UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File No.
(Exact Name of Registrant as Specified in Its Charter) |
| ||
(State of Other Jurisdiction of Incorporation or Organization) |
| (IRS Employer Identification Number) |
|
|
|
| ||
(Address of Principal Executive Offices) |
| (Zip Code) |
(Registrant’s telephone number, including area code)
Copies to:
Brunson Chandler & Jones, PLLC
175 South Main Street, Suite 1410
Salt Lake City, Utah 84111
(801) 303-5721
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-3 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | Emerging growth company |
☒ | Smaller reporting company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered to Section 12(b) of the Act: None.
As of October 14, 2024, there were
INCEPTION MINING INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
| Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Inception Mining, Inc.
Condensed Consolidated Balance Sheets
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
|
| (Unaudited) |
|
|
|
| ||
ASSETS |
| |||||||
Current Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Total Current Assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
| ||
Right of use operating lease asset |
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
| ||
Total Assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
Accrued interest - related parties |
|
|
|
|
|
| ||
Operating lease liability - current portion |
|
|
|
|
|
| ||
Note payable - current portion |
|
|
|
|
|
| ||
Notes payable - related parties |
|
|
|
|
|
| ||
Convertible notes payable - net of discount |
|
|
|
|
|
| ||
Derivative liabilities |
|
|
|
|
|
| ||
Total Current Liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Long-term notes payable - related parties, net of current portion |
|
|
|
|
|
| ||
Total Liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Stockholders' Deficit |
|
|
|
|
|
|
|
|
Preferred stock, $ |
|
|
|
|
|
| ||
Common stock, $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Total Stockholders' Deficit |
|
| ( | ) |
|
| ( | ) |
Total Liabilities and Stockholders' Deficit |
| $ |
|
| $ |
| ||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
| Table of Contents |
Inception Mining, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| June 30, 2024 |
|
| June 30, 2023 |
|
| June 30, 2024 |
|
| June 30, 2023 |
| ||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from Operations |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/(Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in derivative liability |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Initial derivative expense |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total Other Income/(Expenses) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) from Operations before Income Taxes |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Provision for Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) from Continuing Operations |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Net Income (Loss) from Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Gain on Sale of Mine Property in Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) from Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Net Income (Loss) - Non-Controlling Interest |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Net Income (Loss) - Controlling Interest |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - Continuing Operations - Basic and Diluted |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Net income (loss) per share - Discontinued Operations - Basic and Diluted |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Net income (loss) per share - Basic |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Net income (loss) per share - Diluted |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Weighted average number of shares outstanding during the period - Basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of shares outstanding during the period - Diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences arising on translating foreign operations |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Total Comprehensive Income (Loss) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Total Comprehensive Income (Loss) - Non-Controlling Interest |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Comprehensive Income (Loss) - Controlling Interest |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
Inception Mining, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
(Unaudited)
|
| Preferred stock |
|
| Common stock |
|
| Additional |
|
|
|
|
| Other |
|
| Non- |
|
| Total |
| |||||||||||||||
|
| ($0.00001 Par) |
|
| ($0.00001 Par) |
|
| Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Controlling |
|
| Stockholders' |
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Interest |
|
| Deficiency |
| |||||||||
Balance, December 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) | |||||||
Net loss for the period |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||
Balance, March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||||
Net loss for the period |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||
Balance, June 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred stock |
|
| Common stock |
|
| Additional |
|
|
|
|
| Other |
|
| Non- |
|
| Total |
| |||||||||||||||
|
| ($0.00001 Par) |
|
| ($0.00001 Par) |
|
| Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Controlling |
|
| Stockholders' |
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Interest |
|
| Deficiency |
| |||||||||
Balance, December 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||
Shares issued for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Shares issued with extinguishment of debt |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Effects of sale of mine property |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Net income for the period |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||||
Net income for the period |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
| ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
| Table of Contents |
Inception Mining, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| For the Six Months Ended |
| |||||
|
| June 30, 2024 |
|
| June 30, 2023 |
| ||
Cash Flows From Operating Activities: |
|
|
|
|
|
| ||
Net Income (Loss) |
| $ | ( | ) |
| $ |
| |
Net Income from discontinued operations |
|
|
|
|
|
| ||
Gain on sale of mine property in discontinued operations |
|
|
|
|
| ( | ) | |
Adjustments to reconcile net income (loss) to net cash used in operations |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
| ||
Common stock issued for services |
|
|
|
|
|
| ||
Gain on extinguishment of debt |
|
|
|
|
| ( | ) | |
Change in derivative liability |
|
| ( | ) |
|
| ( | ) |
Default penalty additions |
|
|
|
|
|
| ||
Expenses paid in behalf of the company by related party |
|
|
|
|
|
| ||
Amortization of right-of-use asset |
|
|
|
|
|
| ||
Amortization of debt discount |
|
|
|
|
|
| ||
Initial derivative expense |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Other receivables |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Accounts payable and accrued liabilities |
|
|
|
|
| ( | ) | |
Accounts payable and accrued liabilities - related parties |
|
|
|
|
| ( | ) | |
Net Cash Provided By (Used In) Continuing Operations |
|
| ( | ) |
|
|
| |
Net Cash Used In Discontinued Operations |
|
|
|
|
| ( | ) | |
Net Cash Provided By (Used In) Operating Activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Investing activities of discontinued operations |
|
|
|
|
| ( | ) | |
Net Cash Used In Investing Activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Repayment of notes payable-related parties |
|
| ( | ) |
|
| ( | ) |
Repayment of convertible notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from notes payable-related parties |
|
|
|
|
|
| ||
Proceeds from convertible notes payable |
|
|
|
|
|
| ||
Net Cash Provided by Continuing Financing Activities |
|
|
|
|
| ( | ) | |
Effects of exchange rate changes on cash |
|
|
|
|
|
| ||
Net Change in Cash |
|
|
|
|
|
| ||
Cash at Beginning of Period |
|
|
|
|
|
| ||
Cash at End of Period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Note receivable acquired for sale of mine property |
| $ |
|
| $ |
| ||
Common stock issued for settlement of notes payable - related parties |
| $ |
|
| $ |
| ||
Recognition of debt discounts on convertible note payable |
| $ |
|
| $ |
| ||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
Inception Mining, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
1. Nature of Business
Inception Mining, Inc. (formerly known as Gold American Mining Corp.) was incorporated under the name of Golf Alliance Corporation and under the laws of the State of Nevada on July 2, 2007. Inception Mining, Inc. is a precious metal mineral acquisition, exploration and development company. Inception Development, Inc., its wholly owned subsidiary, was incorporated under the laws of the State of Idaho on January 28, 2013.
Golf Alliance Corporation pursued its original business plan to provide opportunities for golfers to play on private golf courses normally closed to them due to the membership requirements of the private clubs. During the year ended July 31, 2010, the Company decided to redirect its business focus toward precious metal mineral acquisition and exploration.
On March 5, 2010, the Company amended its articles of incorporation to (1) change its name to Silver America, Inc. and (2) increase its authorized common stock from
On June 23, 2010, the Company amended its articles of incorporation to change its name to Gold American Mining Corp.
On November 21, 2012, the Company implemented a
On February 25, 2013, Gold American Mining Corp. 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
On May 17, 2013, the Company amended its articles of incorporation to change its name to Inception Mining, Inc. (“Inception” or the “Company”).
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. Pursuant to the agreement, the Company issued
On January 11, 2016, the Company implemented a
On January 12, 2023, Inception Mining, Inc. (the “Company”) entered into a non-binding Letter of Intent (the “LOI”) with Mother Lode Mining, Inc. (“MLM”). The LOI became binding on January 24, 2023. Pursuant to the terms of the LOI, the Company agreed to sell all of the shares of its wholly-owned subsidiary, Compañía Minera Cerros Del Sur, S.A. de C.V. (“CMCS”), to MLM. CMCS is the Honduran-based company that owns the Clavo Rico mine.
Since the divestiture of the Clavo Rico Mine, the Company has been operating as a consultant and advisor to the mining industry. It also has an ongoing financial interest in the Clavo Rico Mine under the LOI, with monthly payments due through February 2025 that are secured by a net smelter royalty.
| 7 |
| Table of Contents |
2. Summary of Significant 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 six months ended June 30, 2024, the Company recorded a net loss of $
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. up through the date of the sale on January 24, 2023 (collectively, the “Company”). All intercompany accounts have been eliminated upon consolidation through the date the subsidiaries were disposed of on January 24, 2023.
Basis of Presentation - The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
Condensed Financial Statements - The interim consolidated financial statements included herein have been prepared by Inception Mining Inc. (“Inception Mining” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this filing and the Form 10-K for the year ended December 31, 2023 filed with the SEC on May 2, 2024.
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 June 30, 2024, the results of its consolidated statements of operations and comprehensive income (loss) for the three and six-month periods ended June 30, 2024 and 2023, its condensed consolidated statement of stockholders’ deficit and its consolidated cash flows for the six-month periods ended June 30, 2024 and 2023. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.
Use of Estimates – In preparing financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenditures during the reported periods. Actual results could differ materially from those estimates. Estimates may include those pertaining to valuation of inventories and mineralized material on leach pads, the estimated useful lives and valuation of properties, plant and equipment, mineral rights and properties, deferred tax assets, convertible preferred stock, derivative assets and liabilities, reclamation liabilities, stock-based compensation and payments, and contingent liabilities.
Cash and Cash Equivalents - The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At June 30, 2024 and December 31, 2023, the Company had $
Settlement of Contracts in Company’s Equity– In accordance with ASC 815-40-25, the Company must meet certain requirements in order to report contracts as equity versus liabilities. These requirements must be met by the Company or the contracts need to be reported as liabilities. The Company has adopted the sequencing approach as guidance on contracts that permit partial net share settlement. The Company evaluates the contracts based on the earliest issuance date. Currently, the Company doesn’t have any items that are reported as equity instead of liabilities.
| 8 |
| Table of Contents |
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.
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 fair value of financial instruments on June 30, 2024 are summarized below:
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Debt derivative liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Total Liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The fair value of financial instruments on December 31, 2023 are summarized below:
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Debt derivative liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Total Liabilities |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in Note 3. 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.
Notes Receivable - Notes receivable include amounts due to the Company pursuant to financial agreements stipulating interest rates, payment terms and maturity dates. As of June 30, 2024 and December 31, 2023, notes receivable balance includes one note due from Mother Load Mining, Inc. in the amounts of $
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.
| 9 |
| Table of Contents |
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 |
| |
Vehicles and equipment |
| |
Processing and laboratory |
| |
Furniture and fixtures |
|
Stock Issued for Goods and Services - Common and preferred shares issued for goods and services are valued based upon the fair market value of our common stock or the goods and services received.
Stock-Based Compensation - For stock-based transactions, compensation expense is recognized over the requisite service period, which is generally the vesting period, based on the estimated fair value on the grant date of the award.
Income (Loss) per Common Share - Basic net income (loss) per common share is computed by dividing net income (loss), less the preferred stock dividends, by the weighted average number of common shares outstanding. Dilutive income (loss) per share includes any additional dilution from common stock equivalents, such as stock options and warrants, and convertible instruments, if the impact is not antidilutive.
The following tables summaries the changes in the net earnings per common share for the three and six-month periods ended June 30, 2024 and 2023:
|
| For the Three Months Ended |
| |||||
Numerator |
| June 30, 2024 |
|
| June 30, 2023 |
| ||
Net Income (Loss) - Controlling Interest |
| $ | ( | ) |
| $ |
| |
Gain on Extinguishment of Debt |
|
|
|
|
| ( | ) | |
Interest Expense |
|
|
|
|
|
| ||
Change in Derivative Liabilities |
|
|
|
|
| ( | ) | |
Adjusted Net Loss - Controlling Interest |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Denominator |
| Shares |
|
| Shares |
| ||
Basic Weighted Average Number of Shares Outstanding during Period |
|
|
|
|
|
| ||
Dilutive Shares |
|
| - |
|
|
|
| |
Diluted Weighted Average Number of Shares Outstanding during Period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Diluted Net Loss per Share |
| $ | ( | ) |
| $ | ( | ) |
|
| For the Six Months Ended |
| |||||
Numerator |
| June 30, 2024 |
|
| June 30, 2023 |
| ||
Net Income (Loss) - Controlling Interest |
| $ | ( | ) |
| $ |
| |
Gain on Extinguishment of Debt |
|
|
|
|
| ( | ) | |
Interest Expense |
|
|
|
|
|
| ||
Change in Derivative Liabilities |
|
|
|
|
| ( | ) | |
Adjusted Net Income (Loss) - Controlling Interest |
| $ | ( | ) |
| $ |
| |
|
|
|
|
|
|
|
|
|
Denominator |
| Shares |
|
| Shares |
| ||
Basic Weighted Average Number of Shares Outstanding during Period |
|
|
|
|
|
| ||
Dilutive Shares |
|
| - |
|
|
|
| |
Diluted Weighted Average Number of Shares Outstanding during Period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) per Share |
| $ | ( | ) |
| $ |
| |
Other Comprehensive Income (Loss) – Other Comprehensive income (loss) is made up of the exchange differences arising on translating foreign operations and the net loss for the six-month period ending June 30, 2023.
| 10 |
| Table of Contents |
Derivative Liabilities - Derivative 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.
Business Segments – The Company operates in one segment and therefore segment information is not presented.
Operating Lease – The Company leases its corporate headquarters and administrative offices in Salt Lake City, Utah. This lease expires in August 2024.
The supplemental balance sheet information related to the operating lease for the periods is as follows:
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Operating leases |
|
|
|
|
|
| ||
Long-term right-of-use assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Short-term operating lease liabilities |
| $ |
|
| $ |
| ||
Total operating lease liabilities |
| $ |
|
| $ |
| ||
The Company made cash payments of $
| 11 |
| Table of Contents |
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.
Recently Issued Accounting Pronouncements – From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
3. Derivative Financial Instruments
The Company follows the guidance in ASC 825-10 which defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of June 30, 2024:
|
| Debt Derivative Liabilities |
| |
Balance, December 31, 2023 |
| $ |
| |
Transfers in upon initial fair value of derivative liabilities |
|
|
| |
Change in fair value of derivative liabilities |
|
| ( | ) |
Balance, June 30, 2024 |
| $ |
| |
Derivative Liabilities – The Company issued convertible promissory notes which are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.
At June 30, 2024, the Company marked to market the fair value of the debt derivatives and determined a fair value of $
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
4. Note Receivable
On January 12, 2023, Inception Mining, Inc. (the “Company”) entered into a non-binding Letter of Intent (the “LOI”) with Mother Lode Mining, Inc. (“MLM”). The LOI became binding on January 24, 2023 when the final installment of initial payment set forth under the LOI was received by the Company. Pursuant to the terms of the LOI, the Company agreed to sell all of the shares of its wholly-owned subsidiary, Compañía Minera Cerros Del Sur, S.A. de C.V. (“CMCS”), to MLM. CMCS is the Honduran-based company that owns the Clavo Rico mine.
The purchase price for the sale of CMCS by the Company to MLM consisted of the following cash consideration (a) $
In addition to the amounts already delivered under the LOI, an additional amount of $
| 12 |
| Table of Contents |
The following table summarizes the note receivable of the Company as of June 30, 2024 and December 31, 2023:
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Note Receivable from Mother Load Mining, Inc. pursuant to a Letter of Intent dated effective January 12, 2023, in the original principal amount of $5,700,000, accruing no interest, with monthly payments beginning on March 31, 2023, maturing February 1, 2025. |
| $ |
|
| $ |
| ||
Less: Payments received |
|
|
|
|
| ( | ) | |
Total Note Receivable outstanding |
|
|
|
|
|
| ||
Less: Allowance for Doubtful Note Receivable |
|
| ( | ) |
|
| ( | ) |
Total Note Receivable |
| $ |
|
| $ |
| ||
5. Properties, Plant and Equipment, Net
Properties, plant and equipment at June 30, 2024 and December 31, 2023 consisted of the following:
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Machinery and Equipment |
| $ |
|
| $ |
| ||
Office Equipment and Furniture |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less Accumulated Depreciation |
|
| ( | ) |
|
| ( | ) |
Total Property, Plant and Equipment |
| $ |
|
| $ |
| ||
During the six months ended June 30, 2024 and 2023, the Company recognized depreciation expense of $
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at June 30, 2024 and December 31, 2023 consisted of the following:
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Accounts Payable |
| $ |
|
| $ |
| ||
Accrued Liabilities |
|
|
|
|
|
| ||
Accrued Salaries and Benefits |
|
|
|
|
|
| ||
Accrued Interest Payable |
|
|
|
|
|
| ||
Total Accrued Liabilities |
| $ |
|
| $ |
| ||
7. Notes Payable
Notes payable were comprised of the following as of June 30, 2024 and December 31, 2023:
Notes Payable |
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Phil Zobrist |
| $ |
|
| $ |
| ||
Antczak Polich Law LLC |
|
|
|
|
|
| ||
Total Notes Payable |
|
|
|
|
|
| ||
Less Short-Term Notes Payable |
|
| ( | ) |
|
| ( | ) |
Total Long-Term Notes Payable |
| $ |
|
| $ |
| ||
Phil Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount of $
| 13 |
| Table of Contents |
Antczak Polich Law, LLC – On March 21, 2023, the Company issued an unsecured Promissory Note (“Note”) to Antczak Polich Law, LLC (“Antczak”), in the principal amount of $
8. Notes Payable – Related Parties
Notes payable – related parties were comprised of the following as of June 30, 2024 and December 31, 2023:
Notes Payable - Related Parties |
| Relationship |
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Cluff-Rich PC 401K |
|
|
|
|
|
|
| |||
Debra D'ambrosio |
|
|
|
|
|
|
| |||
Francis E. Rich |
|
|
|
|
|
|
| |||
Pine Valley Investments |
|
|
|
|
|
|
| |||
Whit Cluff |
|
|
|
|
|
|
| |||
Total Notes Payable - Related Parties |
|
|
|
|
|
|
|
| ||
Less Short-Term Notes Payable - Related Parties |
|
|
|
| ( | ) |
|
| ( | ) |
Total Long-Term Notes Payable - Related Parties |
|
|
| $ |
|
| $ |
| ||
Cluff-Rich PC 401K (Affiliate – Controlled by Director) – On June 29, 2022, the Company issued an unsecured Short-Term Promissory Note to Cluff-Rich PC 401K in the principal amount of $
D. D’Ambrosio (Immediate Family Member of Director) – On January 1, 2023, there were six notes outstanding with outstanding balance of the Notes of $
D. D’Ambrosio (Immediate Family Member of Director) – On January 1, 2024, the Company issued an unsecured Short-Term Promissory Notes to D. D’Ambrosio in principal amounts totaling $
D. D’Ambrosio (Immediate Family Member of Director) – On January 8, 2024, the Company issued an unsecured Short-Term Promissory Notes to D. D’Ambrosio in principal amounts totaling $
D. D’Ambrosio (Immediate Family Member of Director) – On March 15, 2024, the Company issued an unsecured Short-Term Promissory Notes to D. D’Ambrosio in principal amounts totaling $
Francis E. Rich (Immediate Family Member of Director) – On January 1, 2023, there were two notes outstanding with outstanding balance of the Notes of $
Pine Valley Investments, LLC (Affiliate – Controlled by Significant Shareholder) – On January 1, 2023, there were three Notes outstanding with outstanding balance of the Notes of $
| 14 |
| Table of Contents |
Whit Cluff (Affiliate – Director) – On March 28, 2024, the Company issued an unsecured Short-Term Promissory Note to Cluff-Rich PC 401K in the principal amount of $
Typically, any gains or losses on the extinguishment of debts are reported on the statement of operations. However, since all of the debts in this section are related parties, the gains or losses on the extinguishment of debts have been recorded as additional paid-in capital instead of gains or losses.
9. Convertible Notes Payable
Convertible notes payable were comprised of the following as of June 30, 2024 and December 31, 2023:
Convertible Notes Payable |
| June 30, 2024 |
|
| December 31, 2023 |
| ||
1800 Diagonal Lending |
| $ |
|
| $ |
| ||
Total Convertible Notes Payable |
|
|
|
|
|
| ||
Less Unamortized Discount |
| ( | ) |
|
| ( | ) | |
Total Convertible Notes Payable, Net of Unamortized Debt Discount |
|
|
|
|
|
| ||
Less Short-Term Convertible Notes Payable |
|
| ( | ) |
|
| ( | ) |
Total Long-Term Convertible Notes Payable, Net of Unamortized Debt Discount |
| $ |
|
| $ |
| ||
1800 Diagonal Lending LLC – On September 12, 2023, the Company issued an unsecured Convertible Promissory Note (“Note”) to 1800 Diagonal Lending, LLC (“1800”), in the principal amount of $
1800 Diagonal Lending LLC – On January 23, 2024, the Company issued an unsecured Convertible Promissory Note (“Note”) to 1800 Diagonal Lending, LLC (“1800”), in the principal amount of $
1800 Diagonal Lending LLC – On May 3, 2024, the Company issued an unsecured Convertible Promissory Note (“Note”) to 1800 Diagonal Lending, LLC (“1800”), in the principal amount of $
10. Related Party Transactions
Consulting Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $
Mr. Cluff currently serves as a director of the Company and has a separate agreement as a consultant of the Company effective as of October 2, 2015.
Employment Agreements – The Company has an employment agreement with its chief executive officer, Trent D’Ambrosio. The employment agreement was effective as of April 1, 2019 and provides for compensation of $
Notes Payable – The Company took two short-term notes payable from Debra D’Ambrosio, an immediate family member related party during the six months ended June 30, 2024. The Company received $
Accounts Payable – Two officers/directors of the Company have been paying expenses for the Company on their personal credit cards. The Company has recorded these expenses and accrued the amounts in accounts payable to the individuals. As of June 30, 2024, there is $
| 15 |
| Table of Contents |
12. Commitments and Contingencies
Litigation
The Company at times is subject to other legal proceedings that arise in the ordinary course of business. The following is a summary of pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations of the Company.
On March 4, 2024, the Company filed a lawsuit against Mother Lode Mining, Inc., a Canadian company, and Robert Salna (the “Defendants"), alleging an amount of not less than $
On January 18, 2023, the Company negotiated a settlement with Antilles Family Office, LLC through which the Company paid $
The Company’s former subsidiary, Compañía Minera Clavo Rico, S.A. de C.V., has been served with a lawsuit filed by SAR, the taxing authority in Honduras, alleging additional tax liability due. The Complaint alleges that HNL7,186,151,96 lempires are due in a demand for execution of a forced extrajudicial title. The Company had accrued $
In the opinion of management, as of June 30, 2024, the amount of ultimate liability with respect to such matters, if any, may be likely to have a material impact on the Company’s business, financial position, results of operations or liquidity. However, as the outcome of litigation and other claims is difficult to predict significant changes in the estimated exposures could exist.
On September 22, 2023, the Company entered into a consulting agreement with William McCluskey. This agreement requires the Company to pay $
13. Discontinued Operations
During the year ended December 31, 2022, the Company decided to discontinue all of its operating activities. Based on that decision, the Company’s board of directors committed to a plan to sell the CMCS entity operating the mine in Honduras. On January 24, 2023, the Company sold its CMCS entity and all mine operations in Honduras.
In accordance with the provisions of ASC 205-20, the Company has zero reported assets and liabilities of the discontinued operations (held for sale) in the consolidated balance sheets as of June 30, 2024 and December 31, 2023.
In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations and comprehensive loss. The results of operations from discontinued operations for the six months ended June 30, 2024 and 2023 have been reflected as discontinued operations in the consolidated statements of operations and comprehensive loss for the six months ended June 30, 2024 and 2023, and consist of the following.
|
| Six months Ended |
| |||||
|
| June 30, 2024 |
|
| June 30, 2023 |
| ||
Precious Metals Income |
| $ |
|
| $ |
| ||
Cost of goods sold |
|
|
|
|
|
| ||
Gross profit |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES OF DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
| ||
Depreciation and amortization |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
OPERATING INCOME (LOSS) OF DISCONTINUED OPERATIONS |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSE OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES OF DISCONTINUED OPERATIONS |
|
|
|
|
| ( | ) | |
Provision for income taxes of discontinued operations |
|
|
|
|
|
| ||
NET INCOME (LOSS) OF DISCONTINUED OPERATIONS |
| $ |
|
| $ | ( | ) | |
The Company recognized a gain on the sale of mine property in discontinued operations of $
| 16 |
| Table of Contents |
In accordance with the provisions of ASC 205-20, the Company has separately reported the cash flow activity of the discontinued operations in the consolidated statements of cash flows. The cash flow activity from discontinued operations for the six months ended June 30, 2024 and 2023 have been reflected as discontinued operations in the consolidated statements of cash flows for the six months ended June 30, 2024 and 2023, and consist of the following.
|
| Six months Ended |
| |||||
|
| June 30, 2024 |
|
| June 30, 2023 |
| ||
DISCONTINUED OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net loss |
| $ |
|
| $ | ( | ) | |
Depreciation expense |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade receivables |
|
|
|
|
|
| ||
Inventories |
|
|
|
|
| ( | ) | |
Prepaid expenses and other current assets |
|
|
|
|
| ( | ) | |
Accounts payable and accrued liabilities |
|
|
|
|
| ( | ) | |
Accounts payable and accrued liabilities - related parties |
|
|
|
|
|
| ||
Net cash provided by operating activities of discontinued operations |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
| $ |
|
| $ | ( | ) | |
Net cash provided by (used in) investing activities of discontinued operations |
| $ |
|
| $ | ( | ) | |
14. Subsequent Events
Management has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through the date which the financial statements were available to be issued and there are no material subsequent events.
| 17 |
| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar words or expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements, which reflect our management’s beliefs, objectives, and expectations as of the date hereof, are based on the best judgment 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 SEC, including our most recent filings on Forms 10-K and 10-Q.
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 2023 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 Inception Mining Inc. (“Inception Mining” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this filing.
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 June 30, 2024, the results of its consolidated statements of operations and comprehensive income (loss) for the three and six-month periods ended June 30, 2024 and 2023, and its consolidated cash flows for the six-month periods ended June 30, 2024 and 2023. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.
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.
Overview and Plan of Operation
Overview
We are a mining company that was formed in Nevada on July 2, 2007. Historically operated two mining projects and currently operate as a consultant and advisor to the mining industry. Additionally, we have been engaged in the production of precious metals. From 2013 to 2020, the Company owned certain real property and the associated exploration permits and mineral rights commonly known as the UP and Burlington Gold Mine in Idaho (“UP and Burlington”). From 2015 through January 24, 2023, the Company operated the Clavo Rico mine in Honduras through its wholly-owned subsidiary, Compañía Minera Cerros del Sur, S.A de C.V. (“CMCS”) and other mining concessions. The Clavo Rico mine’s workings include several historical underground mining operations dating back to the early Mayan and Spanish occupation, and the primary mine operated through 2022 is located on the 200-hectare Clavo Rico Concession, located in southern Honduras.
2023 Divestiture of the Clavo Rico Mine
On January 12, 2023, Inception Mining, Inc. (the “Company”) entered into a non-binding Letter of Intent (the “LOI”) with Mother Lode Mining, Inc. (“MLM”). The LOI became binding on January 24, 2023 when the final installment of initial payment set forth under the LOI was received by the Company.
| 18 |
| Table of Contents |
Pursuant to the terms of the LOI, the Company agreed to sell all of the shares of its wholly-owned subsidiary, Compañía Minera Cerros Del Sur, S.A. de C.V. (“CMCS”), to MLM. CMCS is the Honduran-based company that owns the Clavo Rico mine.
The purchase price for the sale of CMCS by the Company to MLM consisted of the following cash consideration (a) $280,000 was delivered by MLM to the Company on January 3, 2023 to pay outstanding debts owed by the Corporation; (b) $300,000 was delivered by MLM to the Company on January 5, 2023 to satisfy existing debts of the Company; (c) $100,000 was delivered by MLM to the Company on January 16, 2023; (d) $200,000 was delivered by MLM to the Company on January 17, 2023; (e) $1,200,000 was delivered by MLM to the Company on January 18, 2023, to pay a settlement amount for existing debt of the Company; (f) $500,000 was delivered by MLM to the Company on January 23, 2023, to satisfy existing debts of the Company; (g) $500,000 was delivered by MLM to the Corporation on January 24, 2023 to satisfy existing debts of the Corporation.
In addition to the amounts already delivered under the LOI, an additional amount of $2,620,0000 shall be paid by MLM to the Company over a period of twenty-four (24) months (the “Monthly Payments”). The Monthly Payments shall be paid as follows: (i) $25,000 due March 1, 2023, (ii) $50,000 due on the first day of each of April, May and June 2023, and (iii) $100,000 due on the first day of each month for the following twenty months, until February 1, 2025 at which point all amounts due and payable hereunder shall be delivered in a final balloon payment. Outstanding balances and missed Monthly Payments will be secured by a 10% NSR on the Clavo Rico mine production until the Monthly Payments are delivered and the purchase price is paid in full. In addition to the Monthly Payments, the Company will receive a carried forward net profits interest royalty (“NPI”) of 5% on the Clavo Rico mine production until the total NPI paid to the Company is $1,000,000, subject to limited conditions.
Following the Closing of the LOI on January 24, 2023, the Company divested its ownership interest in CMCS and its interests in the Clavo Rico mine, resulting in the transfer of operations to Mother Lode Mining and full control of the Clavo Rico mine asset.
Current Operations
Since the Divestiture of the Clavo Rico Mine, the Company has been operating as a consultant and advisor to the mining industry. It also has an ongoing financial interest in the Clavo Rico Mine under the LOI.
According to the LOI, the Company is entitled to receive $2,700,000 in cash payments through January 2025, with such payments secured by a ten percent net smelter royalty on the Clavo Rico Mine’s production.
The Company will also receive a carried forward net profits interest royalty of five percent of the Clavo Rico mine production until payment to the Company reaches $1,000,000, subject to reduction for certain limited Clavo Rico mine expenses.
Results of Operations
Three months ended June 30, 2024 compared to the three months ended June 30, 2023
We had net loss of $505,529 for the three-month period ended June 30, 2024, and a net income of $242,945 for the three-month period ended June 30, 2023. This change in our results over the two periods is primarily the result of a decrease in interest expense of $274,554, the change of derivative liabilities of $31,246, the initial derivative expense of $136,466, a change in gain on extinguishment of debt of $421,289. The following table summarizes key items of comparison and their related increase (decrease) for the three-month periods ended June 30, 2024 and 2023:
|
| Three Months Ended June 30, |
|
| Increase/ |
| ||||||
|
| 2024 |
|
| 2023 |
|
| (Decrease) |
| |||
General and Administrative |
| $ | 136,438 |
|
| $ | 192,027 |
|
| $ | (55,589 | ) |
Depreciation and Amortization Expenses |
|
| 181 |
|
|
| 181 |
|
|
| - |
|
Total Operating Expenses |
|
| 136,619 |
|
|
| 192,208 |
|
|
| (55,589 | ) |
Income (Loss) from Operations |
|
| (136,619 | ) |
|
| (192,208 | ) |
|
| 55,589 |
|
Change in Derivative Liabilities |
|
| 65,294 |
|
|
| 34,048 |
|
|
| 31,246 |
|
Initial Derivative Expense |
|
| (136,466 | ) |
|
| - |
|
|
| (136,466 | ) |
Gain on Extinguishment of Debt |
|
| - |
|
|
| 421,289 |
|
|
| (421,289 | ) |
Interest Expense |
|
| (294,738 | ) |
|
| (20,184 | ) |
|
| (274,554 | ) |
Income (Loss) from Operations Before Taxes |
|
| (502,529 | ) |
|
| 242,945 |
|
|
| (745,474 | ) |
Provision for Income Taxes |
|
| - |
|
|
| - |
|
|
|
|
|
Net Income (Loss) from Continued Operations |
|
| (502,529 | ) |
|
| 242,945 |
|
|
| (745,474 | ) |
Net Income (Loss) from Discontinued Operations |
|
| - |
|
|
| - |
|
|
| - |
|
Gain on Sale of Mine Property in Discontinued Operations |
|
| - |
|
|
| - |
|
|
| - |
|
Provision for Income Taxes on Discontinued Operations |
|
| - |
|
|
| - |
|
|
| - |
|
Net Income (Loss) from Discontinued Operations |
|
| - |
|
|
| - |
|
|
| - |
|
Net Income (Loss) |
| $ | (502,529 | ) |
| $ | 242,945 |
|
| $ | (745,474 | ) |
| 19 |
| Table of Contents |
Operating Expenses
Operating expenses for the three months ended June 30, 2024, and 2023 were $136,619 and $192,208, respectively. The decrease in operating expenses for 2024 compared to 2023 were comprised primarily of a decrease in consulting expenses.
Other Income (Expenses)
Other income (expenses) for the three months ended June 30, 2024, and 2023 were ($365,910) and $435,153, respectively. The change in other income (expenses) of ($801,063) was made up of the change in derivative liabilities of $31,246, the change in gain on settlement of debt of ($421,289), initial derivative expense of ($136,466) and change in interest expense of ($274,554).
Net Income (Loss)
Net loss for the three months ended June 30, 2024, was $502,529 while the net income for the three months ended June 30, 2023 was $242,945.
Six months ended June 30, 2024 compared to the six months ended June 30, 2023
We had net loss of $759,509 for the six-month period ended June 30, 2024, and a net income of $15,526,678 for the six-month period ended June 30, 2023. This change in our results over the two periods is primarily the result of a decrease in interest expense of $150,266, the change of derivative liabilities of ($3,190,214), the initial derivative expense of ($193,582), a change in loss on extinguishment of debt of ($6,318,714) and income from discontinued operations of $6,657,072. The following table summarizes key items of comparison and their related increase (decrease) for the six-month periods ended June 30, 2024 and 2023:
|
| Six Months Ended June 30, |
|
| Increase/ |
| ||||||
|
| 2024 |
|
| 2023 |
|
| (Decrease) |
| |||
General and Administrative |
| $ | 260,175 |
|
| $ | 483,838 |
|
| $ | (223,663 | ) |
Depreciation and Amortization Expenses |
|
| 362 |
|
|
| 360 |
|
|
| 2 |
|
Total Operating Expenses |
|
| 260,537 |
|
|
| 484,198 |
|
|
| (223,661 | ) |
Loss from Operations |
|
| (260,537 | ) |
|
| (484,198 | ) |
|
| 223,661 |
|
Change in Derivative Liabilities |
|
| 49,036 |
|
|
| 3,239,250 |
|
|
| (3,190,214 | ) |
Initial Derivative Expense |
|
| (193,582 | ) |
|
| - |
|
|
| (193,582 | ) |
Gain on Extinguishment of Debt |
|
| - |
|
|
| 6,318,714 |
|
|
| (6,318,714 | ) |
Interest Expense |
|
| (354,426 | ) |
|
| (204,160 | ) |
|
| (150,266 | ) |
Loss from Operations Before Taxes |
|
| (759,509 | ) |
|
| 8,869,606 |
|
|
| (9,629,115 | ) |
Provision for Income Taxes |
|
| - |
|
|
| - |
|
|
| - |
|
Net Income (Loss) from Continued Operations |
|
| (759,509 | ) |
|
| 8,869,606 |
|
|
| (9,629,115 | ) |
Net Loss from Discontinued Operations |
|
| - |
|
|
| (497,581 | ) |
|
| 497,581 |
|
Gain on Sale of Mine Property in Discontinued Operations |
|
| - |
|
|
| 7,154,653 |
|
|
| (7,154,653 | ) |
Provision for Income Taxes on Discontinued Operations |
|
| - |
|
|
| - |
|
|
| - |
|
Net Income from Discontinued Operations |
|
| - |
|
|
| 6,657,072 |
|
|
| (6,657,072 | ) |
Net Income (Loss) |
| $ | (759,509 | ) |
| $ | 15,526,678 |
|
| $ | (16,286,187 | ) |
| 20 |
| Table of Contents |
Operating Expenses
Operating expenses for the six months ended June 30, 2024, and 2023 were $260,537 and $484,198, respectively. The decrease in operating expenses for 2024 compared to 2023 were comprised primarily of a decrease in consulting expenses.
Other Income (Expenses)
Other income (expenses) for the six months ended June 30, 2024, and 2023 were ($498,972) and $9,353,804, respectively. The change in other income (expenses) of ($9,852,776) was made up of the change in derivative liabilities of ($3,190,214), the change in gain on settlement of debt of ($6,318,714), initial derivative expense of ($193,582) and change in interest expense of ($150,266).
Net Income (Loss)
Net loss for the six months ended June 30, 2024, was $759,509 while the net income for the six months ended June 30, 2023 was $15,526,678.
Liquidity and Capital Resources
Our balance sheet as of June 30, 2024, reflects assets of $6,022. We had cash in the amount of $2 and working capital deficit in the amount of $3,187,110 as of June 30, 2024. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.
Working Capital
|
| June 30, 2024 |
|
| December 31, 2023 |
| ||
Current assets |
| $ | 2 |
|
| $ | 10,002 |
|
Current liabilities |
|
| 3,187,112 |
|
|
| 1,576,349 |
|
Working capital deficit |
| $ | (3,187,110 | ) |
| $ | (1,566,347 | ) |
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 has an accumulated deficit of $29,673,091. In addition, there is a working capital deficit of $3,187,110 as of June 30, 2024. 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.
|
| Six months Ended June 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net Cash Provided by (Used in) Operating Activities |
| $ | (59,141 | ) |
| $ | 1,297,780 |
|
Net Cash Provided by (Used in) Investing Activities |
|
| - |
|
|
| (652 | ) |
Net Cash Provided by (Used in) Financing Activities |
|
| 59,141 |
|
|
| (1,297,132 | ) |
Effects of Exchange Rate Changes on Cash |
|
| - |
|
|
| 1,105 |
|
Net Increase (Decrease) in Cash |
| $ | - |
|
| $ | 1,101 |
|
Operating Activities
Net cash flow used in operating activities during the six months ended June 30, 2024 was $59,141, a decrease of $1,356,921 from the $1,297,780 net cash provided during the six months ended June 30, 2023. This decrease in the cash provided by operating activities was primarily due to the payments made towards the sale of mine property of $3,435,000 and the net gain from discontinued operations in 2023.
Investing Activities
Investing activities during the six months ended June 30, 2024 used $0, an increase of $652 from the $652 used in investing activities during the six months ended June 30, 2023.
| 21 |
| Table of Contents |
Financing Activities
Financing activities during the six months ended June 30, 2024 provided cash of $59,141, an increase of $1,356,273 from the $1,297,132 used in financing activities during the six months ended June 30, 2023. During the six months ended June 30, 2024, the Company received $106,400 in proceeds from notes payable - related parties and $150,000 in proceeds from convertible note payable. The Company made $98,475 in payments on notes payable – related parties and $98,784 in payments on convertible notes payable. During the six months ended June 30, 2023, the Company received $23,208 in proceeds from notes payable - related parties. The Company made $39,000 in payments on notes payable – related parties and $1,281,340 in payments on convertible notes payable.
Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
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 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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to include disclosures under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective as of June 30, 2024.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 22 |
| Table of Contents |
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On March 4, 2024, the Company filed a complaint against Mother Lode Mining, Inc., a Canadian company, and Robert Salna (the “Defendants"), alleging an amount of not less than $2,237,800 (plus interest, additional costs and attorneys’ fees) due from Defendants as a result of their breach of their obligations and duties arising from the sale of Compañía Minera Cerros Del Sur, S.A. de C.V. in 2023 (the “Sale”). In the complaint, filed in the United States District Court for the District of Utah, Central Division, the Company asserts claims related to alleged breach of contract and unjust enrichment against the Defendants, and seeks a monetary judgment and an award of attorneys’ fees and other expenses. The complaint arises from the Defendants’ failure to convey agreed-upon consideration to the Company as contracted for the sale of CMCS. The Company intends to pursue the lawsuit aggressively. Despite several attempts, the Company has not yet effected service of process on Mother Lode Mining, Inc.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to include disclosure under this item. We refer readers to our Form 10-K for additional risk factor disclosures.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable as the Company conducts no mining operations in the U.S. or its territories.
ITEM 5. OTHER INFORMATION
None.
| 23 |
| Table of Contents |
ITEM 6. EXHIBITS
| 24 |
| Table of Contents |
| Joint Venture Agreement with Corpus Mining and Exploration, LTD dated as of October 1, 2017. (15) | |
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| Settlement Agreement with Antilles Family Office, LLC dated January 18, 2023 (17) | |
|
|
|
| Letter of Intent with Mother Lode Mining, Inc. effective as of January 24, 2023 (18) | |
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
101.INS |
| Inline XBRL Instance Document |
|
|
|
101.SCH |
| Inline XBRL Schema Document |
|
|
|
101.CAL |
| Inline XBRL Calculation Linkbase Document |
|
|
|
101.DEF |
| Inline XBRL Definition Linkbase Document |
|
|
|
101.LAB |
| Inline XBRL Label Linkbase Document |
|
|
|
101.PRE |
| Inline XBRL Presentation Linkbase Document |
|
|
|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* | Filed herewith. |
|
|
(1) | Incorporated by reference from Form SB-2 filed with the SEC on October 31, 2007. |
|
|
(2) | Incorporated by reference from Form 8-K filed with the SEC on March 10, 2010. |
|
|
(3) | Incorporated by reference from Form 8-K filed with the SEC on June 28, 2010. |
|
|
(4) | Incorporated by reference from Form 10-Q filed with the SEC on May 20, 2013. |
|
|
(5) | Incorporated by reference from Form 8-K filed with the SEC on August 5, 2013. |
|
|
(6) | Incorporated by reference from Form 8-K filed with the SEC on March 1, 2013. |
|
|
(7) | Incorporated by reference from Form 8-K filed with the SEC on September 6, 2013. |
|
|
(8) | Incorporated by reference from Form 10-Q filed with the SEC on June 20, 2014. |
(9) | Incorporated by reference from Form 8-K filed with the SEC on March 12, 2014. |
|
|
(10) | Incorporated by reference from Form 8-K filed with the SEC on October 7, 2014. |
|
|
(11) | Incorporated by reference from Form 8-K filed with the SEC on October 7, 2015. |
|
|
(12) | Incorporated by reference from the Form 10-K filed with the SEC on May 3, 2016. |
|
|
(13) | Incorporated by reference from the Form 10-K filed with the SEC on April 17, 2017. |
|
|
(14) | Incorporated by reference from the Form 10-Q filed with the SEC on May 16, 2017. |
|
|
(15) | Incorporated by reference from the Form 8-K filed with the SEC on October 19, 2017. |
|
|
(16) | Incorporated by reference from the Form S-1 filed with the SEC on June 2, 2019. |
|
|
(17) | Incorporated by reference from the Form 8-K filed with the SEC on January 25, 2023. |
|
|
(18) | Incorporated by reference from the Form 8-K filed with the SEC on February 8, 2023. |
| 25 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INCEPTION MINING INC. |
| |
|
|
|
|
Date: October 15, 2024 | By: | /s/ Trent D’Ambrosio |
|
| Name: | Trent D’Ambrosio |
|
| Title: | Chief Executive Officer (Principal Executive Officer) |
|
|
| Chief Financial Officer (Principal Financial and Accounting Officer) |
|
| 26 |