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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Inception Mining, Inc.    IMII

INCEPTION MINING, INC.

(IMII)
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INCEPTION MINING INC. - 10-K/A - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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05/22/2020 | 05:33pm EDT

Forward Looking Statements

Except for historical information, the following Management's Discussion and Analysis contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) discussions about mineral resources and mineralized material, (b) our projected sales and profitability, (c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for working capital, (g) our lack of operational experience and (h) 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. 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. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Business," as well as in this Report 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 "Risk Factors" and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.



Overview


On February 25, 2013, Inception Mining, Inc. ("Inception" or the "Company") 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 UP 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 smelter royalty, which may increase or decrease depending on the amount of gold produced. Inception Resources was an entity owned by and under the control of a shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the "Closing"). We were 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 Assert Purchase Agreement. As a result of such acquisition, our operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently, we believe that acquisition has caused us to cease to be a shell company as we no longer have nominal operations.

We are a mining company engaged in the production, acquisition, exploration, and development of mineral properties, primarily for gold, from owned mining properties. Inception Resources has acquired two projects, as described below. Our target properties are those that have been the subject of historical exploration.




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.



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.



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

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

Prior to the expansion, the mine had only been processing approximately less than 500 tons of extracted material per day. The current recovery operational increase has been sized to handle from 500 to 750 tons of extracted material per day on a recovery bed that has the capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012 and believes that sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity by the end of September 30, 2020.

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.



Results of Operations


Year ended December 31, 2019 compared to the year ended December 31, 2018

We had a net loss of $15,000,834 for the year ended December 31, 2019, which was $9,373,784 more than the net loss of $5,627,050 for the year ended December 31, 2018. This change in our results over the two periods is primarily the result of an increase in in interest expense from the debt discounts from convertible notes of $19,902,252, offset with the increase of $10,674,613 in the change of derivative liabilities and in increase in revenue of $987,158. The following table summarizes key items of comparison and their related increase (decrease) for the years ended December 31, 2019 and 2018.



                                                  Year Ended December 31,           Increase/
                                                   2019              2018          (Decrease)
                                                (Restated)
Revenues                                       $   4,955,027$  3,967,869$     987,158
Cost of Sales                                      3,656,127        3,740,708           (84,581 )
General and Administrative                         2,066,886        2,035,203            31,683
Depreciation and Amortization Expenses                35,718           38,237            (2,519 )
Total Operating Expenses                           5,758,731        5,814,148           (55,417 )
Income (Loss) from Operations                       (803,704 )     (1,846,279 )      (1,042,575 )
Other Income (expense)                                67,988            4,942           (63,046 )
Change in Derivative Liabilities                  11,654,174          979,561       (10,674,613 )
Loss on Extinguishment of Debt                      (410,120 )         (8,510 )         401,610
Interest Expense                                 (25,509,172 )     (4,756,764 )      20,752,408

Income (Loss) from Operations Before Taxes (15,000,834 ) (5,627,050 ) 9,373,784 Net Income (Loss)

                              $ (15,000,834 )$ (5,627,050 )$   9,373,784

Liquidity and Capital Resources




Our balance sheet as of December 31, 2019, reflects assets of $1,415,617. As we
had cash in the amount of $47,996 and a working capital deficit in the amount of
$30,635,314 as of December 31, 2019, we do not have sufficient working capital
to enable us to carry out our stated plan of operation for the next twelve
months.



                                       24





Working Capital



                                   December 31, 2019       December 31, 2018
                                      (Restated)
        Current assets            $           935,467     $           653,395
        Current liabilities                31,570,781              19,096,378
        Working capital deficit   $       (30,635,314 )$       (18,442,983 )

We anticipate generating losses and, therefore, may be unable to continue operations in the future. If we require additional capital, we would have to issue debt or equity or enter into a strategic arrangement with a third party.



Going Concern Consideration


As reflected in the accompanying financial statements, the Company has a net loss since inception of $37,011,083. In addition, there is a working capital deficiency of $30,635,314 and a stockholder's deficiency of $32,234,842 as of December 31, 2019. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

On March 5, 2010, the Company changed its intended business purpose to that of precious metals mineral exploration, development and production. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.




Cash Flows



                                                          Year Ended December 31,
                                                            2019             2018
                                                         (Restated)
  Net Cash Provided by (Used in) Operating Activities   $    (429,845 )$ (175,029 )
  Net Cash Used in Investing Activities                        (1,723 )      (30,499 )
  Net Cash Provided by (Used in) Financing Activities         428,982        199,650
  Effects of Exchange Rate Changes on Cash                       (275 )        4,933
  Net Increase (Decrease) in Cash                       $      (2,861 )$     (945 )




Operating Activities



Net cash flow used in operating activities during the year ended December 31, 2019 was $429,845, an increase of $254,816 from the $175,029 net cash used in operating activities during the year ended December 31, 2018. This increase is mostly due to the change in inventory.



Investing Activities


Cash used in investing activities during the year ended December 31, 2019 was $1,723, a decrease of $28,776 from the $30,499 net cash outflow during the year ended December 31, 2018. This decrease was due to fewer purchases of fixed assets.




Financing Activities



Financing activities during the year ended December 31, 2019, provided $428,982 to us, an increase of $229,332 from the $199,650 provided by financing activities during the year ended December 31, 2018. During the year ended December 31, 2019, the company received $1,688,000 in notes payable from related parties, $4,075,975 in convertible notes payable, made payments of $2,249,186 in cash on notes payable - related parties and $3,089,414 in cash on convertible notes.



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Critical 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, 2019, the Company recorded a net loss of $15,000,834 and used $429,845 in cash from operating activities. The Company has a net loss since inception of $37,011,083. In addition, there is a working capital deficiency of $30,635,314 and a stockholder's deficiency of $32,234,842 as of December 31, 2019. These factors among others indicate that the Company may be unable to continue as a going concern for one year from the issuance of these financial statements.

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

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

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

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

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.



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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 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.

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 - Effective January 1, 2018 we adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 606-10, Revenue from Contracts with Customers ("ASC 606-10"). The adoption of ASC 606-10 had no impact on prior year or previously disclosed amounts. 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



                                       27




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.

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.

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 $13,637 and $13,891 for the year ended December 31, 2019 and 2018.

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.

Recent Accounting Pronouncements

For recent accounting pronouncements, please refer to the notes to the financial statements section of this Annual Report.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2020 8,18 M - -
Net income 2020 -4,11 M - -
Net Debt 2020 - - -
P/E ratio 2020 -0,50x
Yield 2020 -
Capitalization 2,40 M 2,40 M -
EV / Sales 2019
Capi. / Sales 2020 0,29x
Nbr of Employees 99
Free-Float 63,8%
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Income Statement Evolution
Consensus
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Mean consensus BUY
Number of Analysts 1
Average target price 0,25 $
Last Close Price 0,04 $
Spread / Highest target 614%
Spread / Average Target 614%
Spread / Lowest Target 614%
EPS Revisions
Managers
NameTitle
Trent D'Ambrosio Director, Chief Executive & Financial Officer
Alex Lopez Director-Operation
Whit Cluff Director
Michael Ahlin Head-Investor Relations
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