (3) our growth strategies, (4) anticipated trends in our industry, (5) our
future financing plans, (6) our anticipated needs for working capital, (7) our lack of operational experience and (8) the benefits
related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans,
strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,”
“expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project”
or the negative of these words or other variations on these words or comparable terminology. These statements constitute forward-looking
statements. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results,
performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied
by any forward-looking statements. Factors that may cause results to vary include, 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. These
statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
as well as in this filing generally. Actual events or results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, without limitation, the risks outlined under Item 1A below and other risks and matters
described in this filing and in our other SEC filings. In light of these risks and uncertainties, there can be no assurance that
the forward-looking statements contained in this filing will in fact occur as projected. We do not undertake any obligation to
update any forward-looking statements.
The
Company
Overview
We
are a mining company that was formed in Nevada on July 2, 2007. As a mining company, we are engaged in the production of precious
metals. Our activities are not limited to production and they also include production, acquisition, exploration, and development
of mineral properties, primarily for gold, from an owned mining property in Honduras. Until February 2020, Inception Mining had
two projects, the UP and Burlington mine and the Clavo Rico mine, as further described below but since February 2020 all operations
have been focused on the Clavo Rico mine. Our target properties are those that have been the subject of historical exploration.
We have generated revenue and are generating revenue from mining operations.
Clavo
Rico Mine
On
October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held
Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession
through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico,
S.A. de C.V. and holds other mining concessions. Its workings include several historical underground mining operations dating
back to the early Mayan and Spanish occupation.
The
Company’s primary mine is located on the 200-hectare Clavo Rico Concession, located in southern Honduras. This mine was
originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía
Minera Cerros del Sur, S. de R.L. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest
and later increased its ownership to 99.9%. This company has since invested over five million dollars in the expansion and development
of the mine and surrounding properties. Today, the Company operates this mine through exploration of surface-level material.
Mining
operations begin by crushing extracted material to approximately 3/8-inch size pebbles, which is then mixed with additional material
and loaded on the recovery pad for processing. The pebble material is sprinkled with a solution that leaches the gold from the
rock, and the solution is collected and processed on-site at Clavo Rico’s own ADR plant. The doré bars that result
from this process are shipped to the USA for refining.
During
the COVID-19 pandemic, the mine had only been processing approximately less than 500 tons of extracted material per day. The current
recovery operation has been sized to handle from 500 to 1000 tons of extracted material per day on a recovery bed that has the
capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012 and believes that
sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity by the end of December
31, 2022.
The
Company has engaged in preliminary drilling of this area and the resulting assays of samples indicate that the material should
have grades in the range of 0-5 grams of gold per ton.
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 December 31, 2020, 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.
The
Government of Honduras has extended the national curfew from 10:00 p.m. to 5:00 a.m. During the week, shopping and essential
activities will be allowed daily from 5:00 a.m. to 10:00 p.m. without regard to identification number, in all departments.
Businesses are only allowed to have 50% capacity. Bars, nightclubs, gyms, sports complexes, convention centers, theaters, and
educational centers are prohibited from operation. Meetings in private homes may not exceed 10 people, unless previously
authorized. The only people who are allowed to circulate outside of the curfew are people conducting the following
activities: security; health; emergency; public transportation for humanitarian reasons and contracted by businesses that are
within the exceptions to mobilize their workers; transport of heavy cargo; energy; telecommunications; internet; media;
hotels; Honduran and foreign nationals that arrive in the country on night flights, providing a ticket with their final
destination; agrochemical and agriculture sector; technical and administrative support personnel from the banking system;
those needed to guarantee the production and distribution of food; machine industry, markets, supermarkets; gas stations;
drug stores; pharmacies; and biosecurity products, that work shifts seven days of the week and at night.
UP
and Burlington Gold Mine
On
February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the UP and Burlington Gold Mine (“UP and Burlington”). Discovered in 1892, UP and Burlington is a private
gold property that has been held unused in a family trust for the past 75 years. UP and Burlington is located in Lemhi County,
Northwest of Salmon, Idaho, at an elevation of 7,994 feet. UP and Burlington’s two gold mining claims were brought to patent
in 1900, which covers the Mine’s 40 acres.
On
February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange
for $250,000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian
company.
Competition
and Mineral Prices
We
compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities,
personnel and financial resources. There is a limited supply of desirable mineral lands available for claim-staking, lease or
acquisition in the United States and other areas where we may conduct exploration activities. Because we compete with individuals
and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage in acquiring
desirable mineral properties. From time to time, specific properties or areas that would otherwise be attractive to us for exploration
or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial resources. Competition
in the mining industry is not limited to the acquisition of mineral properties but also extends to the technical expertise to
find, advance, and operate such properties; the labor to operate the properties; and the capital needed to fund the acquisition
and operation of such properties. Competition may result in our company being unable not only to acquire desired properties, but
to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration activities or to acquire
the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these
resources would have a material adverse effect on our results of operation and business. The mineral exploration industry is highly
fragmented, and we are a very small participant in this sector. Many of our competitors explore for a variety of minerals and
control many different properties around the world. Many of them have been in business longer than we have and have established
strategic partnerships and relationships and have greater financial resources than we do.
There
is significant competition for properties suitable for gold exploration. As a result, we may be unable to continue to acquire
interests in attractive properties on terms that we consider acceptable. We will be subject to competition and unforeseen limited
sources of supplies in the industry in the event spot shortages arise for supplies such as dynamite, and certain equipment such
as drill rigs, bulldozers and excavators that we will need to conduct exploration. If we are unsuccessful in securing the products,
equipment and services we need we may have to suspend our exploration plans until we are able to secure them.
Market
for Gold
Wholesale
purchasers for the gold we mine are readily available, as many purchasers of precious metals exist in the United States and abroad.
Among the largest are Handy & Harman, Engelhard Industries and Johnson Matthey, Ltd. Historically, these markets are liquid
and volatile. Wholesale purchase prices for precious metals can be affected by a number of factors, all of which are beyond our
control, including but not limited to:
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fluctuation
in the supply of, demand, and market price for gold;
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mining
activities of our competitors;
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sale
or purchase of gold by central banks and for investment purposes by individuals and financial institutions;
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interest
rates;
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currency
exchange rates;
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inflation
or deflation;
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fluctuation
in the value of the United States dollar and other currencies; and
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political
and economic conditions of major gold or other mineral-producing countries.
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If
we find gold that is deemed of economic grade and in sufficient quantities to justify removal, we may seek additional capital
through equity or debt financing to build a mine and processing facility, or enter into joint venture or other arrangements with
large and more experienced companies better able to fund ongoing exploration and development work, or find some other entity to
mine our property on our behalf, or sell or lease our rights to mine the gold. Upon mining, the ore would be processed through
a series of steps that produces a rough concentrate. This rough concentrate is then sold to refiners and smelters for the value
of the minerals that it contains, less the cost of further concentrating, refining and smelting. Refiners and smelters then sell
the gold on the open market through brokers who work for wholesalers including the major wholesalers listed above.
Compliance
with Government Regulation
Mining
Operations
CLAVO
RICO (Honduras, Central America)
The
mining operations in Honduras are governed by the national entities Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry
of Natural Resources and Environment (SERNA). The Clavo Rico mine has operated under a grandfathered concession granted many years
ago and has now complied with all regulatory requirements of the above agencies and the recently adopted Honduran Mining laws
(The General Mining Law was approved by Legislative Decree No. 238-2012, dated January 23, 2013), including employee health and
safety regulations, Environmental requirements, water discharge requirements, and potential reclamation requirements. As the above
ministries have only limited operational experience and the new mining law has only recently been adopted, the interpretation,
adoption and enforcement of many regulations are evolving. Other local ordinances (municipality of El Corpus) minor and most regulatory
efforts are as a result of interaction between the mine and the local populace, (examples include use of the mine haul road for
local traffic, restricting mine operations to daylight hours for noise considerations, watering for dust control, etc.) where
no regulation or law exists, we have attempted to duplicate best practices as required in other business climates.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
Environmental
Laws
Mining
activities at the Company’s properties are also subject to various environmental laws, both federal and state, including
but not limited to the federal National Environmental Policy Act, CERCLA (as defined below), the Resource Recovery and Conservation
Act, the Clean Water Act, the Clean Air Act and the Endangered Species Act, and certain Idaho state laws governing the discharge
of pollutants and the use and discharge of water. Various permits from federal and state agencies are required under many of these
laws. Local laws and ordinances may also apply to such activities as construction of facilities, land use, waste disposal, road
use and noise levels.
These
laws and regulations are continually changing and, as a general matter, are becoming more restrictive. The Company’s policy
is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.
To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), imposes strict, joint, and
several liabilities on parties associated with releases or threats of releases of hazardous substances. Liable parties include,
among others, the current owners and operators of facilities at which hazardous substances were disposed or released into the
environment and past owners and operators of properties who owned such properties at the time of such disposal or release. This
liability could include response costs for removing or remediating the release and damages to natural resources. Our properties,
because of past mining activities, could give rise to potential liability under CERCLA.
Under
the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies may incur costs for generating, transporting,
treating, storing, or disposing of hazardous or solid wastes associated with certain mining-related activities. RCRA costs may
also include corrective action or cleanup costs.
Mining
operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, such as crushers
and storage facilities, and from mobile sources such as trucks and heavy construction equipment. All of these sources are subject
to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality laws.
Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in order
to comply with the permitting conditions.
Under
the federal Clean Water Act and the delegated Colorado water-quality program, point-source discharges into waters of the State
are regulated by the National Pollution Discharge Elimination System (NPDES) program. Storm water discharges also are regulated
and permitted under that statute. Section 404 of the Clean Water Act regulates the discharge of dredge and fill material into
Waters of the United States, including wetlands. All of those programs may impose permitting and other requirements on our operations.
The
National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of major federal actions. The federal
action requirement must be satisfied if the project involves federal land or if the federal government provides financing or permitting
approvals. NEPA does not establish any substantive standards, but requires the analysis of any potential impacts. The scope of
the assessment process depends on the size of the project. An Environmental Assessment (EA) may be adequate for smaller projects.
An Environmental Impact Statement (EIS), which is much more detailed and broader in scope than an EA, is required for larger projects.
NEPA compliance requirements for any of our proposed projects could result in additional costs or delays.
The
Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S. Department of Interior. The purpose
of the ESA is to conserve and recover listed endangered and threatened species and their habitat. Under the ESA, endangered means
that a species is in danger of extinction throughout all or a significant portion of its range. The term threatened under such
statute means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful to take
a listed species, which can include harassing or harming members of such species or significantly modifying their habitat. Future
identification of endangered species or habitat in our project areas may delay or adversely affect our operations.
U.S.
federal and state reclamation requirements often mandate concurrent reclamation and require permitting in addition to the posting
of reclamation bonds, letters of credit or other financial assurance sufficient to guarantee the cost of reclamation. If reclamation
obligations are not met, the designated agency could draw on these bonds or letters of credit to fund expenditures for reclamation
requirements. Reclamation requirements generally include stabilizing, contouring and re-vegetating disturbed lands, controlling
drainage from portals and waste rock dumps, removing roads and structures, neutralizing or removing process solutions, monitoring
groundwater at the mining site, and maintaining visual aesthetics.
Capital
Equipment and Research & Development Expenditures
During
the year ended December 31, 2020, we did not incur any expense related to research and development. Additionally, we are not currently
conducting any research and development activities other than those relating to the possible acquisition of new gold and/or silver
properties or projects of which there is no guarantee. As we proceed with our exploration programs, we may need to engage additional
contractors and consider the possibility of adding additional permanent employees, as well as the possible purchase or lease of
equipment.
Employees
As
of the date of this filing, we currently employ one hundred and ten (110) full-time employees and no temporary employees in the
United States and Honduras. We have contracts with various independent contractors and consultants to fulfill additional needs,
including investor relations, exploration, development, permitting, and other administrative functions, and may staff further
with employees as we expand activities and bring new projects on line.
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts
We
do not currently own any patents or trademarks. Also, we are not a party to any license or franchise agreements, concessions,
or labor contracts arising from any patents or trademarks, or any royalty agreements.
Company
Information
The
public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov. Further information about the
Company may be found at its website: www.inceptionmining.com. The Company makes available its filings to investors, free of charge,
on this website.
Reports
to Security Holders
You
may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. You may also find all the reports that we have filed electronically with the SEC at their Internet site www.sec.gov.
ITEM
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. You should consider carefully the following risks, along with all
of the other information included in this report, before deciding to buy our common stock. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial may also impair our business operations. If we are unable
to prevent events that have a negative effect from occurring, then our business may suffer.
RISKS
RELATED TO OUR COMPANY
An
occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations.
The
occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically
results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management,
support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand
for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our
efforts to comply with our filing obligations with the Securities and Exchange Commission.
We
have incurred losses since our inception in 2007 and may never be profitable, which raises doubt about our ability to continue
as a going concern.
Since
our inception in 2007 and until the Merger in 2015, we had nominal operations and incurred operating losses. As of December 31,
2020, our accumulated deficit since inception was $34,668,784. We have substantial current obligations and at December 31, 2020,
we had $28,987,520 of current liabilities compared to only $923,424 of current assets. Since inception, we have been able to raise
only minimal additional capital, and we have minimal cash on hand. Accordingly, the Company does not have sufficient cash resources
or current assets to pay its current obligations, and we have been meeting many of our obligations through the issuance of our
common stock to our employees, consultants and advisors as payment for the goods and services.
Our
management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions
along with the substantial turmoil in the capital and credit markets, there is a significant possibility that we will be unable
to obtain financing to continue our operations.
These
circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph
to our independent registered public accounting firm’s report on our audited financial statements as of and for the year
ended December 31, 2020. If we are unable to continue as a going concern, investors will likely lose all of their investment in
our company.
We
have a limited operating history.
As
an early-stage company that has made acquisitions in only the past several years, we are subject to all the risks inherent in
the initial organization, financing, expenditures, complications, and delays inherent in a new business. Investors should evaluate
an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. Our business
is dependent upon the implementation of our business plan. There can be no assurance that our efforts will be successful or that
we will ultimately be able to attain profitability. Additionally, the Company’s merger with the operating foreign entity
was based on a review of all historical data and potential revenue streams and resources as could be ascertained from the submission
of documents and a thorough review of all data made available. We believe the materials to be accurate and have attempted to discount
the valuations due to perceived risks of foreign operations and the tasks of incorporating a non-public operating entity into
Inception Mining Inc.
Exploring
for gold is an inherently speculative business.
Natural
resource exploration, and exploring for gold in particular, is a business that by its nature is very speculative. Unusual or unexpected
geological formations, geological formation pressures, fires, power outages, labor disruptions, flooding, explosions, cave-ins,
landslides, and the inability to obtain suitable or adequate machinery, equipment or labor are just some of the many risks involved
in mineral exploration programs and the subsequent development of gold deposits. At our Clavo Rico mine, the resources may become
scarce or more difficult to obtain.
We
will require significant additional capital to continue our exploration activities, and, if warranted, to develop mining operations.
We
will be required to raise significantly more capital in order to fund our Clavo Rico operations. Our ability to obtain necessary
funding depends upon a number of factors, including the price of gold, base metals, and other minerals we are able to mine, the
status of the national and worldwide economy, and the availability of funds in the capital markets. If we are unable to obtain
the required financing in the near future for these or other purposes, our exploration activities would be delayed or indefinitely
postponed, we would likely may lose our lease and options to acquire an ownership interest in UP and Burlington and be unable
to fund our operations at the Clavo Rico mine in Honduras. This would likely lead to failure of our Company. Even if financing
is available, it may be on terms that are not favorable to us, in which case, our ability to become profitable or to continue
operating would be adversely affected. If we are unable to raise funds, the market value of our securities will likely decline,
and our investors may lose some or all of their investment.
The
global financial conditions may have an impact on our business and financial condition in ways that we currently cannot predict.
The
continued pressure on commodities markets and related turmoil in the global financial system may have an impact on our business
and financial position. The recent high costs of consumables may negatively impact costs of our operations. In addition, current
financial market conditions may limit our ability to raise capital through credit and equity markets. As discussed further below,
the prices of the metals that we may produce are affected by a number of factors, and it is unknown how these factors will be
impacted by a continuation of the financial crisis.
Fluctuating
gold and mineral prices could negatively impact our business plan.
The
potential for profitability of our gold and mineral mining operations and the value of any mining properties we may acquire will
be directly related to the market price of gold and minerals that we mine. Historically, gold and other mineral prices have widely
fluctuated, and are influenced by a wide variety of factors, including inflation, currency fluctuations, regional and global demand,
and political and economic conditions. Fluctuations in the price of gold and other minerals that we mine may have a significant
influence on the market price of our common stock and a prolonged decline in these prices will have a negative effect on our results
of operations and financial condition.
Our
business is subject to extensive environmental regulations which may make exploring for or mining prohibitively expensive, and
which may change at any time.
All
of our operations are subject to extensive environmental regulations, which could make exploration expensive or prohibit it altogether.
We may be subject to potential liabilities associated with the pollution of the environment and the disposal of waste products
that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental
pollution, which may reduce the amount of money that we have available to use for exploration. This may adversely affect our financial
position, which may cause you to lose your investment. If we are unable to fully remedy an environmental problem, we might be
required to suspend operations or to enter into interim compliance measures pending the completion of the required remedy. If
a decision is made to mine our properties and we retain any operational responsibility for doing so, our potential exposure for
remediation may be significant, and this may have a material adverse effect upon our business and financial position. We have
not yet purchased insurance for potential environmental risks (including potential liability for pollution or other hazards associated
with the disposal of waste products from our exploration activities). However, if we mine one or more of our properties and retain
operational responsibility for mining, then such insurance may not be available to us on reasonable terms or at a reasonable price.
All of our exploration and, if warranted, development activities may be subject to regulation under one or more local, state and
federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations
and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion of our
business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited
to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch as posting
of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits,
increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental
laws.
We
may be denied the government licenses and permits which we need to explore on our properties. In the event that we discover commercially
exploitable deposits, we may be denied the additional government licenses and permits which we will need to mine our properties.
Exploration
activities usually require the granting of permits from various governmental agencies. Depending on the size, location and scope
of the exploration program, additional permits may also be required before exploration activities can be undertaken. Prehistoric
or Indian grave yards, threatened or endangered species, archeological sites or the possibility thereof, difficult access, excessive
dust and important nearby water resources may all result in the need for additional permits before exploration activities can
commence. As with all permitting processes, there is the risk that unexpected delays and excessive costs may be experienced in
obtaining required permits. The needed permits may not be granted at all. Delays in or our inability to obtain necessary permits
will result in unanticipated costs, which may result in serious adverse effects upon our business.
The
values of our properties are subject to volatility in the price of gold and any other deposits we may seek or locate.
Our
ability to obtain additional and continuing funding, and our profitability in the event we ever commence mining operations or
sell our rights to mine, will be significantly affected by changes in the market price of gold. Further, the gold deposits that
are recovered from our Clavo Rico mine will also be subject to the volatility in the price of gold. Gold prices fluctuate widely
and are affected by numerous factors, all of which are beyond our control. Some of these factors include the sale or purchase
of gold by central banks and financial institutions; interest rates; currency exchange rates; inflation or deflation; fluctuation
in the value of the United States dollar and other currencies; speculation; global and regional supply and demand, including investment,
industrial and jewelry demand; and the political and economic conditions of major gold or other mineral producing countries throughout
the world, such as Russia and South Africa. The price of gold or other minerals have fluctuated widely in recent years, and a
decline in the price of gold could cause a significant decrease in the value of our properties, limit our ability to raise money,
and render continued exploration and development of our properties impracticable. If that happens, then we could lose our rights
to our properties and be compelled to sell some or all of these rights. Additionally, the future development of our properties
beyond the exploration stage is heavily dependent upon the level of gold prices remaining sufficiently high to make the development
of our properties economically viable. You may lose your investment if the price of gold decreases. The greater the decrease in
the price of gold, the more likely it is that you will lose money.
Honduran
mining operations have increased exposure.
Sustaining
foreign mining operations, such as those in Honduras, comes with increased uncertainty, due to less stable governments, political
interruptions, volatility in taxes and fees, implementation of new laws and regulations, and more. The effect of this exposure
can lead to closure of operations, nationalization, and strikes, all of which are beyond the company’s control. Granting
and maintaining concessions is highly subject to political whim and maintaining the concessions is subject to a number of factors
and variables beyond the company’s control. We do not currently insure against these interruptions but have chosen to structure
our operations to minimize exposure to capital assets by subcontracting major areas of work, and to otherwise keep our financial
exposure limited even at the expense of operation costs and our bottom line.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and other financial risks.
Foreign
operations involve numerous risks associated with fluctuating exchange rates and with increasing taxes and fees associated with
importing of necessary goods, equipment and services not adequately found in country and with exporting of the finished gold doré.
Recent enactment of the Honduran mining laws has helped stabilize the fees, but continual review by the various government operations,
and central bank subject the historical operations to review and could impact our ability to export on a timely basis and/or face
possible fines etc. associated with repatriation of past revenues, etc.
Possible
amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.
The
U.S. Congress has considered proposals to amend the General Mining Law of 1872 that would have, among other things, permanently
banned the sale of public land for mining. The proposed amendment would have expanded the environmental regulations to which we
might be subject and would have given Indian tribes the ability to hinder or prohibit mining operations near tribal lands. The
proposed amendment would also have imposed a royalty of 8% of gross revenue on new mining operations located on federal public
land, which might have applied to our future properties. The proposed amendment would have made it more expensive or perhaps too
expensive to recover any otherwise commercially exploitable gold deposits which we might find on our future properties. While
at this time the proposed amendment is no longer pending, this or similar changes to the law in the future could have a significant
impact on our business model.
Market
forces or unforeseen developments may prevent us from obtaining the supplies and equipment necessary to explore for gold and other
resources.
Gold
exploration, and resource exploration in general, demands contractors available for such work, and unforeseen shortages of supplies
and/or equipment could result in the disruption of our planned exploration activities. Current demand for exploration drilling
services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled
times for our exploration program. Fuel prices are extremely volatile as well. We will attempt to locate suitable equipment, materials,
manpower and fuel if sufficient funds are available. If we cannot find the equipment and supplies needed for our various exploration
programs, we may have to suspend some or all of them until equipment, supplies, funds and/or skilled manpower become available.
Any such disruption in our activities may adversely affect our exploration activities and financial condition.
We
may not be able to maintain the infrastructure necessary to conduct exploration activities.
Our
exploration activities depend upon adequate infrastructure. Reliable roads, bridges, power sources, and water supply are important
factors that affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference
in the maintenance or provision of such infrastructure could adversely affect our exploration activities and financial condition.
Our
exploration activities may be adversely affected by the local climates, which could prevent or impair us from exploring our properties
year-round.
The
local climate in our area of operations may impair or prevent us from conducting exploration activities on our properties year-round.
Because of its rural location and limited infrastructure in this area, our property is generally impassible for several weeks
each year as a result of significant rain or snow events. Earthquakes, heavy rains, snowstorms, and floods could result in serious
damage to or the destruction of facilities, equipment or means of access to our properties, or may otherwise prevent us from conducting
exploration activities on our properties.
We
do not currently carry any property or casualty insurance.
Our
business is subject to a number of risks and hazards generally, including but not limited to, adverse environmental conditions,
industrial accidents, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory
environment, and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result
in damage to our properties, equipment, infrastructure, personal injury or death, environmental damage, delays, monetary losses
and possible legal liability. You could lose all or part of your investment if any such catastrophic event occurs. We do not carry
any property or casualty insurance at this time (but we will carry all insurances that we are required to by law, such as motor
vehicle and workers’ compensation, plus other coverage that may be in the best interest of the Company). Even if we do obtain
insurance, it may not cover all of the risks associated with our operations. Insurance against risks such as environmental pollution
or other hazards as a result of exploration and operations are often not available to us or to other companies in our business
on acceptable terms. Should any events against which we are not insured actually occur, we may become subject to substantial losses,
costs and liabilities, which will adversely affect our financial condition.
Reclamation
obligations could require significant additional expenditures.
We
are responsible for the reclamation obligations related to any exploratory and mining activities. The satisfaction of current
and future bonding requirements and reclamation obligations will require a significant amount of capital. There is a risk we will
be unable to fund these additional bonding requirements, and further, increases to our bonding requirements or excessive actual
reclamation costs will negatively affect our financial position and results of operation.
Title
to mineral properties can be uncertain, and we are at risk of loss of ownership of our property.
Our
ability to explore and mine future leased and optioned properties depends on the validity of title to that property. These uncertainties
relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory
guidelines, assessment work and possible conflicts with other claims not determinable from descriptions of record. Since a substantial
portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty
is inherent in the mining industry. Thus, there may be challenges to the title to future properties, which, if successful, could
impair development and/or operations.
The
probability of a mining claim having the necessary quantity and quality to result in a profitable mining operation is uncertain,
and our claims, even with large investments by us, may never generate a profit.
We
are dependent upon the successful exploration of our mining property and the discovery of valuable mineralization on the property.
All anticipated future revenues would come directly or indirectly from the UP and Burlington and Clavo Rico projects. Should we
fail to locate economically extractable mineralization on our property or enter into an agreement to option and sell our interests
to some other mining operation, we will have no revenue and our business will fail.
Our
ongoing operations and past mining activities of others are subject to environmental risks, which could expose us to significant
liability and delay, suspension or termination of our operations.
Mining
exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws
regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations
mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations
on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities
are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating
the design and use of exploration methods and equipment.
Environmental
and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which
will require stricter standards and enforcement, and increased fines and penalties for non-compliance. Such changes may prevent
us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business.
Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus
causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that
we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental
hazards may exist on UP and Burlington and/or on Clavo Rico, or we may acquire properties in the future that have unknown environmental
issues caused by previous owners or operators, or that may have occurred naturally.
We
could be exposed to significant liability for violations of hazardous substances laws because of the use or presence of such substances
at our project.
Our
mining operations are subject to numerous federal, state, and local statutory and regulatory standards relating to the use, storage,
and disposal of hazardous substances. We use cyanide, propane and industrial lubricants and other substances at our mining locations,
which are or could become classified as hazardous substances. If it is discovered that any hazardous substances have been released
into the environment at or by the project in concentrations that exceed regulatory limits, we could become liable for the investigation
and removal of those substances, regardless of their source and time of release. If we fail to comply with these laws, ordinances
or regulations (or any change thereto), we could be subject to civil or criminal liability, the imposition of liens or fines,
and large expenditures to bring the project into compliance. Furthermore, we may be held liable for the cleanup of releases of
hazardous substances at other locations where we arranged for disposal of those substances, even if we did not cause the release
at that location. The cost of any remediation activities in connection with a spill or other release of such substances could
be significant.
Our
industry is highly competitive, attractive mineral lands are scarce, and we may not be able to obtain quality properties.
We
compete with many companies in the mining industry, including large, established mining companies with capabilities, personnel
and financial resources that far exceed our limited resources. In addition, there is a limited supply of desirable mineral lands
available for claim-staking, lease or acquisition in the United States, and other areas where we may conduct exploration activities.
We are at a competitive disadvantage in acquiring mineral properties, since we compete with these larger individuals and companies,
many of which have greater financial resources and larger technical staffs. Likewise, our competition extends to locating and
employing competent personnel and contractors to prospect, develop and operate mining properties. Many of our competitors can
offer attractive compensation packages that we may not be able to meet. Such competition may result in our company being unable
not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund
our operation and advance our properties. Our inability to compete with other companies for these resources would have a material
adverse effect on our results of operation and business.
We
depend on our Chief Executive Officer and Chief Financial Officer and the loss of these individuals could adversely affect our
business.
Our
company is completely dependent on Trent D’ Ambrosio, our Chief Executive Officer and Chief Financial Officer. Mr. D’
Ambrosio is also a member of our Board of Directors. The loss of Mr. D’ Ambrosio could significantly and adversely affect
our business and could even result in a complete failure of the Company. We do not carry any life insurance on the life of Mr.
D’ Ambrosio.
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses
that could materially and adversely affect our operations.
Exploration
for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result
in the discovery of economically feasible mineralization. Few properties that are explored are ultimately advanced to the stage
of producing mines. We are subject to all of the operating hazards and risks normally incident to exploring for and developing
mineral properties such as, but not limited to:
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economically
insufficient mineralized material;
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fluctuations
in production costs that may make mining uneconomical;
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labor
disputes;
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unanticipated
variations in grade and other geologic problems;
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environmental
hazards;
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water
conditions;
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difficult
surface or underground conditions;
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industrial
accidents, such as personal injury, fire, flooding, cave-ins, and landslides;
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metallurgical
and other processing problems;
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mechanical
and equipment performance problems; and
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decreases
in revenues and reserves due to lower gold and mineral prices.
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Any
of these risks can materially and adversely affect, among other things, the development of properties, production quantities and
rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these
risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we
would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts
spent that are not recoverable.
Our
operations are subject to permitting requirements that could require us to delay, suspend or terminate our operations on our mining
property.
Our
operations and exploration activities require permits from the local, state and federal governments. We may be unable to obtain
these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if
there is a delay in receiving these permits, our timetable and business plan for Inception will be adversely affected.
Mineral
deposit estimates are imprecise and subject to error.
Mineral
deposit estimation calculations may prove unreliable. Assumptions made regarding the supporting data may prove inaccurate and
unforeseen events may lead to further inaccuracies. Sample variability, mining and processing adjustments, environmental changes,
metal price fluctuations, and law and regulation changes are all factors that could lead to deviances from any original estimations.
Despite future investment in exploration activities, there is no guarantee we will locate additional commercially viable ore deposits
or reserves. Most exploration projects do not result in discovery of commercially viable and mineable ore deposits. With little
capital available, we will have to limit our exploration, which decreases the chances of finding a commercially viable ore body.
We may cease our production operations at Clavo Rico due to high extraction costs, low gold prices, or inadequate amount and reduced
recovery rates. If exploration activities do not suggest a commercially successful prospect, then we may altogether abandon plans
to pursue efforts to further develop these properties.
Historical
production of gold at Clavo Rico may not be indicative of the potential for future development or revenue.
Historical
production of gold and minerals from Clavo Rico cannot be relied upon as an indication that these mines will have commercially
feasible reserves. Investors in our securities should not rely on historical operations of Clavo Rico as an indication that we
will be able to place them into commercial production again. We expect to incur losses unless and until such time as the properties
enter into commercial production and generate sufficient revenue to fund our continuing operations.
Our
independent auditors have expressed substantial doubt about our ability to continue as a going concern.
In
their audit opinion issued in connection with our consolidated balance sheets as of December 31, 2020 and our related consolidated
statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2020, our auditors have
expressed substantial doubt about our ability to continue as a going concern given our recurring net losses, negative cash flows
from operations and the limited amount of funds on our balance sheet. We have prepared our financial statements on a going concern
basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of
business. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to
continue in existence. This could make it more difficult to raise capital in the future.
Risks
Associated with Our Common Stock
Trading
on the Over the Counter markets may be volatile and sporadic, which could depress the market price of our common stock and make
it difficult for our stockholders to resell their shares.
Our
common stock is quoted on the OTCQB tier of the over-the-counter markets administered by OTC Markets Group, Inc. under the symbol
“IMII”. Trading in stock quoted on over the counter markets is often thin, volatile, and characterized by wide fluctuations
in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could
depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the over the counter markets
are not a stock exchange, and trading of securities on the over the counter markets is often more sporadic than the trading of
securities listed on other stock exchanges such as the NASDAQ Stock Market, New York Stock Exchange or American Stock Exchange.
Accordingly, our shareholders may have difficulty reselling any of their shares.
Our
stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the FINRA’s
sales practice requirements, which may limit a stockholders’ ability to buy and sell our stock.
Our
stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has
a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions
with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction and monthly account statements showing the market value of each penny stock held in the customers’ account.
The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability or willingness of broker-dealers to trade our securities. We believe that the penny
stock rules discourage broker-dealer and investor interest in, and limit the marketability of, our common stock.
Our
common stock may be affected by limited trading volume and price fluctuation which could adversely impact the value of our common
stock.
There
has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will
either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price
and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance.
In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy
or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations
may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot
predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be
stable or appreciate over time.
FINRA
sales practice requirements may also limit a stockholders’ ability to buy and sell our stock.
In
addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA
rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that
the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’ s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high
probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and
sell our stock and have an adverse effect on the market value for our shares.
Because
the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling
to trade our securities. This means that you may have difficulty reselling your shares, which may cause the value of your investment
to decline.
Our
shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange
Act”) which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or
in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written
agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices,
it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your
shares and may cause the value of your investment to decline.
A
decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our
ability to continue operations and we may go out of business.
A
prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction
in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct
our planned operations through the sale of equity securities, or convertible debt instruments, a decline in the price of our common
stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest
in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds
from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability
to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we
may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the
sale of our common stock and we may be forced to go out of business.
Our
stock price may be volatile.
The
stock market in general has experienced volatility that often has been unrelated to the operating performance of any specific
public company. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response
to various factors, many of which are beyond our control, including the following:
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changes
in our industry;
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competitive
pricing pressures;
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our
ability to obtain working capital financing;
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additions
or departures of key personnel;
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limited
“public float” in the hands of a small number of persons whose sales or lack of sales could result in positive
or negative pricing pressure on the market prices of our common stock;
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sales
of our common stock;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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loss
of any strategic relationship;
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regulatory
developments;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial results.
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In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our common stock.
We
have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.
We
have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future.
Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from
operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may
also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and
payment of dividends will be at the discretion of our Board of Directors.
We
have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited
protections against interested director transactions, conflicts of interest and similar matters.
Recent
federal legislation, including the Sarbanes-Oxley Act of 2002 and the Jumpstart our Business Startups Act of 2012, among others,
has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management
and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted
by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures that are required under the rules of national securities
exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption
of a code of ethics. While our Board of Directors has adopted a Code of Ethics and Business Conduct, we have not yet adopted any
of these corporate governance measures and, since our securities are not listed on a national securities exchange or NASDAQ, we
are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders
would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and
that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation
committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages
to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in
the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures
in formulating their investment decisions.
Difficulties
we may encounter managing our growth could adversely affect our results of operations.
As
our business needs expand, we may need to hire a significant number of employees. This expansion may place a significant strain
on our managerial and financial resources. To manage the potential growth of our operations and personnel, we will be required
to:
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improve
existing, and implement new, operational, financial and management controls, reporting systems and procedures;
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install
enhanced management information systems; and
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train,
motivate, and manage our employees.
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We
may not be able to install adequate management information and control systems in an efficient and timely manner, and our current
or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable
to manage growth effectively, our business would be seriously harmed.
If
we lose key personnel or are unable to attract and retain additional qualified personnel, we may not be able to successfully manage
our business and achieve our objectives.
We
believe our future success will depend upon our ability to retain our key management, primarily Mr. D’ Ambrosio, our Chief
Executive Officer and Chief Financial Officer. We may not be successful in attracting, assimilating and retaining our employees
in the future.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If
our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding
period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence
of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional
financing through the sale of equity or equity related securities in the future at a time and price that we deem reasonable or
appropriate.
ITEM
2: PROPERTIES
UP
and Burlington Gold Mine, Salmon, Lemhi County, Idaho
On
February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly
known as the UP and Burlington Gold Mine (“UP and Burlington”). Discovered in 1892, UP and Burlington is a private
gold property that has been held unused in a family trust for the past 75 years. UP and Burlington is located in Lemhi County,
Northwest of Salmon, Idaho, at an elevation of 7,994 feet. UP and Burlington’s two gold mining claims were brought to patent
in 1900, which covers the Mine’s 40 acres.
On
February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange
for $250,000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-trade Australian
company.
Clavo
Rico Gold Mine, Honduras, Central America
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 subsidiary Compañía Minera Cerros del Sur, S.A de C.V. Its workings include several historical underground
mining operations dating back to the early Mayan and Spanish occupation.
The
Company’s primary mine is a surface operation, located on the 200-hectare Clavo Rico Concession, located in southern Honduras.
This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía
Minera Cerros del Sur, S.A. de C.V as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest
and later increased its ownership to 99.5%. This company has since invested over five million dollars in the expansion and development
of the mine and surrounding properties. Today, the Company operates this mine through exploration of surface-level material.
The
current recovery operation increase has been sized to handle from 500 to 1000 tons of extracted material per day on a recovery
bed that has the capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012
and believes that sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity
by the end of December 31, 2022.
At
this property and during the period covered under this Annual Report, the Company extracted 74,186 tons of material through surface
operations, with an average grade of 1.41 grams of gold per ton. After processing this material using the on-site leach pad, the
Company produced 2,327 ounces of gold for a gold recovery percentage of 70.65% and 1,558 ounces of silver for refining, for a
silver recovery percentage of 29.49%.
The
Company utilizes four distinct properties located at the Clavo Rico Concession: the main Clavo Rico property, is where extraction,
leaching, and processing occurs. The Modesto, Williams properties, and the La Reina which are used as extraction sites. The Modesto
location was acquired by the Company pursuant to a real estate purchase agreement in March 2016. The Company is permitted access
to the Williams property via contractual arrangement.
Clavo
Rico as located in Honduras.
The
Clavo Rico Concession in relation to the town of El Corpus.
Parcels
of the Clavo Rico Concession that are currently explored or otherwise used by the Company.
The
current water supply utilized at the mine is from rain water. During the rainy season (October through February), the Company
captures and stores water in on-site collection ponds. The power supply is from the Honduran power grid, although the Company
maintains generators on site in the event of loss of power supply or inconsistent power supply.
Other
Projects
The
Company had previously disclosed exploration in the Northern Nevada Rift through a partner. Any exploration in these areas has
ceased and the Company has no plans to pursue exploration in this area at this time.
Corporate
Headquarters
We
currently maintain our corporate offices at 5330 South 900 East, Suite 280, Murray, Utah 84117. During the year ended December
31, 2020, we paid monthly rent of approximately $1,000 for use of a corporate office.
ITEM
3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to
time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal
proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
One
of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., has been served with notice of a
labor dispute brought in Honduras by one of the Company’s former employees. The complaint alleges that the former employee
was terminated from his position with the Company’s subsidiary and is entitled to certain statutory compensation. The Company
has responded with its assertion that the employee voluntarily resigned and was not involuntarily terminated. The case was heard
in Honduras by a labor judge and the Company has appealed the ruling in this case.
On
March 4, 2020, one of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., was served
with notice of a civil litigation brought in Honduras by Empresa Agregados y Concretos S.A. (“Agrecon”) for an amount of approximately $930,000. The
complaint alleges a dispute regarding the amounts owed by the Company to Agrecon under a certain Material Crushing Agreement.
The Company has responded disputing the amount owed and placed $125,000 in a dedicated account while the case is being
litigated and until the court makes its determination on any amounts owed.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable as the Company conducts no active mining operations in the U.S. or its territories.
Notes
to Consolidated Financial Statements
As
of December 31, 2020 and 2019
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) to change its name to Silver America, Inc. and (2) increased
its authorized common stock from 100,000,000 to 500,000,000.
On
June 23, 2010 the Company amended its articles of incorporation to change its name to Gold American Mining Corp.
On
November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder
canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was
effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse
stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock
split as if it occurred on the first day of the first period presented.
On
February 25, 2013, Gold American Mining Corp. and its majority shareholder (the “Majority Shareholder”), and its wholly-owned
subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset
Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to
which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception,
the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an
entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under
common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell
company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior
to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the
Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently,
the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.
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 of 240,225,901 shares of common
stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger
agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo
Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early
Mayan and Spanish occupation.
On
January 11, 2016, the Company implemented a 5.5 to 1 reverse stock split. This reverse stock split was effective on May 26, 2016.
All share and per share references have been retroactively adjusted to reflect this 5.5 to 1 reverse stock split in the financial
statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on
the first day of the first period presented. Immediately before the Reverse Split, the Company had 266,669,980 shares of common
stock outstanding. Immediately after the Reverse Split, the Company had 48,485,451 shares of common stock outstanding, pending
fractional-share rounding-up calculations to adjust for the Reverse Split.
The
Company’s primary mine is located on the 200 hectare Clavo Rico Concession, located in southern Honduras. This mine was
originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía
Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest
and later increased its ownership to 99.9%.
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 during year ended December 31, 2020, the Company has accumulated deficit of $34,668,784, a working capital
deficit of $28,064,096 and used $19,809 in cash for operating activities. These factors among others raise substantial
doubt about the Company’s ability to continue as a going concern for twelve months from the date these financial statements
are issued.
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.
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.
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.
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 December 31, 2020 and December 31, 2019, the Company had no cash equivalents. The aggregate
cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company
has never experienced any losses in such accounts.
Inventories,
Stockpiles and Mineralized Material on Leach Pads - Inventories, including stockpiles and mineralized material on leach pads
are valued at the lower of weighted average production cost and net realizable value. Net realizable value is calculated
as the estimated price at the time of sale based on prevailing and long-term metal prices less estimated future production and
selling costs to convert the inventories into saleable form. Write-downs of stockpiles, mineralized material on leach pads
and inventories to net realizable value are reported as a component of costs of revenues applicable to mining revenue. Cost is
comprised of production costs for mineralized material produced and processed. Production costs include the costs of materials,
costs of processing, direct labor, mine site and processing facility overhead costs and depreciation, amortization and depletion.
Stockpiles
- Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing.
Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified
by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current
mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion
relating to mining operations, and removed at each stockpile’s average cost per ton.
Mineralized
Material on Leach Pads - The Company utilizes a heap leaching process to recover gold from its mineralized material.
Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution that dissolves
the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered.
Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation
relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages
of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material
on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad.
The
estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured
tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage.
Although
the quantities of recoverable gold placed on the leach pads are reconciled by comparing the quantities and grades of material
placed on leach pads to the quantities and grades quantities of gold actually recovered (metallurgical balancing), the nature
of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing
process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated
quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted
for on a prospective basis.
In-process
Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted
to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured
based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued
at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles
and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred
to that point in the process.
Finished
Goods Inventories - Finished goods inventories include gold that has been processed through the Company’s ADR
facility and are valued at the average cost of their production.
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.
Fair
Value Measurements - The fair value of a financial instrument is the amount that could be received upon the sale of an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets
are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions
that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition,
the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.
Fair
value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability
of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level
of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level
1: Quoted market prices in active markets for identical assets or liabilities.
Level
2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
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 December 31, 2020 are summarized below:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Marketable securities
|
|
$
|
118,166
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
118,166
|
|
Total Assets
|
|
$
|
118,166
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
118,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,914
|
|
|
$
|
22,914
|
|
Debt derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
7,541,393
|
|
|
|
7,541,393
|
|
Total Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,564,307
|
|
|
$
|
7,564,307
|
|
The
fair value of financial instruments on December 31, 2019 are summarized below:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Marketable securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
254,632
|
|
|
$
|
254,632
|
|
Debt derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
13,967,303
|
|
|
|
13,967,303
|
|
Total Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,221,935
|
|
|
$
|
14,221,935
|
|
The
Company recognizes its marketable securities as level 1 and values its marketable securities using the methods discussed below.
While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes
that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different estimate of fair value at the reporting date.
The
Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the
Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that
the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values
using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.
Marketable
Securities - We measure the fair value of marketable securities in accordance with ASC 820-10 – Fair Value Measurements.
Any change in the fair value is recognized in net income in the period being reported.
Long-Lived
Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment.
An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event
the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally
determined based on discounted future cash flows.
Properties,
Plant and Equipment - We record properties, plant and equipment at historical cost. We provide depreciation and amortization
in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value.
We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for
maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful
lives as follows:
Building
|
7
to 15 years
|
Vehicles
and equipment
|
3
to 7 years
|
Processing
and laboratory
|
5
to 15 years
|
Furniture
and fixtures
|
2
to 3 years
|
Reclamation
Liabilities and Asset Retirement Obligations - Minimum standards for site reclamation and closure have been established for
us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair
value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized
and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated
present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation
and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation
at each mine site.
Revenue
Recognition - In accordance with ASC 606-10, revenue is measured based on a consideration specified in a contract with a customer
and recognized when we satisfy the performance obligation specified in each contract.
The
Company generates revenue by selling gold and silver produced from its mining operations. The majority of the Company’s
sales come from the sale of refined gold; however, the end product at the Company’s gold operations is generally doré
bars. Doré is an alloy consisting primarily of gold but also containing silver and other metals. Doré is sent to
refiners to produce bullion that meets the required market standard of 99.95% gold. Under the terms of the Company’s refining
agreements, the doré bars are refined for a fee, and the Company’s share of the refined gold and silver is credited
to its bullion account.
The
Company recognizes revenue for gold and silver from doré production when it satisfies the performance obligation of transferring
gold and silver inventory to the customer, which generally occurs upon transfer of gold and silver bullion credits as this is
the point at which the customer obtains the ability to direct the use and obtain substantially all of the remaining benefits of
ownership of the asset.
The
Company generally recognizes the sale of gold bullion credits at the prevailing market price when gold bullion credits are delivered
to the customer. The transaction price is determined based on the agreed upon market price and the number of ounces delivered.
Payment is due upon delivery of gold bullion credits to the customer’s account.
All
accounts receivable amounts are due from a single customer. Substantially all mining revenues recorded in the current period also
related to the same customer. 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. However, the Company has chosen to sell to only two
customers at this time.
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.
Stock-Based
Compensation - For stock-based transactions, compensation expense is recognized over the requisite service period, which is
generally the vesting period, based on the estimated fair value on the grant date of the award.
Income
(Loss) per Common Share - Basic net income (loss) per common share is computed by dividing net income (loss), less the preferred
stock dividends, by the weighted average number of common shares outstanding. Dilutive income (loss) per share includes any additional
dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not
antidilutive. 11,101,927 common share equivalents have been excluded from the diluted loss per share calculation for the
year ended December 31, 2020 because it would be anti-dilutive.
Comprehensive
Loss - Comprehensive loss is made up of the exchange differences arising on translating foreign operations and the net loss
for the years ended December 31, 2020 and 2019.
Derivative
Liabilities - Derivatives 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. We do not hold or issue any derivative
financial instruments for speculative trading purposes.
Income
Taxes - The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment
of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income
tax expense.
Deferred
income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating
the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent
financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state
and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent
with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance
for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than
not.
Changes
in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of
any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
Business
Segments – The Company operates in one segment and therefore segment information is not presented.
Operating
Lease – The Company leases its corporate headquarters and administrative offices in Salt Lake City, Utah on a month-to-month
basis.
The
Company incurred rent expense of $14,508 and $13,637 for the year ended December 31, 2020 and 2019.
Reclassifications - Certain reclassifications
have been made to the prior period consolidated financial statements to conform to the current period presentation.
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 December 31, 2020 and 2019 consisted of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Supplies
|
|
$
|
69,768
|
|
|
$
|
62,912
|
|
Mineralized Material on Leach Pads
|
|
|
112,207
|
|
|
|
201,407
|
|
ADR Plant
|
|
|
153,307
|
|
|
|
92,404
|
|
Finished Ore
|
|
|
401,467
|
|
|
|
498,346
|
|
Total Inventories
|
|
$
|
736,749
|
|
|
$
|
855,069
|
|
There
were no stockpiles at December 31, 2020 and 2019.
4. Marketable
Securities Financial Instruments
The
Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets
and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market
in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such
as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The
following table provides a summary of changes in fair value of the Company’s Level 1 financial assets as of December 31,
2020:
|
|
Marketable
Securities
|
|
Balance, December 31, 2019
|
|
$
|
-
|
|
Transfers in upon initial fair value of marketable securities
|
|
|
227,165
|
|
Change in fair value of marketable securities
|
|
|
479,051
|
|
Sale of marketable securities
|
|
|
(588,050
|
)
|
Balance, December 31, 2020
|
|
$
|
118,166
|
|
5.
Derivative Financial Instruments
The
Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets
and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market
in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such
as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The
derivative liability as of December 31, 2020, in the amount of $7,564,307 has a level 3 classification under ASC 825-10.
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December
31, 2020 and 2019:
|
|
Derivative Liabilities
|
|
Balance, December 31, 2018
|
|
$
|
2,547,806
|
|
Transfers in upon initial fair value of derivative liabilities
|
|
|
23,328,303
|
|
Change in fair value of derivative liabilities and warrant liability
|
|
|
(11,654,174
|
)
|
Balance, December 31, 2019
|
|
$
|
14,221,935
|
|
Change in fair value of derivative liabilities and warrant liability
|
|
|
(6,657,628
|
)
|
Balance, December 31, 2020
|
|
$
|
7,564,307
|
|
Debt
derivatives – The Company issued convertible promissory notes which are convertible into common stock, at holders’
option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives
related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion
features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives
as of the inception date of debenture and to fair value as of each subsequent reporting date.
At
December 31, 2020, the Company marked to market the fair value of the debt derivatives and determined a fair value of $7,541,393.
The Company recorded a gain from change in fair value of debt derivatives of $6,425,910 for the year ended December 31, 2020.
The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model and the Monte Carlo Valuation
Model. The Binomial Option Pricing Model was based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility
of 153.24%, (3) weighted average risk-free interest rate of 0.10% (4) expected life of 1.03 years, and (5) the quoted market price
of the Company’s common stock at each valuation date. The Monte Carlo Valuation Model was based on the following assumptions:
(1) expected volatility of 160.3%, (2) weighted average risk-free interest rate of 0.11% and (3) expected life of 1.38 years.
At
December 31, 2019, the Company marked to market the fair value of the debt derivatives and determined a fair value of $13,967,303.
The Company recorded a gain from change in fair value of debt derivatives of $10,160,832 for the year ended December 31, 2019.
The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model and the Monte Carlo Valuation
Model. The Binomial Option Pricing Model was based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility
of 225.30% to 256.89%, (3) weighted average risk-free interest rate of 1.58% to 1.59% (4) expected life of 1.39 to 2.03 years,
and (5) the quoted market price of the Company’s common stock at each valuation date. The Monte Carlo Valuation Model was
based on the following assumptions: (1) expected volatility of 260.9%, (2) weighted average risk-free interest rate of 1.59% and
(3) expected life of 2.39 years.
Based
upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of
ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based
upon earliest issuance date.
Warrant
liabilities – During the year ended December 31, 2018, the Company issued warrants in conjunction with the issuance
of three Crown Bridge Convertible Notes. 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.
On
May 20, 2019, the Company entered into a Note Purchase Agreement (the “Agreement”) with an investor (the “Investor”)
through which the Investor purchased (i) a Senior Secured Redeemable Convertible Note (“Note”) with a face value of
$4,250,000 that is convertible into shares of common stock of the Company and (ii) a warrant (“Warrant”) to purchase
9,250,000 shares of common stock of the Company. The warrant has a life of three years. The warrant is exercisable at the following
prices – 3,750,000 shares of common stock at $0.40 per share, 3,000,000 shares of common stock at $0.50 per share and 2,500,000
shares of common stock at $0.60 per share.
At
December 31, 2020, the Company had a warrant liability of $22,914. The Company recorded a gain from change in fair value of warrant
liability of $231,718 for the year ended December 31, 2020. The fair value of the embedded derivatives was determined using the
Binomial Option Pricing Model and the Monte Carlo Valuation Model. The Binomial Option Pricing Model was based on the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of 176.22% to 218.59%, (3) weighted average risk-free interest
rate of 0.13% to 0.17% (4) expected life of 1.61 to 2.82 years, and (5) the quoted market price of the Company’s common
stock at each valuation date. The Monte Carlo Valuation Model was based on the following assumptions: (1) expected volatility
of 160.3%, (2) weighted average risk-free interest rate of 0.11% and (3) expected life of 1.38 years.
At
December 31, 2019, the Company had a warrant liability of $254,632. The Company recorded a gain from change in fair value of warrant
liability of $1,493,342 for the year ended December 31, 2019. The fair value of the embedded derivatives was determined using
the Binomial Option Pricing Model and the Monte Carlo Valuation Model. The Binomial Option Pricing Model was based on the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of 210.75% to 226.32%, (3) weighted average risk-free interest
rate of 1.55% to 1.56% (4) expected life of 2.86 to 4.07 years, and (5) the quoted market price of the Company’s common
stock at each valuation date. The Monte Carlo Valuation Model was based on the following assumptions: (1) expected volatility
of 222.6%, (2) weighted average risk-free interest rate of 1.60% and (3) expected life of 2.39 years.
6.
Properties, Plant and Equipment, Net
Properties,
plant and equipment at December 31, 2020 and 2019 consisted of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Land
|
|
$
|
273,248
|
|
|
$
|
267,471
|
|
Buildings
|
|
|
2,388,274
|
|
|
|
2,337,775
|
|
Machinery and Equipment
|
|
|
971,374
|
|
|
|
946,777
|
|
Office Equipment and Furniture
|
|
|
48,827
|
|
|
|
42,191
|
|
Vehicles
|
|
|
85,921
|
|
|
|
84,105
|
|
Construction in Process
|
|
|
9,015
|
|
|
|
7,487
|
|
|
|
|
3,776,659
|
|
|
|
3,685,806
|
|
Less Accumulated Depreciation
|
|
|
(3,362,848
|
)
|
|
|
(3,242,458
|
)
|
Total Property, Plant and Equipment
|
|
$
|
413,811
|
|
|
$
|
443,348
|
|
During
the years ended December 31, 2020 and 2019, the Company recognized depreciation expense of $49,794 and $212,006, respectively.
The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative
expenses.
Depreciation Allocation
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Cost of Goods Sold
|
|
$
|
41,758
|
|
|
$
|
176,288
|
|
General and Administrative
|
|
|
8,036
|
|
|
|
35,718
|
|
Total
|
|
$
|
49,794
|
|
|
$
|
212,006
|
|
On
February 21, 2020, the Company sold the Up & Burlington property and mineral rights to Ounces High Exploration, Inc. in exchange
for $250,000 in cash consideration and 66,974,252 shares of common stock of Hawkstone Mining Limited, a publicly-traded Australian
company. The value of this property had previously been reduced to zero in previous years, so the Company recorded a gain on sale
on mining property of $471,083.
7.
Mine Reclamation Liability
The
Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and re-vegetating various
portions of our site after mining and mineral processing operations are completed. These reclamation efforts are conducted in
accordance with plans reviewed and approved by the appropriate regulatory agencies.
The
fair value of the long-term liability of $602,337 and $513,051 as of December 31, 2020 and 2019, respectively, for our obligation
to reclaim our mine facility is based on our most recent reclamation plan, as revised, submitted and approved by the Honduran
Institute of Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA). Such costs are based on
management’s current estimate of then expected amounts for the remediation work, assuming the work is performed in accordance
with current laws and regulations and using a credit adjusted risk free rate of 18.00% and an inflation rate of 5.3%. It is reasonably
possible that, due to uncertainties associated with the application of laws and regulations by regulatory authorities and changes
in reclamation or remediation technology, the ultimate cost of reclamation and remediation could change in the future. We periodically
review the accrued reclamation liability for information indicating that our assumptions should change.
The
increase in the reclamation liability in 2020 and 2019 was related to the expansion of the heap leach facility and related infrastructure
and accretion.
Changes
to the asset retirement obligation were as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Balance, Beginning of Year
|
|
$
|
513,051
|
|
|
$
|
341,845
|
|
Liabilities incurred
|
|
|
89,286
|
|
|
|
171,206
|
|
Balance, End of Year
|
|
$
|
602,337
|
|
|
$
|
513,051
|
|
8.
Accounts Payable and Accrued Liabilities
Accounts
Payable and accrued liabilities at December 31, 2020 and 2019 consisted of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Accounts Payable
|
|
$
|
719,070
|
|
|
$
|
750,529
|
|
Accrued Liabilities
|
|
|
1,619,763
|
|
|
|
530,779
|
|
Accrued Salaries and Benefits
|
|
|
618,257
|
|
|
|
507,043
|
|
Customer Advances Payable
|
|
|
497,395
|
|
|
|
403,995
|
|
Total Accrued Liabilities
|
|
$
|
3,454,485
|
|
|
$
|
2,192,346
|
|
9.
Secured Borrowings
On
June 26, 2019, the Company entered into four new financing arrangements with third parties for a combined principal amount of
$247,571. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of
no less than 10 percent, or $24,757, for a total expected remittance of $272,328. The maturity date of the notes is June 25, 2020.
The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the
Company expects to liquidate gold held and satisfy the liability in cash. As of December 31, 2019, the Company held 35 ounces
of gold, valued at a cost of $49,257, to satisfy the liabilities upon maturity leaving a net obligation of $211,066, which is
recorded on the Company’s balance sheet as secured borrowings.
On
June 25, 2020, the Company entered into two new financing arrangements with third parties for a combined principal amount of $172,663.
The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than
10 percent, or $17,266, for a total expected remittance of $189,929. The maturity date of the notes is December 26, 2020. On December
26, 2020, the Company entered into two new financing arrangements with third parties for a combined principal amount of $118,757.
The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than
10 percent, or $11,876, for a total expected remittance of $130,633. Also on that day, one of the lenders chose to liquidate a
portion of his balance amounting to $83,006. This amount was not paid to the lender until January 2021. The maturity date of the
notes is June 26, 2021. The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy
the liability though the Company expects to liquidate gold held and satisfy the liability in cash. As of December 31, 2020, the
Company held 29.315 ounces of gold, valued at a cost of $52,499, to satisfy the liabilities upon maturity leaving a net obligation
of $149,590, which is recorded on the Company’s balance sheet as secured borrowings.
Secured Borrowings
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Secured obligations
|
|
$
|
201,763
|
|
|
$
|
247,571
|
|
Guaranteed interest
|
|
|
11,876
|
|
|
|
24,757
|
|
Deferred interest
|
|
|
(11,550
|
)
|
|
|
(12,005
|
)
|
|
|
|
202,089
|
|
|
|
260,323
|
|
Gold held as security
|
|
|
(52,499
|
)
|
|
|
(49,257
|
)
|
Secured Borrowings, net
|
|
$
|
149,590
|
|
|
$
|
211,066
|
|
10.
Notes Payable
Notes
payable were comprised of the following as of December 31, 2020 and December 31, 2019:
Notes Payable
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Phil Zobrist
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Small Business Administration
|
|
|
100,000
|
|
|
|
-
|
|
Total Notes Payable
|
|
|
160,000
|
|
|
|
60,000
|
|
Less Short-Term Notes Payable
|
|
|
-
|
|
|
|
-
|
|
Total Long-Term Notes Payable
|
|
$
|
160,000
|
|
|
$
|
60,000
|
|
Bushnet
PC – On October 18, 2020, the Company issued an unsecured Short-Term Promissory Note to Bushnet PC in the principal
amount of $50,000 (the “Note”) due on April 18, 2021 and bears a 5.00% interest rate. The Company made a payment of
$52,500 towards the principal balance and accrued interest of $2,500 on December 16, 2020. As of December 31, 2020, the outstanding
balance of the Note was $0 and accrued interest was $0.
Phil
Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount
of $60,000 (the “Note”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received
was $60,000. On October 2, 2015, the Company entered into a new convertible note with Phil Zobrist that matures on December 31,
2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $29,412
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2024. The Company recognized a gain on the extinguishment
of debt of $121,337 for the remaining derivative liability and of $11,842 for the remaining debt discount. As of December 31,
2020, the gross balance of the note was $60,000 and accrued interest was $86,134.
Small
Business Administration – On April 17, 2020, the Company issued an unsecured Promissory Note to the Small Business Administration
in the principal amount of $100,000 (the “Note”) that matures on April 16, 2022 and bearing 1.00% per annum interest
as part of the Covid-19 Cares Act. The total net proceeds the Company received was $100,000. The payment amount has not yet been
determined. This note may be forgiven as part of the CARES Act of 2020 due to the Covid-19 Pandemic. Forgiveness has been requested
but the Company has not heard of the lender’s decision as of yet. As of December 31, 2020, the gross balance of the note
was $100,000 and accrued interest was $707.
11.
Notes Payable – Related Parties
Notes
payable – related parties were comprised of the following as of December 31, 2020 and December 31, 2019:
Notes Payable - Related Parties
|
|
Relationship
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Clavo Rico, Inc.
|
|
Affiliate - Controlled by Director
|
|
$
|
3,377,980
|
|
|
$
|
3,377,980
|
|
Claymore Management
|
|
Affiliate - Controlled by Director
|
|
|
185,000
|
|
|
|
185,000
|
|
Debra D’ambrosio
|
|
Immediate Family Member
|
|
|
50,000
|
|
|
|
57,000
|
|
Francis E. Rich IRA
|
|
Immediate Family Member
|
|
|
50,000
|
|
|
|
100,000
|
|
Legends Capital
|
|
Affiliate - Controlled by Director
|
|
|
715,000
|
|
|
|
755,000
|
|
LWB Irrev Trust
|
|
Affiliate - Controlled by Director
|
|
|
1,101,000
|
|
|
|
1,101,000
|
|
MDL Ventures
|
|
Affiliate - Controlled by Director
|
|
|
1,476,039
|
|
|
|
1,305,236
|
|
Pine Valley Investments
|
|
Affiliate - Controlled by Director
|
|
|
150,000
|
|
|
|
-
|
|
WOC Energy LLC
|
|
Affiliate - Controlled by Director
|
|
|
-
|
|
|
|
40,000
|
|
Total Notes Payable - Related Parties
|
|
|
|
$
|
7,105,019
|
|
|
$
|
6,921,216
|
|
Clavo
Rico, Incorporated – On April 5, 2019, GAIA Ltd and Silverbrook Corporation assigned 100% of the outstanding principal
balance of their notes and all accrued interest to Clavo Rico, Incorporated. The GAIA Ltd and Silverbrook Corporation notes had
been extended until December 31, 2024 and bear 18% per annum interest. As of December 31, 2020, the gross balance of the notes
were $3,377,980 and accrued interest was $5,127,509.
Claymore
Management – On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management in the principal
amount of $185,000 (the “Note”) due on demand and bore 0% per annum interest. The total net proceeds the Company received
was $185,000. On October 2, 2015, the Company entered into a new convertible note with Claymore Management that matures on December
31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from March 18, 2011 in the amount of $151,355
and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock,
at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the
common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2024. The Company recognized a gain on the extinguishment
of debt of $448,369 for the remaining derivative liability and of $36,513 for the remaining debt discount. As of December 31,
2020, the gross balance of the note was $185,000 and accrued interest was $326,249.
D.
D’Ambrosio – On December 30, 2019, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $57,000 (the “Note”) due on January 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $59,850 towards the principal balance and accrued interest of $2,850 on January 13, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On January 2, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $70,000 (the “Note”) due on January 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $73,500 towards the principal balance and accrued interest of $3,500 on January 13, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On January 16, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $165,000 (the “Note”) due on January 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $173,250 towards the principal balance and accrued interest of $8,250 on January 29, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On February 10, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $187,000 (the “Note”) due on February 29, 2020 and bears a 5.00% interest rate. The Company
made a payment of $196,350 towards the principal balance and accrued interest of $9,350 on February 24, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On February 28, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $125,000 (the “Note”) due on March 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $131,250 towards the principal balance and accrued interest of $6,250 on March 18, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On March 24, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $58,500 (the “Note”) due on April 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $61,425 towards the principal balance and accrued interest of $2,925 on March 26, 2020. As of December 31, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On April 1, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $161,000 (the “Note”) due on April 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $169,050 towards the principal balance and accrued interest of $8,050 on May 21, 2020. As of December 31, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On May 27, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $153,000 (the “Note”) due on July 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $160,650 towards the principal balance and accrued interest of $7,650 on July 14, 2020. As of December 31, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On June 15, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $40,000 (the “Note”) due on July 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on June 18, 2020. As of December 31, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On July 16, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $27,000 (the “Note”) due on August 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $28,350 towards the principal balance and accrued interest of $1,350 on July 22, 2020. As of December 31, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On July 17, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $50,000 (the “Note”) due on January 15, 2021 and bears a 5.00% interest rate. As of December
31, 2020, the outstanding balance of the Note was $50,000 and accrued interest was $2,500.
D.
D’Ambrosio – On August 3, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $90,000 (the “Note”) due on September 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $94,500 towards the principal balance and accrued interest of $4,500 on August 12, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On August 18, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $80,000 (the “Note”) due on September 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $84,000 towards the principal balance and accrued interest of $4,000 on August 26, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On August 31, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $116,100 (the “Note”) due on September 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $121,905 towards the principal balance and accrued interest of $5,805 on September 10, 2020. As of December
31, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On September 15, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $100,000 (the “Note”) due on October 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on October 21, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On October 1, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $17,000 (the “Note”) due on October 30, 2020 and bears a 5.00% interest rate. The Company
made a payment of $17,850 towards the principal balance and accrued interest of $850 on October 21, 2020. As of December 31, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On November 12, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $73,000 (the “Note”) due on December 15, 2020 and bears a 5.00% interest rate. The
Company made a payment of $76,650 towards the principal balance and accrued interest of $3,650 on November 19, 2020. As
of December 31, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On November 23, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $123,150 (the “Note”) due on December 15, 2020 and bears a 5.00% interest rate. The Company
made a payment of $130,200 towards the principal balance and accrued interest of $7,050 on December 12, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
D.
D’Ambrosio – On December 22, 2020, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio
in the principal amount of $66,000 (the “Note”) due on January 15, 2021 and bears a 5.00% interest rate. The Company
made a payment of $69,300 towards the principal balance and accrued interest of $3,300 on December 30, 2020. As of December 31,
2020, the outstanding balance of the Note was $0 and accrued interest was $0.
Diamond
80, LLC – On April 3, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC in the principal
amount of $50,000 (the “Note”) due on December 31, 2018 and bears a 7.0% interest rate. The Company made a payment
of $1,075 towards the principal balance of $1,000 and accrued interest of $75 on September 30, 2018. The Company made a payment
of $49,000 towards the principal balance on May 21, 2019. As of December 31, 2020, the outstanding balance of the Note was $0
and accrued interest was $4,200.
Francis
E. Rich IRA – On February 14, 2013, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA
in the principal amount of 100,000 (the “Note”) due on February 14, 2020 and bears a 15.0% interest rate. The Company
made a payment of $115,000 towards the principal balance and accrued interest of $15,000 on February 24, 2020. As of December
31, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
Francis
E. Rich IRA – On October 23, 2020, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA
in the principal amount of 50,000 (the “Note”) due on April 23, 2021 and bears a 5.0% interest rate. As of December
31, 2020, the outstanding balance of the Note was $50,000 and accrued interest was $336.
GAIA
Ltd. – Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to GAIA Ltd. for
a total principal amount of $1,150,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net
proceeds the Company received was $1,150,000. On October 2, 2015, the Company entered into a new convertible note with GAIA Ltd.
that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these
Notes in the amount of $724,463 and charged this amount to interest expense during the year ended December 31, 2015. The Note
is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average
of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2, 2016, the Company
renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2019. The Company
recognized a gain on the extinguishment of debt of $2,524,747 for the remaining derivative liability and of $226,974 for the remaining
debt discount. On April 5, 2019, the entire outstanding balance of $1,150,000 and accrued interest was assigned to Clavo Rico,
Incorporated. As of December 31, 2020, the gross balance of the note was $0 and accrued interest was $0.
Legends
Capital Group – Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends
Capital Group for a total principal amount of $765,000 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $765,000. On October 2, 2015, the Company entered into a new convertible note
with Legends Capital Group that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest
from inception of these Notes in the amount of $504,806 and charged this amount to interest expense during the year ended December
31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount
to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion. On October 2,
2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December
31, 2019. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and
of $150,987 for the remaining debt discount. During 2019 and 2020, the Company made payments of $40,000 towards the outstanding
principal balance. As of December 31, 2020, the gross balance of the note was $715,000 and accrued interest was $1,221,012.
LW
Briggs Irrevocable Trust – Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes
to LW Briggs Irrevocable Trust for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing
0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into
a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The
Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest
expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price
of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading
day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed
and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment of debt of $2,564,130 for
the remaining derivative liability and of $217,303 for the remaining debt discount. As of December 31, 2020, the gross balance
of the note was $1,101,000 and accrued interest was $1,855,636.
MDL
Ventures – The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is
100% owned by a Company officer, effective October 1, 2014, due on December 31, 2016 and bears 18% per annum interest, due at
maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of the lower
of $0.99 (0.18 pre-split) or 50% of the lowest three daily volume weighted average prices of the Company’s common stock
during the 20 consecutive days prior to the date of conversion. On October 2, 2016, the Company renegotiated the note payable.
The convertible feature was removed and the note was extended until December 31, 2019. The Company recognized a gain on the extinguishment
of debt of $1,487,158 for the remaining derivative liability. As of December 31, 2020, the gross balance of the note was $1,476,039
and accrued interest was $0.
Pine
Valley Investments, LLC – On May 5, 2020, the Company issued an unsecured Short-Term Promissory Note to Pine Valley
Investments, LLC in the principal amount of $100,000 (the “Note”) due on July 5, 2020 and bears a 5.0% interest rate.
The Company made a payment of $110,000 towards the principal balance and accrued interest of $10,000 on June 18, 2020. As of December
31, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
Pine
Valley Investments, LLC – On November 30, 2020, the Company issued an unsecured Short-Term Promissory Note to Pine Valley
Investments, LLC in the principal amount of $200,000 (the “Note”) due on December 31, 2020 and bears a 5.0% interest
rate. The Company made a payment of $60,000 towards the principal balance and accrued interest of $10,000 on December 31, 2020.
As of December 31, 2020, the outstanding balance of the Note was $150,000 and accrued interest was $0.
Silverbrook
Corporation – Between March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook
Corporation for a total principal amount of $2,227,980 (the “Notes”) due on demand and bearing 0% per annum interest.
The total net proceeds the Company received was $2,227,980. On October 2, 2015, the Company entered into a new convertible note
with Silverbrook Corporation that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue
interest from inception of these Notes in the amount of $1,209,606 and charged this amount to interest expense during the year
ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split)
or a 50% discount to the average of the three lowest VWAP of the common stock during the 20-trading day period prior to conversion.
On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until
December 31, 2019. The Company recognized a gain on the extinguishment of debt of $4,656,189 for the remaining derivative liability
and of $439,733 for the remaining debt discount. On April 5, 2019, the entire outstanding balance of $2,227,980 and accrued interest
was assigned to Clavo Rico, Incorporated. As of December 31, 2020, the gross balance of the note was $0 and accrued interest was
$0.
WOC
Energy, LLC – On November 6, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $40,000 (the “Note”) due on September 30, 2019 and bears a 4.0% interest rate. On January
1, 2020, this note was replaced with a new note. The new note is due on June 30, 2020 and bears a 5.0% interest rate. The Company
made a payment of $2,000 towards the interest on January 2, 2020. The Company made a payment of $2,000 towards the interest on
February 10, 2020. The Company made a payment of $2,000 towards the interest on March 13, 2020. The Company made a payment of
$20,000 towards the principal on March 24, 2020. The Company made a payment of $10,000 towards the principal on May 12, 2020.
The Company made a payment of $10,500 towards the principal balance and accrued interest of $500 on July 9, 2020. As of December
31, 2020, the outstanding balance of the Note was $0 and accrued interest was $0.
WOC
Energy, LLC – On February 10, 2020, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC in
the principal amount of $50,000 (the “Note”) due on December 15, 2020 and bears a 5.0% interest rate. The Company
made a payment of $59,500 towards the principal balance and accrued interest of $9,000 on July 17, 2020. As of December 31, 2020,
the outstanding balance of the Note was $0 and accrued interest was $0.
12.
Convertible Notes Payable
Convertible
notes payable were comprised of the following as of December 31, 2020 and December 31, 2019:
Convertible Notes Payable
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Antczak Polich Law LLC
|
|
$
|
320,123
|
|
|
$
|
355,980
|
|
Investor
|
|
|
3,448,700
|
|
|
|
3,985,000
|
|
Scotia International
|
|
|
400,000
|
|
|
|
400,000
|
|
Total Convertible Notes Payable
|
|
|
4,168,823
|
|
|
|
4,740,980
|
|
Less Unamortized Discount
|
|
|
(774,430
|
)
|
|
|
(2,818,373
|
)
|
Total Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
|
3,394,393
|
|
|
|
1,922,607
|
|
Less Short-Term Convertible Notes Payable
|
|
|
(2,176,677
|
)
|
|
|
(355,980
|
)
|
Total Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount
|
|
$
|
1,217,715
|
|
|
$
|
1,566,627
|
|
Antczak
Polich Law, LLC – On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $300,000 (the “Note”) due on August
1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $300,000 in legal fees due to Antczak for its
services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s
option, at a fixed conversion price of $0.75 per share. As of December 31, 2020, the gross balance of the note was $300,000 and
accrued interest was $60,099.
Antczak
Polich Law, LLC – On December 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $130,000 (the “Note”) due on December
1, 2019 and bears 8% per annum interest, due at maturity. This Note was issued for $130,000 in legal fees due to Antczak for its
services related to several legal issues handled for the Company. The Note is convertible into common stock, at holder’s
option, at a fixed conversion price of $0.75 per share. During the years ended December 31, 2020 and 2019, the Company made several
payments amounting to $109,878. As of December 31, 2020, the gross balance of the note was $20,123 and accrued interest was $13,779.
Investor
– On May 20, 2019, the Company issued a secured Convertible Promissory Note (“Note”) to Investor, in the
principal amount of $4,250,000 (the “Note”) due on May 20, 2022 and bears 20% (24% default) per annum interest, due
at maturity. The total net proceeds the Company received was $3,000,000. The Note is convertible into common stock, at holder’s
option, at 100% of market price less $0.01 per share. Market price means the mathematical average of the five lowest individually
daily volume weighted average prices of the common stock from the period beginning on the issuance date and ending on the maturity
date. The conversion price has a floor price of $0.01 per share of common stock. The Company issued 9,250,000 warrants to purchase
shares of common stock in connection with this note. The warrants have a three-year life and an exercise price as follows: 3,750,000
at an exercise price of $0.40 per share, 3,000,000 at an exercise price of $0.50 per share and 2,500,000 at an exercise price
of $0.60 per share. The proceeds were allocated between the note for $1,788,038 and the warrants for $1,211,962. The note has
an early payoff penalty of 140% of the then outstanding face value. On July 29,2019, the investor converted $265,000 of the principal
balance into 2,986,597 shares of common stock valued at $0.11 per share. The Company recognized a loss on the extinguishment of
debt of $40,350. During 2020, the investor converted $36,300 of the principal balance into 17,833,942 shares of common stock.
The Company recognized a loss on the extinguishment of debt of $531,194. The Company also made cash payments of $500,000 towards
the principal balance of the note. The Company has required payments as follows: an additional $200,000 for 2020 that has not
been made, $2,400,000 in 2021 and the remaining balance due in 2022. For the year ended December 31, 2020, the Company amortized
$1,984,504 of debt discount to current period operations as interest expense. During 2020, the Company experienced a triggering
event. As a result, the interest rate increased to 20% for the life of the note. As of December 31, 2020, the gross balance of
the note was $3,448,700 and accrued interest was $1,264,969. On April 14, 2020, the Company entered into a Forbearance Agreement
with Investor in which Investor agreed to rescind its prior declaration of an Event of Default under the May 20, 2019 Note Purchase
Agreement and the Company agreed to pay certain monthly and quarterly redemptions of the May 20, 2019 Note through 2022. Specifically,
the Company has agreed to pay $900,000 during 2020, $2,400,000 during 2021 and $500,000 delivered during each quarter of 2022
until the Note is converted or redeemed in full. The Company has made payments according to the agreement, but is not current
with all payments due thereunder.
Scotia
International of Nevada, Inc. – On January 10, 2019, the Company issued an unsecured Convertible Promissory Note (“Note”)
to Scotia International of Nevada, Inc. (“Scotia”), in the principal amount of $400,000 (the “Note”) due
on January 10, 2022 and bears 6% per annum interest, due at maturity. The Note was issued as part of a buyout agreement on the
net smelter royalty due Scotia on the precious metals mined from the Company’s mining operation in Honduras. The Note is
convertible into common stock, at holder’s option, at $0.50 per share as long as the Company’s common stock’s
bid price is less than $0.75 per share. If the bid price is more than $0.75 per share, then Scotia may elect to convert at the
average bid price of the common stock during the 10-trading day period prior to conversion. For the year ended December 31, 2020,
the Company amortized $30,241 of debt discount to current period operations as interest expense. As of December 31, 2020, the
gross balance of the note was $400,000 and accrued interest was $47,408.
13.
Stockholders’ Deficit
Common
Stock
On
January 14, 2019, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 130,000
shares of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.135 per share for
a total value of $17,550.
On
February 5, 2019, 100,000 shares of common stock were issued to a member of the board of directors of the Company as part of a
conversion agreement for consulting services. These shares were valued at $0.12 per share for a value of $12,000. The Company
recognized a loss on this settlement of $5,000 and reduced payables by $7,000.
On
March 12, 2019, 650,000 shares of common stock were issued to officers, former officers and members of the board of directors
of the Company as payment for consulting services performed. These shares were valued at $0.189 per share for a value of $122,850.
On
March 28, 2019, the Company issued 375,000 shares of common stock to Richard Bass Jr. for $48,750 in cash. These shares were valued
at $0.13 per share.
On
April 26, 2019, in connection with an extension of a Note to Labrys Fund LP, the Company issued to the Note Purchaser 300,000
shares of its common stock as an extension fee for the extension of the note. These shares were valued at $0.3399 per share for
a total value of $101,970.
On
June 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. Per this agreement, the Company
will issue 200,000 shares of common stock each month for 11 months. This stock was valued at $0.11 per share for a value of $22,000.
On
July 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at $0.15
per share for a value of $30,000.
On
July 29, 2019, the Company issued to a Note Holder 2,986,597 shares of its common stock under a conversion notice. The conversion
was for $265,000 in principle. The shares were valued at $0.11 per share for a total value of $328,526. The Company recognized
a loss of extinguishment of debt of $40,350 on this conversion.
On
August 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.08 per share for a value of $16,000.
On
September 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.08 per share for a value of $16,000.
On
October 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.08 per share for a value of $16,000.
On
November 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.065 per share for a value of $13,000.
On
December 1, 2019, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.05 per share for a value of $10,000.
On
January 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.05 per share for a value of $10,000.
On
January 14, 2020, the Company issued to an Investor 1,645,000 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.055 per share for a total value of $90,475. The Company recognized a loss of extinguishment of debt
of $90,475 on this conversion.
On
February 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued
at $0.045 per share for a value of $9,000.
On
February 11, 2020, the Company issued to an Investor 1,000,000 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.0295 per share for a total value of $29,500. The Company recognized a loss of extinguishment of debt
of $29,500 on this conversion.
On
February 27, 2020, the Company issued to an Investor 1,415,500 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.038 per share for a total value of $53,789. The Company recognized a loss of extinguishment of debt
of $53,789 on this conversion.
On
March 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.05 per share for a value of $10,000.
On
March 31, 2020, the Company issued to an Investor 1,279,500 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of July 29, 2019, so no additional note value was converted.
The shares were valued at $0.035 per share for a total value of $44,783. The Company recognized a loss of extinguishment of debt
of $44,783 on this conversion.
On
April 1, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement. This stock was valued at
$0.0298 per share for a value of $5,960.
On
April 13, 2020, the Company issued to an Investor 1,083,500 shares of its common stock under a conversion notice. The conversion
was for $15,000 in principal. The shares were valued at $0.06 per share for a total value of $65,010. The Company recognized a
loss of extinguishment of debt of $57,737 on this conversion.
On
April 28, 2020, the Company issued to an Investor 228,694 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of April 13, 2020, so no additional note value was converted.
The shares were valued at $0.052 per share for a total value of $11,892. The Company recognized a loss of extinguishment of debt
of $11,892 on this conversion.
On
May 22, 2020, the Company issued to an Investor 962,275 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on a previous conversion notice, so no additional note value was converted. The shares were
valued at $0.034 per share for a total value of $32,717. The Company recognized a loss of extinguishment of debt of $37,815 on
this conversion.
On
May 26, 2020, a shareholder returned 624 shares of common stock to the Company and were immediately cancelled. There was no compensation
paid by the Company.
On
August 7, 2020, the Company issued to an Investor 1,007,588 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on a previous conversion notice, so no additional note value was converted. The shares were
valued at $0.0153 per share for a total value of $23,678. The Company recognized a loss of extinguishment of debt of $27,681 on
this conversion.
On
September 9, 2020, the Company issued to an Investor 1,311,017 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on a previous conversion notice, so no additional note value was converted. The shares were
valued at $0.0118 per share for a total value of $26,745. The Company recognized a loss of extinguishment of debt of $30,275 on
this conversion.
On
October 5, 2020, the Company issued to an Investor 1,258,480 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on a previous conversion notice, so no additional note value was converted. The shares were
valued at $0.0100 per share for a total value of $27,687. The Company recognized a loss of extinguishment of debt of $30,270 on
this conversion.
On
October 29, 2020, the Company issued to an Investor 1,372,750 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on a previous conversion notice, so no additional note value was converted. The shares were
valued at $0.0082 per share for a total value of $26,082. The Company recognized a loss of extinguishment of debt of $28,130 on
this conversion.
On
November 25, 2020, the Company issued to an Investor 1,418,416 shares of its common stock under a conversion notice. The conversion
was for $8,500 in principal. The shares were valued at $0.0080 per share for a total value of $28,226. The Company recognized
a loss of extinguishment of debt of $21,608 on this conversion.
On
December 1, 2020, the Company issued to an Investor 524,250 shares of its common stock under a conversion notice. This conversion
notice was a true-up notice based on the original conversion notice of November 25, 2020, so no additional note value was converted.
The shares were valued at $0.0194 per share for a total value of $10,170. The Company recognized a loss of extinguishment of debt
of $10,170 on this conversion.
On
December 22, 2020, the Company issued to an Investor 1,489,671 shares of its common stock under a conversion notice. The conversion
was for $5,800 in principal. The shares were valued at $0.005453 per share for a total value of $27,857. The Company recognized
a loss of extinguishment of debt of $23,140 on this conversion.
On
December 29, 2020, the Company issued to an Investor 1,837,301 shares of its common stock under a conversion notice. The conversion
was for $7,000 in principal. The shares were valued at $0.005336 per share for a total value of $39,686. The Company recognized
a loss of extinguishment of debt of $33,930 on this conversion.
Warrants
On
May 20, 2019, the Company entered into a Note Purchase Agreement (the “Agreement”) with an investor (the “Investor”)
through which the Investor purchased (i) a Senior Secured Redeemable Convertible Note (“Note”) with a face value of
$4,250,000 that is convertible into shares of common stock of the Company and (ii) a warrant (“Warrant”) to purchase
9,250,000 shares of common stock of the Company. The warrant has a life of three years. The warrant is exercisable at the following
prices – 3,750,000 shares of common stock at $0.40 per share, 3,000,000 shares of common stock at $0.50 per share and 2,500,000
shares of common stock at $0.60 per share. These warrants’ relative fair value, based on cash proceeds allocation, was $1,711,394,
which has been recorded warrant derivative liabilities. The Company re-valued the warrants at December 31, 2020 for $20,103 and
recorded a gain on the change in derivative liabilities of $222,800.
The
following tables summarize the warrant activity during the years ended December 31, 2020 and 2019:
Stock Warrants
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
Balance at December 31, 2018
|
|
|
1,043,637
|
|
|
$
|
1.12
|
|
Granted
|
|
|
9,250,000
|
|
|
|
0.49
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(680,000
|
)
|
|
|
-
|
|
Balance at December 31, 2019
|
|
|
9,613,637
|
|
|
|
0.53
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(63,637
|
)
|
|
|
5.23
|
|
Balance at December 31, 2020
|
|
|
9,550,000
|
|
|
$
|
0.49
|
|
2020 Outstanding Warrants
|
|
|
Warrants Exercisable
|
|
Range of Exercise Price
|
|
|
Number Outstanding at December 31, 2020
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable at December 31, 2020
|
|
|
Weighted Average Exercise Price
|
|
$
|
0.40 - 0.75
|
|
|
|
9,550,000
|
|
|
|
1.41 years
|
|
|
$
|
0.49
|
|
|
|
9,550,000
|
|
|
$
|
0.49
|
|
14.
Net Loss Per Common Share
Basic
earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of
shares of common stock outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could
occur if stock options, warrants, and convertible securities to issue common stock were exercised or converted into common stock,
if not anti-dilutive. The following is a reconciliation of the numerator and denominator used in the basic and diluted computation
of net income per share:
|
|
For the Year Ended
|
|
Numerator
|
|
12/31/2020
|
|
|
12/31/2019
|
|
Net Income (Loss) - Controlling Interest
|
|
$
|
2,342,299
|
|
|
$
|
(15,001,798
|
)
|
Amortization of Debt Discounts
|
|
|
1,980,295
|
|
|
|
-
|
|
Interest Expense
|
|
|
1,015,328
|
|
|
|
-
|
|
Loss on conversion
|
|
|
531,194
|
|
|
|
-
|
|
Change in Derivative Liabilities
|
|
|
(6,396,866
|
)
|
|
|
-
|
|
Adjusted Net Loss - Controlling Interest
|
|
$
|
(2,870,049
|
)
|
|
$
|
(15,001,798
|
)
|
Denominator
|
|
Shares
|
|
|
Shares
|
|
Basic Weighted Average Number of Shares Outstanding during Period
|
|
|
68,440,532
|
|
|
|
57,056,526
|
|
Dilutive Shares
|
|
|
470,427,550
|
|
|
|
-
|
|
Diluted Weighted Average Number of Shares Outstanding during Period
|
|
|
538,868,082
|
|
|
|
57,056,526
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Loss per Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.26
|
)
|
15.
Income Taxes
The
Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The
provision for income tax expense (recovery) is comprised the following amounts:
Tax Reconciliations
|
|
12/31/2020
|
|
|
12/31/2019
|
|
Tax at Statutory Rate
|
|
$
|
(608,810
|
)
|
|
$
|
3,900,467
|
|
Meals and Entertainment
|
|
|
(668
|
)
|
|
|
(800
|
)
|
Depreciation
|
|
|
36,227
|
|
|
|
36,227
|
|
Change in Derivative Liability
|
|
|
1,730,983
|
|
|
|
3,030,085
|
|
Amortization of Debt Discount
|
|
|
(523,834
|
)
|
|
|
(5,928,512
|
)
|
Accrued Interest
|
|
|
(522,058
|
)
|
|
|
(321,440
|
)
|
Change in Valuation of Allowance
|
|
|
(111,840
|
)
|
|
|
(716,027
|
)
|
Tax Provision
|
|
$
|
-
|
|
|
$
|
-
|
|
The
components of deferred income tax in the accompanying balance sheets are as follows:
Deferred Tax Assets
|
|
12/31/2020
|
|
|
12/31/2019
|
|
(21% Federal, 5% Average Corporate Rate)
|
|
|
|
|
|
|
|
|
Net Operating Loss Carry-forwards
|
|
$
|
8,103,894
|
|
|
$
|
7,992,723
|
|
Depreciation
|
|
|
181,135
|
|
|
|
217,362
|
|
Accrued Interest
|
|
|
522,058
|
|
|
|
321,440
|
|
Valuation Allowance
|
|
|
(8,807,087
|
)
|
|
|
(8,531,525
|
)
|
Deferred Tax Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of December 31, 2020 and December 31, 2019, the Company had net operating loss carry-forwards for U.S. federal income tax
purposes of approximately $31,168,823 and $30,741,241, respectively. A portion of the federal amount, $1,710,000,
is subject to an annual limitation of approximately $17,000 as a result of a change in the Company’s ownership through February
2013, as defined by Federal Internal Revenue Code Section 382 and the related income tax regulations. As a result of the 20-year
federal carry-forward period and the limitation, approximately, $1,400,000 of the net operating loss will expire unutilized.
These net operating loss carry-forwards will expire through the year ending 2040.
The
valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized.
This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to
utilize all of the net operating loss carry-forwards before they will expire through the year 2040.
The
Company is subject to income tax in the U.S. federal jurisdiction. The Company has not been audited by the U.S. Internal Revenue
Service in connection with income taxes. The Company’s tax years beginning with the year ended June 30, 2012 through December
31, 2020 generally remain open to examination by the Internal Revenue Service until its net operating loss carryforwards
are utilized and the applicable statutes of limitation have expired.
16.
Related Party Transactions
Consulting
Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company
agreed to pay $18,000 per month for twelve months. This agreement was renegotiated in October 2017 and the Company agreed to pay
the stockholder/director $25,000 per month starting in October 2017. This agreement was superseded by an Employment Agreement
as of July 1, 2018 (see Employment Agreements below). As of December 31, 2020, the Company owed $1,035,000 to the stockholder/director
in accrued consulting fees.
Employment
Agreements – 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.
The
Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The employment agreement was effective
as of April 1, 2019 and provides for compensation of $300,000 annually. Additionally, the employment agreement provides for benefits
and an optional annual bonus to be determined by the Board of Directors.
Notes
Payable – The Company took several short-term notes payable from related parties during 2020. The Company received $2,102,600
in cash from related parties and paid out $2,256,441 in cash to related parties on notes payable (see Note 10).
17.
Commitments and Contingencies
Litigation
The
Company at times is subject to other legal proceedings that arise in the ordinary course of business. The following is a summary
of pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations of
the Company.
One
of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., has been served with notice of a
labor dispute brought in Honduras by one of the Company’s former employees. The complaint alleges that the former employee
was terminated from his position with the Company’s subsidiary and is entitled to certain statutory compensation. The Company
has responded with its assertion that the employee voluntarily resigned and was not involuntarily terminated. The case was heard
in Honduras by a labor judge and the Company has appealed the ruling in this case.
On
March 4, 2020, one of the Company’s subsidiaries, Compañía Minera Clavo Rico, S.A. de C.V., was served
with notice of a civil litigation brought in Honduras by Empresa Agregados y Concretos S.A. (“Agrecon”) for an amount of approximately $930,000. The
complaint alleges a dispute regarding the amounts owed by the Company to Agrecon under a certain Material Crushing Agreement.
The Company has responded disputing the amount owed and placed $125,000 in a dedicated account while the case is being
litigated and until the court makes its determination on any amounts owed.
The
Servicio de Administración de Rentas (“SAR,” the tax authority in Honduras) is completing an audit of the Company’s
tax returns for 2017 and 2018 that may result in additional income tax liability. The Company is cooperating with SAR, and will evaluate actions based on the results.
In
the opinion of management, as of December 31, 2020, the amount of ultimate liability with respect to such matters, if any, is not likely
to have a material impact on the Company’s business, financial position, results of operations or liquidity. However, as the outcome
of litigation and other claims is difficult to predict significant changes in the estimated exposures could exist.
18.
Concentrations
We
generally sell a significant portion of our mineral production to a relatively small number of customers. For the year ended December
31, 2020, most of our consolidated product revenues were attributable to A-Mark Precious Metals and to Asahi Refining, Inc., our
current and only two customers as of December 31, 2020. We are not dependent upon any one purchaser and have alternative purchasers
readily available at competitive market prices if there is a disruption in services or other events that cause us to search for
other ways to sell our production.
The
Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s
fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine
was disrupted or closed.
19.
Subsequent Events
Management
has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through the date which
the consolidated financial statements were available to be issued and there are no material subsequent events, except as noted
below.
On
January 5, 2021, the Company issued to an Investor 2,493,479 shares of its common stock under a conversion notice pursuant to
the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on
the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued
in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there
was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve
a public offering.
On
January 15, 2021, the Company issued to an Investor 2,598,468 shares of its common stock under a conversion notice pursuant to
the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on
the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued
in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there
was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve
a public offering.
On
January 26, 2021, the Company issued to an Investor 2,624,715 shares of its common stock under a conversion notice pursuant to
the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on
the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued
in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there
was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve
a public offering.
On
February 5, 2021, the Company issued to an Investor 2,598,468 shares of its common stock under a conversion notice pursuant to
the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on
the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued
in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there
was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve
a public offering.
On
February 9, 2021, the Company issued to an Investor 2,755,951 shares of its common stock under a conversion notice pursuant to
the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on
the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued
in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there
was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve
a public offering.
On
February 18, 2021, the Company issued to an Investor 2,677,209 shares of its common stock under a conversion notice pursuant to
the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on
the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued
in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there
was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve
a public offering.
On
February 23, 2021, the Company issued to an Investor 2,703,456 shares of its common stock under a conversion notice pursuant to
the term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on
the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued
in exchange for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there
was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve
a public offering.
On
March 2, 2021, the Company issued to an Investor 2,677,209 shares of its common stock under a conversion notice pursuant to the
term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the
exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange
for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no
remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public
offering.
On
March 10, 2021, the Company issued to an Investor 2,834,692 shares of its common stock under a conversion notice pursuant to the
term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the
exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange
for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no
remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public
offering.
On
March 11, 2021, the Company issued to an Investor 2,913,434 shares of its common stock under a conversion notice pursuant to the
term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the
exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange
for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no
remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public
offering.
On
March 16, 2021, the Company issued to an Investor 3,018,422 shares of its common stock under a conversion notice pursuant to the
term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the
exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange
for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no
remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public
offering.
On
March 25, 2021, the Company issued to an Investor 3,149,658 shares of its common stock under a conversion notice pursuant to the
term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the
exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange
for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no
remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public
offering.
On
April 6, 2021, the Company issued to an Investor 3,307,141 shares of its common stock under a conversion notice pursuant to the
term of the original secured Convertible Promissory Note entered into on May 20, 2019. The issuance was made in reliance on the
exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange
for debt securities of the Company held by the Investor, there was no additional consideration for the exchange, there was no
remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public
offering.