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
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
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
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
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.
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)
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
December 31, 2019 December 31, 2018
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.
Year Ended December 31,
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 )
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.
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
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
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
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
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 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
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 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.
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