The following discussion should be read in conjunction with our consolidated
audited financial statements and the related notes that appear elsewhere in this
annual report on Form 10-K. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. We refer you to the
section of this annual report on Form 10-K entitled, "Forward-Looking
Statements." Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this annual report on Form 10-K, particularly in the section entitled "Risk
Factors."
Overview
We are an exploration company engaged in the acquisition and exploration of
mineral properties in the States of Arizona. Claims in the State of Arizona are
located in the Tombstone Mining District, any one or more of which could
potentially contain commercially viable quantities of minerals.
Liquidity and Capital Resources
We had cash and cash equivalents in the amount of $102,741 and negative working
capital of $as of January 31, 2022. We had cash inflows from financing
activities of $590,971 for the fiscal year ended January 31, 2022. We will need
additional funds in order to proceed with our planned exploration program.
Convertible promissory notes
We have issued the following convertible promissory notes in private placements
of our securities to institutional investors pursuant to exemptions from
registration set out in Rule 506 of Regulation D under the Securities Act of
1933.
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On October 28, 2020, we received net proceeds of $82,000 from the issuance of a
convertible note dated October 20, 2020 (the "October 2020 Note"). The note
bears interest at 8%, includes OID of $8,500 and legal and due diligence fees of
$3,000, matures on September 1, 2021, and is convertible after 180 days into
shares of the Company's common stock at a price of 75% of the average of the
lowest 5 weighted average market price of the Company's common stock during the
10 trading days prior to conversion. During the year ended January 31, 2022, the
noteholder converted a total of $96,900 of the note for 132,353 shares of the
Company's common stock, leaving a balance of $0 as of January 31, 2022.
On April 26, 2021, we received net proceeds of $60,000 from the issuance of a
convertible note dated April 23, 2021 (the "April 2021 Note"). The note bears
interest at 8%, includes legal and due diligence fees of $3,000, matures on
April 23, 2022, and is convertible after 180 days into shares of the Company's
common stock at a price of 75% of the average of the lowest 5 weighted average
market price of the Company's common stock during the 10 trading days prior to
conversion. During the year ended January 31, 2022, the noteholder converted a
total of $65,520 of the note for 161,190 shares of the Company's common stock,
leaving a balance of $0 as of January 31, 2022.
On May 11, 2021, we issued a convertible note in the aggregate principal amount
of $53,000 (the "May 2021 Note"). The note bears interest at 8%, includes legal
and due diligence fees of $3,000, matures on May 11, 2022, and is convertible
after 180 days into shares of the Company's common stock at a price of 75% of
the average of the lowest 5 weighted average market price of the Company's
common stock during the 10 trading days prior to conversion. During the year
ended January 31, 2022, the noteholder converted a total of $55,120 of the note
for 242,025 shares of the Company's common stock, leaving a balance of $0 as of
January 31, 2022.
On October 8, 2021, we issued a convertible promissory note in the aggregate
principal amount of $69,300 (the "October 2021 Note"). The note bears interest
at 8%, includes legal and due diligence fees of $3,000, with a 10% Original
Issue Discount, matures on October 8, 2022, and is convertible after 180 days
into shares of the Company's common stock at a price of 75% of the average of
the lowest 5 weighted average market price of the Company's common stock during
the 10 trading days prior to conversion.
On November 15, 2021, the Company entered into a convertible promissory note
with Sixth Street Lending LLC. ("Sixth Street") in the aggregate principal
amount of $60,500 (the "November 2021 Note"). The note bears interest at 8%,
with an Original Issue Discount of $8,500, matures on November 15, 2022, and is
convertible after 180 days into shares of the Company's common stock at a price
of 75% of the average of the lowest 5 weighted average market price of the
Company's common stock during the 10 trading days prior to conversion.
On December 21, 2021, the Company entered into a convertible promissory note
with Sixth Street in the aggregate principal amount of $55,000 (the "December
2021 Note"). The note bears interest at 8%, with an Original Issue Discount of
$8,000, matures on December 21, 2022, and is convertible after 180 days into
shares of the Company's common stock at a price of 75% of the average of the
lowest 5 weighted average market price of the Company's common stock during the
10 trading days prior to conversion.
Notes Payable - SBA
On May 5, 2020, the Company received loan proceeds of $30,387 under the SBA's
Paycheck Protection Program ("PPP"). The PPP loan, dated May 5, 2020, bears
interest at 1% and is due in 18 monthly installments of $1,710 beginning
December 1, 2020. On May 5, 2020, the Company also received grant proceeds of
$3,000 under the EIDL program which is reflected as a credit to salaries and
benefits expense for the year ended January 31, 2021. In November 2020, the
Company was approved for forgiveness in full for the entire amount including
principal and interest under the PPP loan. The grant proceeds of $3,000 was
factored in the amount forgiven thus $3,000 remained payable to our bank until
the Company repaid it in February 2021.
On June 22, 2020, the Company received loan proceeds of $32,300 (net of $100
loan fee) under the SBA's Economic Injury Disaster Loan program ("EIDL"). The
EIDL loan, dated June 16, 2020, bears interest at 3.75%, has a 30-year term, is
secured by substantially all assets of the Company, and is due in monthly
installments of $158 beginning June 16, 2021 (extended to June 18, 2023).
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On February 16, 2021, the Company received loan proceeds of $32,497 under the
Payroll Protection Program ("PPP"). The PPP loan bears interest at 1%, has a
5-year term, and is due in equal monthly installments beginning December 16,
2021 (extended to June 16, 2022). This loan was forgiven in full in March 2022.
The balance of these two notes total $67,184, including accrued interest of
$2,387, and is included in long-term debt as of January 31, 2022.
Proceeds from issuance of common stock
During the fiscal years ended January 31, 2022 and 2021, we entered into certain
private investment agreements pursuant to which we received a total of $287,374
and $35,599 in net proceeds, respectively.
Results of Operations for the Fiscal Year Ended January 31, 2022
We had a net loss of $438,681 for the fiscal year ended January 31, 2022
compared to net loss of $749,745 for the fiscal year ended January 31, 2021 .
Net loss decreased by $311,064 due primarily to a decrease in legal expenses of
$99,632 due primarily to the decreased use of legal services related to legal
matters, a decrease of $34,703 in geological and geophysical costs related to a
decrease in land rental fees for mineral claims, a decrease in interest expense
of $38,437 related to the change in debt balances between years, and the
$226,278 gain on change in fair value of derivative liability. This decrease is
offset partially by an increase in professional services expense of $23,930 due
to an increase in the use of outside consultants, and the gain on forgiveness of
the SBA loan of $30,578 during the year ended January 31, 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to stockholders.
Presentation of Financial Information
Our consolidated financial statements for the fiscal year ended January 31, 2022
reflect financial information for the fiscal years ended January 31, 2022 and
2021.
Since we have not generated any revenue, we have included a reference to our
ability to continue as a going concern in connection with our consolidated
financial statements for the fiscal years ended January 31, 2022 and 2021. Our
accumulated deficit on January 31, 2022, was approximately $58 million and the
net loss from operations for the fiscal year ended January 31, 2022 was
$517,760. All of our exploration costs are expensed as incurred.
These consolidated financial statements have been prepared on the going concern
basis, which assumes that adequate sources of financing will be obtained as
required and that our assets will be realized, and liabilities settled in the
ordinary course of business. Accordingly, these consolidated financial
statements do not include any adjustments related to the recoverability of
assets and classification of assets and liabilities that might be necessary
should we be unable to continue as a going concern.
In order to continue as a going concern, we require additional financing. There
can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable
terms. If we are not able to continue as a going concern, we would likely be
unable to realize the carrying value of our assets reflected in the balances set
out in the preparation of the consolidated financial statements.
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Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity with
GAAP. Our significant accounting policies are described in Note 2 to the
consolidated financial statements included in Item 8 of this annual report on
Form 10-K. The critical accounting policies adopted by our company are as
follows:
Going Concern
Since we have not generated any revenue, we have negative cash flows from
operations, and negative working capital we have included a reference to the
substantial doubt about our ability to continue as a going concern in connection
with our consolidated financial statements for the period ended January 31,
2022. Our total stockholders' deficit at January 31, 2022 was $1,445,801.
These consolidated financial statements have been prepared on the going concern
basis, which assumes that adequate sources of financing will be obtained as
required and that our assets will be realized, and liabilities settled in the
ordinary course of business. Accordingly, these consolidated financial
statements do not include any adjustments related to the recoverability of
assets and classification of assets and liabilities that might be necessary
should we be unable to continue as a going concern.
Mineral claims
We account for costs incurred to acquire, maintain and explore mineral
properties as charged to expense in the period incurred until the time that a
proven mineral resource is established at which point development of the mineral
property would be capitalized. Currently, we do not have any proven mineral
resources on any of our mineral properties.
Convertible promissory notes
We reviewed the convertible promissory notes and the related subscription
agreements to determine the appropriate reporting within the financial
statements. We report convertible promissory notes as liabilities at their
carrying value less unamortized discounts in accordance with the applicable
accounting guidance. We bifurcate conversion options and detachable common stock
purchase warrants and report them as liabilities at fair value at each reporting
period when required in accordance with the applicable accounting guidance. No
gain or loss is reported when the notes are converted into shares of our common
stock in accordance with the note's terms.
Common stock purchase warrants
We report common stock purchase warrants as equity unless a condition exists
which requires reporting as a derivative liability at fair market value. The
valuation of the derivative liability of the warrants is determined through the
use of a Monte Carlo options model that values the liability of the warrants
based on a risk-neutral valuation where the price of the option is its
discounted expected value.
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