INCEPTION MINING, INC. Forward Looking Statements
The statements contained in the following MD&A and elsewhere throughout this
Quarterly Report on Form 10-Q, including any documents incorporated by
reference, that are not historical facts, including statements about our beliefs
and expectations, are "forward-looking statements" within the meaning of the
These forward-looking statements, which reflect our management's beliefs,
objectives, and expectations as of the date hereof, are based on the best
judgement of our management. All forward-looking statements speak only as of the
date on which they are made. Such forward-looking statements are subject to
certain risks, uncertainties and assumptions relating to factors that could
cause actual results to differ materially from those anticipated in such
statements, including, 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
We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws.
This discussion should be read in conjunction with our financial statements on our 2019 Form 10-K, and our financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.
Introduction to Interim Consolidated Financial Statements.
The interim consolidated financial statements included herein have been prepared
by
In the opinion of management, all adjustments have been made consisting of
normal recurring adjustments and consolidating entries, necessary to present
fairly the consolidated financial position of the Company and subsidiaries as of
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
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Overview and Plan of Operation
We are a mining company that was formed in
Clavo Rico Mine
On
The Company's primary mine is located on the 200-hectare Clavo Rico Concession,
located in southern
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
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
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
Nine months ended
We had net income of$2,632,053 for the nine-month period endedSeptember 30, 2020 , and a net loss of$16,637,563 for the nine-month period endedSeptember 30, 2019 . This change in our results over the two periods is primarily the result of a decrease in revenue, a decrease in general and administrative expenses, the change in the derivative liabilities, the sale of the mine property inIdaho , the change in marketable securities and the decrease in interest expense. The following table summarizes key items of comparison and their related increase (decrease) for the nine-month periods endedSeptember 30, 2020 and 2019: Nine Months Ended September 30, Increase/ 2020 2019 (Decrease) Revenues$ 3,319,783 $ 3,876,937 $ (557,154 ) Cost of Sales 2,422,670 2,368,451 54,219 General and Administrative 987,781 1,743,704 (755,923 ) Depreciation and Amortization Expenses 6,238 27,213 (20,975 ) Total Operating Expenses 3,416,689 4,139,368 (722,679 ) Income (Loss) from Operations (96,906 ) (262,431 ) 165,525 Other Income (expense) 19,603 3,485 16,118 Gain on sale of mining property 471,084 - 471,084 Change in Derivative Liabilities 5,101,087 8,525,217 (3,424,130 ) Change in Marketable Securities 541,267 - 541,267 Loss on Extinguishment of Debt (350,946 ) (410,120 ) 59,174 Interest Expense (3,053,136 ) (24,493,714 ) 21,440,578 Income (Loss) from Operations Before Taxes 2,632,053 (16,637,563 ) 19,269,616 Net Income (Loss)$ 2,632,053 $ (16,637,563 ) $ 19,269,616 4
Revenues decreased because of the Covid-19 mandated shut-down slowed the production in the second quarter and into the third quarter because no new material was placed on the leach pads for several weeks.
Cost of sales increased even though the Company has been working on trimming
down excess expenses because of the lower amounts of ore placed on the leach pad
during the Covid-19 shutdown period. Many of the fixed costs of the Company have
remained the same causing cost of sales to increase overall. The increase in
cost of sales was from rent expenses being down
General and administrative expenses decreased because of lower legal and
accounting expenses in
Changes in derivative liabilities were because of the lower valuation of the derivative liabilities in this quarter.
Interest expense decreased in 2020 because of the decrease in convertible notes that were paid off in 2019 during the prepayment penalty periods to avoid conversion of these notes by the Company and the interest expense related to note debt discounts recorded in excess of the note proceeds.
Three months ended
We had net income of$1,052,148 for the three-month period endedSeptember 30, 2020 , and a net income of$2,338,123 for the three-month period endedSeptember 30, 2019 . This change in our results over the two periods is primarily the result of a decrease in revenue, a decrease in general and administrative expenses, the change in the derivative liabilities, the sale of the mine property inIdaho , the change in marketable securities and the decrease in interest expense. The following table summarizes key items of comparison and their related increase (decrease) for the three-month periods endedSeptember 30, 2020 and 2019: Three Months Ended September 30, Increase/ 2020 2019 (Decrease) Revenues$ 1,387,470 $ 1,853,730 $ (466,260 ) Cost of Sales 866,595 483,837 382,758 General and Administrative 343,898 562,243 (218,345 ) Depreciation and Amortization Expenses 1,811 9,054 (7,243 ) Total Operating Expenses 1,212,304 1,055,134 157,170 Income (Loss) from Operations 175,166 798,596 (623,430 ) Other Income (expense) 1,112 2,051 (939 ) Change in Derivative Liabilities 1,829,468 3,079,105 (1,249,637 ) Change in Marketable Securities 162,325 - 162,325 Loss on Extinguishment of Debt (35,956 ) (303,150 ) 267,194 Interest Expense (1,079,967 ) (1,238,479 ) 158,512 Income (Loss) from Operations Before Taxes 1,052,148 2,338,123 (1,285,975 ) Net Income (Loss)$ 1,052,148 $ 2,338,123 $ (1,285,975 ) 5
Revenues decreased because of the Covid-19 mandated shut-down slowed the production in the second quarter and into the third quarter because no new material was placed on the leach pads for several weeks.
Cost of sales increased even though the Company has been working on trimming
down excess expenses because of the lower amounts of ore placed on the leach pad
during the Covid-19 shutdown period. Many of the fixed costs of the Company have
remained the same causing cost of sales to increase overall. The increase in
cost of sales was from lime and cyanide expenses being up
General and administrative expenses decreased because of lower legal and
accounting expenses in
Changes in derivative liabilities were because of the lower valuation of the derivative liabilities in this quarter.
Interest expense decreased in 2020 because of the decrease in convertible notes that were paid off in 2019 during the prepayment penalty periods to avoid conversion of these notes by the Company and the interest expense related to note debt discounts recorded in excess of the note proceeds.
Liquidity and Capital Resources
Our balance sheet as of
Working Capital
September 30, 2020 December 31, 2019
Current assets $ 936,706 $ 935,467
Current liabilities 27,321,111 22,331,953
Working capital deficit $ (26,384,405 ) $ (21,396,486 ) We anticipate generating losses and, therefore, may be unable to continue operations in the future if we don't acquire additional capital and issue debt or equity or enter into a strategic arrangement with a third party.
Going Concern Consideration
As reflected in the accompanying unaudited condensed consolidated financial
statements, the Company and has an accumulated deficit of
Nine Months Ended September 30,
2020 2019
Net Cash Provided by (Used in) Operating
Activities $ (68,032 ) $ (727,978 )
Net Cash Used in Investing Activities 620,827 -
Net Cash Provided by (Used in) Financing
Activities (450,789 ) 886,899
Effects of Exchange Rate Changes on Cash 69 (234 )
Net Increase (Decrease) in Cash $ 102,075 $ 158,687
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Operating Activities
Net cash flow used in operating activities during the nine months ended
Investing Activities
Investing activities during the nine months ended
Financing Activities
Financing activities during the nine months ended
Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles used in
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. 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.
Recent Accounting Pronouncements
For recent accounting pronouncements, please refer to the notes to financial statements in Part I, Item 1 of this Quarterly Report.
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Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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