The following discussion should be read in conjunction with the Financial
Statements of the Company and notes thereto included elsewhere in this Annual
Report. See "Consolidated Financial Statements and Supplementary Data."
Cautionary Notice Regarding Forward Looking Statements
Readers are cautioned that the following discussion contains certain
forward-looking statements and should be read in conjunction with the "Special
Note Regarding Forward-Looking Statements" appearing at the beginning of this
Annual Report.
The information contained in Item 7 contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
may materially differ from those projected in the forward-looking statements as
a result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual results
will not be different from expectations expressed in this report.
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. This filing contains a number of
forward-looking statements, which reflect management's current views and
expectations with respect to our business, strategies, products, future results
and events, and financial performance. All statements made in this filing other
than statements of historical fact, including statements addressing operating
performance, events, or developments which management expects or anticipates
will or may occur in the future, including statements related to distributor
channels, volume growth, revenues, profitability, new products, adequacy of
funds from operations, statements expressing general optimism about future
operating results, and non-historical information, are forward looking
statements. In particular, the words "believe," "expect," "intend,"
"anticipate," "estimate," "may," variations of such words, and similar
expressions identify forward-looking statements, but are not the exclusive means
of identifying such statements, and their absence does not mean that the
statement is not forward-looking. These forward-looking statements are subject
to certain risks and uncertainties, including those discussed below. Our actual
results, performance or achievements could differ materially from historical
results as well as those expressed in, anticipated, or implied by these
forward-looking statements. We do not undertake any obligation to revise these
forward-looking statements to reflect any future events or circumstances.
11
Readers should not place undue reliance on these forward-looking statements,
which are based on management's current expectations and projections about
future events, are not guarantees of future performance, are subject to risks,
uncertainties and assumptions (including those described below), and apply only
as of the date of this filing. Our actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors which could cause or contribute to such
differences include, but are not limited to, the risks to be discussed in our
Annual Report on form 10-K and in the press releases and other communications to
shareholders issued by us from time to time which attempt to advise interested
parties of the risks and factors which may affect our business. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
Water Pollution Control Permit
Through the Company's subsidiaries, a Water Pollution Control Permit ("WPCP")
Application will need to be filed with the Nevada Department of Environmental
Protection ("NDEP") Bureau of Mines and Mining Reclamation ("BMMR") for the
approval of the permits necessary for a small-scale mineral processing facility
planned for the Tonopah Property. The plant will perform laboratory testing,
pilot testing, and custom processing of precious metal ores and concentrates
from mining industry clients. Processing of ore materials will employ standard
mineral processing techniques including gravity concentration, froth flotation
and chemical leaching and carbon stripping.
The WPCP must be approved prior to commencing the planned construction of our
processing plant in Tonopah, Nevada.
In connection with the WPCP application, NDEP suggested that we take the
following actions: (i) retain a Nevada Certified Environmental Manager ("CEM"),
(ii) perform Meteoric Profile II water testing on ground water directly below
the mill as well as surrounding wells located off site, and (iii) determine
baseline values of water using the Meteoric Profile II results. NDEP regulations
require that the Company delay any new construction planned for "metal
extraction" until after the permits are in place.
Advanced Surveying & Professional Services, a Professional Land Surveyor
("PLS"), completed surveys and testing of the Tonopah property required for the
application of our required permits. After completion of the survey, it was
determined the property is 1,186 acres. The scope of work the PLS completed
includes: (i) setting a total of 19 permanent monuments at angle points along
lines, (ii) setting eight permanent monuments locating US Hwy 95, (iii)
recording a professional map indicating longitude and latitude for all corners,
and (iv) providing a digital map accessible in AutoCAD software.
Site Preparation
We have completed the initial grading of specific designated areas on the 40
undisturbed acres of land including clearing all vegetation, removing of all
scrap metal, and the excavation of the building pad for the preparation of the
new 21,875 square foot processing plant and have completed the removal of all
the extra and unnecessary materials and old equipment that have accumulated on
the land. We refurbished a trailer that will act as our construction office.
Business Plan
The Company is reexamining its next steps for developing a processing facility.
In an effort to move the Company's business plan forward, Management may
evaluate opportunities to acquire, license or joint venture with other parties,
which may include related parties, involved in toll milling, processing, or
mining related activities, The Company is reexamining its next steps for
developing a processing facility. In an effort to move the Company's business
plan forward, Management may evaluate opportunities to acquire, license or joint
venture with other parties, which may include related parties, involved in toll
milling, processing, or mining related activities, which may include Granite
Peak Resources, LLC and its affiliated entities including, but not limited to
Sustainable Metal Solutions, LLC (f/k/a Nederland Mining Group, LLC),
NovaMetallix, Inc, and Black Bear Natural Resources, LTD (f/k/a Calais
Resources, Inc.).
12
On March 27, 2020 the Company engaged NovaMetallix, Inc. ("NMX"), a member of
the Sustainable Metal Solutions Group, a GPR affiliate, to conduct a study of
the quantity and quality of our historic mine tailings, and the economic
feasibility of processing them to reclaim their residual content of gold,
silver, and other valuable metals. NMX, a firm comprised of world class mining,
geological and metallurgical engineering professionals, is dedicated to the
rapidly developing field of sustainable metal recovery. NMX has agreed to
conduct the study of the Company's tailings at its cost and expense in exchange
for the exclusive right to process the tailings should their economic assessment
prove positive. The terms of such processing to be mutually agreed upon in the
future based on the results of the assessment.
Results of Operations
Comparison of the Years Ended December 31, 2019 and December 31, 2018
Revenues
We had no revenues from any operations for the years ended December 31, 2019 and
2018. Furthermore, we do not anticipate any significant future revenue until we
have sufficiently funded construction and begin operations.
General and Administrative Expenses
General and administrative expenses were $43,875 for the year ended December 31,
2019 as compared to $123,057 for the same period in 2018. For the year ended
December 31, 2019, general and administrative expenses and professional fees
were severely cut due to lack of funding. During the year ended December 31,
2018, the nature of expenses were relatively the same, however we were able to
incur and pay normal professional and legal fees and other necessary expenses
due to greater liquidity. We anticipate that future administration and operating
expenses will increase for fiscal 2020 as we continue to build the
infrastructure to proceed with our planned custom processing toll milling
services.
Other Income and Expenses
Each year we receive monthly payments of $608 per month from American Tower
Corporation for a cellular tower located on our Tonopah land. In addition,
during the year ended December 31, 2018, the Company recognized gains due to
write off of numerous accrued claims that were no longer enforceable or settled
for less than face amount aggregating $1,064,480. There were no similar
circumstances during the year ended December 31, 2019.
Interest expense for the year ended December 31, 2019 was $641,430, compared to
$885,801 for the respective period in 2018. The $244,371 decrease during 2019
compared to 2018 is principally related to the Company's resumption of accruing
interest on the Flechner judgement in 2018, which it had ceased accruing in 2016
and 2017 in anticipation of a likely settlement of the judgement and its
interest in full between the parties which became unlikely in early 2018. The
remaining interest expense relates primarily to the interest due at rates
ranging from 6% to 10% on notes payable to related parties and our convertible
promissory notes outstanding during both periods.
Liquidity and Capital Resources
Liquidity is a measure of an entity's ability to secure enough cash to meet its
contractual and operating needs as they arise. We have funded our operations and
satisfied our capital requirements through the issuance of short-term debt,
convertible debt and through equity capital we have received via certain
shareholders exercising their warrants and loans from related parties during the
years ended December 31, 2019 and 2018. We do not anticipate generating
sufficient positive cash flows from our operations to fund the next 12 months.
We had a working capital deficit of $9,903,959 at December 31, 2019. Cash was
$1,945 at December 31, 2019, as compared to cash of $1,001 at December 31, 2018.
Our cash reserves will not be adequate to meet our operational needs and thus,
we need to raise additional capital to pay for our operational expenses and
provide for capital expenditures. Our basic operational expenses are currently
estimated at approximately $10,500 per month, without regard to accrued interest
of approximately $54,000 per month. Above our basic monthly expenses, we
estimate that we need approximately $10,000,000 to begin limited toll milling
operations. If we are not able to raise additional working capital, we may have
to cease operations altogether.
13
Recent Financings
On January 22, 2018, the Company received cash proceeds of $15,000 and issued a
promissory note in exchange for the cash proceeds. The promissory note accrues
interest at 6% per annum and is due one year from the date of issuance. The note
is convertible into shares of common stock at $0.05 per share, with no
adjustments to the conversion price.
On January 22, 2018, the Company received cash proceeds of $8,000 and issued a
promissory note in exchange for the cash proceeds. The promissory note accrues
interest at 6% per annum and is due one year from the date of issuance. The note
is convertible into shares of common stock at $0.05 per share, with no
adjustments to the conversion price.
On January 26, 2018, the Company received cash proceeds of $40,000 and issued a
promissory note in exchange for the cash proceeds. The promissory note accrues
interest at 6% per annum and is due one year from the date of issuance. The note
is convertible into shares of common stock at $0.05 per share, with no
adjustments to the conversion price.
In January 2018 the Company issued three convertible promissory notes in the
principal amounts of $8,000, $40,000 and $15,000. In May and June 2018, the
Company issued three convertible promissory notes in the principal amounts of
$32,500, 12,500 and $10,000. The notes are due one year from date of issuance
and accrue interest at 6%. At September 30, 2018 five of the notes were
converted into common shares at conversion price of $0.25 to$ 0.09, with no
adjustments to the conversion price, leaving an aggregate remaining balance for
all outstanding convertible promissory notes of $168,000.
During the year ended December 31, 2019, Granite Peak Resources, LLC ("GPR"), a
related party, advanced $205,655 in direct payments on the Company's behalf, to
reduce certain accounts payable by $137,655 and outstanding convertible
promissory notes by $68,000. In December 2019, GPR was issued a promissory note
for $192,080 which it exchanged as consideration for exercising a stock option
for 4,500,000 restricted common shares at an approved reduced conversion price
of $0.0426, which was the market price on exercise. The remaining $13,575 of
advance was subsequently included in a line of credit evidenced by a convertible
promissory note . Accordingly, the $13,575 advance has been so classified as
such at December 31, 2019.
After the foregoing note conversions and advance received, there was $113,575 of
principal and $96,659 of accrued interest outstanding on convertible debentures
at December 31, 2019. With exception of the $13,575 of principal advanced by a
related party during the year ended December 31, 2019, a pre-existing $100,000
convertible note is in default.
Going Concern
The consolidated financial statements contained in this annual report on Form
10-K have been prepared assuming that the Company will continue as a going
concern. The Company has accumulated losses from inception through the period
ended December 31, 2019 of $103,862,127, and a working capital deficit of
$9,903,959, as well as negative cash flows from operating activities. Presently,
the Company does not have adequate cash resources to meet its debt obligations
in the 12 months following the date of this filing. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management is in the process of evaluating various financing alternatives in
order to finance its capital requirements, as well as for general and
administrative expenses. These alternatives include raising funds through public
or private equity markets and either through institutional or retail investors.
Although there is no assurance that the Company will be successful with its
fund-raising initiatives, management believes that the Company will be able to
secure the necessary financing as a result of ongoing financing discussions with
third party investors and existing shareholders.
14
The consolidated financial statements do not include any adjustments that may be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent on its ability to obtain
additional financing as may be required and ultimately to attain profitability.
If the Company raises additional funds through the issuance of equity, the
percentage ownership of current shareholders could be reduced, and such
securities might have rights, preferences or privileges senior to the rights,
preferences and privileges of the Company's common stock. Additional financing
may not be available upon acceptable terms, or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may not be able
to take advantage of prospective business endeavors or opportunities, which
could significantly and materially restrict its future plans for developing its
business and achieving commercial revenues. If the Company is unable to obtain
the necessary capital, the Company may have to cease operations.
Working Capital Deficiency
December 31, December 31,
2019 2018
Current assets $ 1,945 $ 1,001
Current liabilities 9,905,904 9,419,875
Working capital deficiency $ (9,903,959 ) $ (9,418,874 )
Current assets remained stable between periods. The increase in current
liabilities is primarily due to an increase in accrued interest relating to the
Company's convertible debentures and notes payable, as well as the increase of
convertible debt balances as a result of increasing advances from related party,
Granite Peak Resources, LLC.
Cash Flows
Years Ended
December 31,
2019 2018
Net cash provided by (used in) operating activities $ 944 $ (139,184 )
Net cash provided by investing activities
- --
Net cash provided by financing activities --- 138,000
Increase (decrease) in cash $ 944 $ (1,184 )
Operating Activities
Net cash provided by operating activities was $944 for the year ended December
31, 2019.
Net cash used in operating activities was $139,184 for the year ended December
31, 2018, primarily due to the derecognition of certain accounts payable and
accrued expenses of $1,064,480, and a loss of $10,154, offset by amortization of
debt issuance costs.
Investing Activities
For the year ended December 31, 2019 and 2018 the Company conducted no investing
activities.
Financing Activities
The Company's financing during 2019 was from advances from a related party paid
to certain vendors and noteholders on the Company's behalf totaling $205,655.
For the year ended December 31, 2018, net cash provided by financing activities
was $138,000, which was from the issuance of short term convertible promissory
notes and the proceeds from the exercise of an option on 250,000 shares of
common stock.at the reduced price of $25,000.
15
Off-Balance Sheet Arrangements
During the year ended December 31, 2019, we did not engage in any off-balance
sheet arrangements as defined in item 303(a)(4) of the SEC's Regulation S-K.
Effects of Inflation
We do not believe that inflation has had a material impact on our business,
revenues or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our
audited consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2019. We believe that the accounting
policies below are critical for one to fully understand and evaluate our
financial condition and results of operations.
Impairment of Long-lived Assets
We are reviewing the property and equipment, intangible assets subject to
amortization and other long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset class may
not be recoverable. Indicators of potential impairment include: an adverse
change in legal factors or in the business climate that could affect the value
of the asset; an adverse change in the extent or manner in which the asset is
used or is expected to be used, or in its physical condition; and current or
forecasted operating or cash flow losses that demonstrate continuing losses
associated with the use of the asset. If indicators of impairment are present,
the asset is tested for recoverability by comparing the carrying value of the
asset to the related estimated undiscounted future cash flows expected to be
derived from the asset. If the expected cash flows are less than the carrying
value of the asset, then the asset is considered to be impaired and its carrying
value is written down to fair value, based on the related estimated discounted
cash flows. There were no impairment charges in the year ended December 31,
2019, however, we decided to combine the carrying value of our mining and
mineral assets as they are inseparable and depend upon each other in value
creation.
Income Taxes
Income taxes are accounted for based upon an asset and liability
approach. Accordingly, deferred tax assets and liabilities arise from the
difference between the tax basis of an asset or liability and its reported
amount in the financial statements. Deferred tax amounts are determined using
the tax rates expected to be in effect when the taxes will actually be paid or
refunds received, as provided under currently enacted tax law. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the tax payable
or refundable, respectively, for the period plus or minus the change in deferred
tax assets and liabilities during the period.
Accounting guidance requires the recognition of a financial statement benefit of
a tax position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized in the
financial statements is the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement with the relevant
tax authority. The Company believes its income tax filing positions and
deductions will be sustained upon examination and accordingly, no reserves, or
related accruals for interest and penalties have been recorded at December 31,
2019 and 2018. The Company recognizes interest and penalties on unrecognized tax
benefits as well as interest received from favorable tax settlements within
income tax expense.
On December 22, 2017, the President of the United States signed and enacted into
law H.R. 1 (the "Tax Reform Law"). The Tax Reform Law, effective for tax years
beginning on or after January 1, 2018, except for certain provisions, resulted
in significant changes to existing United States tax law, including various
provisions that are expected to impact the Company. The Tax Reform Law reduces
the federal corporate tax rate from 34% to 21% effective January 1, 2018. The
Company believes that this reduction in the federal corporate rate will have a
favorable effect on the consolidated financial statements of its, as well as
those other similarly situated small businesses.
16
Recent Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers,"
which requires an entity to recognize the amount of revenue to which it expects
to be entitled for the transfer of promised goods or services to customers. ASU
2014-09 will replace most existing revenue recognition guidance in U.S. GAAP
when it becomes effective. The new standard is effective for annual reporting
periods for public business entities beginning after December 15, 2017,
including interim periods within that reporting period. The new standard permits
the use of either the retrospective or cumulative effect transition method. The
Company adopted this standard on January 1, 2018, however, as there have been no
revenues to date, the Company does not expect the adoption to have a material
impact.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The
standard requires all leases that have a term of over 12 months to be recognized
on the balance sheet with the liability for lease payments and the corresponding
right-of-use asset initially measured at the present value of amounts expected
to be paid over the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an operating or
a financing lease. Costs of an operating lease will continue to be recognized as
a single operating expense on a straight-line basis over the lease term. Costs
for a financing lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and interest expense
(for interest on the lease liability). This standard will be effective for our
interim and annual periods beginning January 1, 2019 and must be applied on a
modified retrospective basis to leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial
statements. Early adoption is permitted. The Company has adopted the standard in
2018, but as the Company does not have any significant leases, it does not
expect it to have a material impact on its financial position or results of
operations.
During the period covered by this report, there were several new accounting
pronouncements issued by the Financial Accounting Standards Board. Each of these
pronouncements, as applicable, has been or will be adopted by the Company.
Management does not believe the adoption of any of these accounting
pronouncements has had or will have a material impact on the Company's
consolidated financial statements.
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