UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-55219
Inception Mining Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 35-2302128 | |
| (State
or Other Jurisdiction of Incorporation or Organization) |
(IRS
Employer Identification Number) |
5330 South 900 East, Suite 280 Murray, Utah |
84117 | |
| (Address of Principal Executive Offices) | (Zip Code) |
801-312-8113
(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. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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). Yes [X] No [ ]
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” and “smaller reporting company” in Rule 12b-3 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] |
| (Do not check if smaller reporting company) | Emerging growth 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 [ ] No [X]
As of November 14, 2018, there were 53,819,032 shares of the registrant’s common stock issued and outstanding.
INCEPTION MINING INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
Inception Mining, Inc.
| September 30, 2018 | December 31, 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 15,985 | $ | 51,802 | ||||
| Accounts receivable | 4,764 | 170 | ||||||
| Inventories | 554,557 | 1,430,182 | ||||||
| Prepaid expenses and other current assets | 46,051 | 46,437 | ||||||
| Total Current Assets | 621,357 | 1,528,591 | ||||||
| Property, plant and equipment, net | 717,018 | 882,060 | ||||||
| Other assets | 37,625 | 25,586 | ||||||
| Total Assets | $ | 1,376,000 | $ | 2,436,237 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 1,862,435 | $ | 1,540,317 | ||||
| Accrued interest - related parties | 6,349,726 | 5,611,682 | ||||||
| Secured borrowings, net | 184,221 | 86,733 | ||||||
| Notes payable, net of debt discounts | 60,000 | 179,302 | ||||||
| Notes payable - related parties | 7,075,322 | 6,739,773 | ||||||
| Convertible notes payable, net of debt discounts | 577,569 | 231,767 | ||||||
| Derivative liabilities | 3,101,189 | 647,807 | ||||||
| Total Current Liabilities | 19,210,462 | 15,037,381 | ||||||
| Mine reclamation obligation | 345,838 | 352,713 | ||||||
| Total Liabilities | 19,556,300 | 15,390,094 | ||||||
| Commitments and Contingencies | - | - | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $0.00001 par value; 10,000,000 shares authorized, 51 shares issued and outstanding | 1 | 1 | ||||||
| Common stock, $0.00001 par value; 500,000,000 shares authorized, 53,819,032 and 52,183,761 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 538 | 522 | ||||||
| Additional paid-in capital | 4,427,898 | 3,992,407 | ||||||
| Accumulated Deficit | (22,046,656 | ) | (16,383,271 | ) | ||||
| Other comprehensive income - foreign currency translation | (553,329 | ) | (555,635 | ) | ||||
| Total Controlling Interest | (18,171,548 | ) | (12,945,976 | ) | ||||
| Non-Controlling Interest | (8,752 | ) | (7,881 | ) | ||||
| Total Stockholders’ Deficit | (18,180,300 | ) | (12,953,857 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 1,376,000 | $ | 2,436,237 | ||||
See accompanying notes to the consolidated financial statements.
| F-1 |
Inception Mining, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||||
| Precious Metals Income | $ | 794,227 | $ | 1,145,591 | $ | 3,155,812 | $ | 2,940,961 | ||||||||
| Operating Expenses | ||||||||||||||||
| Cost of sales | 654,141 | 936,392 | 3,195,266 | 2,633,406 | ||||||||||||
| General and administrative | 646,716 | 410,364 | 1,623,506 | 1,173,509 | ||||||||||||
| Depreciation and amortization | 9,459 | 4,807 | 28,970 | 111,232 | ||||||||||||
| Total Operating Expenses | 1,310,316 | 1,351,563 | 4,847,742 | 3,918,147 | ||||||||||||
| Loss from Operations | (516,089 | ) | (205,972 | ) | (1,691,930 | ) | (977,186 | ) | ||||||||
| Other Income/(Expenses) | ||||||||||||||||
| Other income (expense) | 771 | 4,474 | 2,790 | 8,578 | ||||||||||||
| Change in derivative liability | (2,148,545 | ) | (193,583 | ) | (1,372,972 | ) | (193,583 | ) | ||||||||
| Change in gold purchase fund | - | - | - | 16,338 | ||||||||||||
| Loss on extinguishment of debt | (8,510 | ) | - | (8,510 | ) | (3,325 | ) | |||||||||
| Interest expense | (722,037 | ) | (586,156 | ) | (2,593,634 | ) | (1,321,794 | ) | ||||||||
| Total Other Income/(Expenses) | (2,878,321 | ) | (775,265 | ) | (3,972,326 | ) | (1,493,786 | ) | ||||||||
| Net Loss from Operations before Income Taxes | (3,394,410 | ) | (981,237 | ) | (5,664,256 | ) | (2,470,972 | ) | ||||||||
| Provision for Income Taxes | - | - | - | - | ||||||||||||
| NET LOSS | (3,394,410 | ) | (981,237 | ) | (5,664,256 | ) | (2,470,972 | ) | ||||||||
| NET LOSS - Non-Controlling Interest | 438 | 22 | 871 | 402 | ||||||||||||
| NET LOSS - Controlling Interest | $ | (3,393,972 | ) | $ | (981,215 | ) | $ | (5,663,385 | ) | $ | (2,470,570 | ) | ||||
| Net loss per share – Basic and Diluted | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.05 | ) | ||||
| Weighted average number of shares outstanding during the period – Basic and Diluted | 53,617,945 | 51,861,287 | 53,335,657 | 51,450,612 | ||||||||||||
| Other Comprehensive Loss | ||||||||||||||||
| Exchange differences arising on translating foreign operations | (11,225 | ) | 6,427 | 2,306 | 19,958 | |||||||||||
| Total Comprehensive Loss | (3,405,635 | ) | (974,810 | ) | (5,661,950 | ) | (2,451,014 | ) | ||||||||
| Total Comprehensive Loss - Non-Controlling Interest | 253 | (31 | ) | (118 | ) | (402 | ) | |||||||||
| Total Comprehensive Loss - Controlling Interest | $ | (3,405,382 | ) | $ | (974,841 | ) | $ | (5,662,068 | ) | $ | (2,451,416 | ) | ||||
See accompanying notes to the unaudited consolidated financial statements.
| F-2 |
Inception Mining, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | (5,664,256 | ) | $ | (2,470,972 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operations | ||||||||
| Depreciation and amortization expense | 169,768 | 616,398 | ||||||
| Common stock issued for services | 358,958 | 151,448 | ||||||
| Loss on extinguishment of debt | 8,510 | 3,325 | ||||||
| Change in derivative liability | 1,372,972 | 193,583 | ||||||
| Amortization of debt discount | 1,032,159 | 292,823 | ||||||
| Change in consignment gold | - | (16,338 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Decr (incr) in trade receivables | (4,625 | ) | 2,949 | |||||
| Decr (incr) inventories | 860,145 | (471,347 | ) | |||||
| Decr (incr) prepaid expenses and other current assets | (12,469 | ) | 12,266 | |||||
| Incr (decr) accounts payable and accrued liabilities | 421,286 | 443,366 | ||||||
| Incr (decr) accounts payable and accrued liabilities - related parties | 1,482,342 | 1,380,453 | ||||||
| Net Cash Provided By Operating Activities | 24,790 | 137,954 | ||||||
| Cash Flows From Investing Activities: | ||||||||
| Purchase of fixed assets | (19,994 | ) | (285,228 | ) | ||||
| Net Cash Used In Investing Activities | (19,994 | ) | (285,228 | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Repayment of notes payable | (120,000 | ) | (556,000 | ) | ||||
| Repayment of notes payable-related parties | (1,886,949 | ) | (1,149,164 | ) | ||||
| Repayment of convertible notes payable | (895,000 | ) | (250,000 | ) | ||||
| Proceeds from notes payable | - | 532,000 | ||||||
| Proceeds from notes payable-related parties | 1,478,200 | 813,700 | ||||||
| Proceeds from convertible notes payable | 1,289,750 | 591,750 | ||||||
| Proceeds from secured borrowings | 17,093 | 27,239 | ||||||
| Common stock issued with convertible note payable | 26,038 | - | ||||||
| Proceeds from issuance of common stock | 42,000 | 49,000 | ||||||
| Net Cash Provided by (Used in) Financing Activities | (48,868 | ) | 58,525 | |||||
| Effects of exchange rate changes on cash | 8,257 | 59 | ||||||
| Net Change in Cash | (35,815 | ) | (88,690 | ) | ||||
| Cash at Beginning of Period | 51,800 | 194,653 | ||||||
| Cash at End of Period | $ | 15,985 | $ | 105,963 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 684,609 | $ | 265,972 | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued for extinguishment of debt and accounts payable | $ | 16,009 | $ | 8,325 | ||||
| Common stock issued for note commitment fee | $ | 10,498 | $ | - | ||||
| Recognition of debt discounts on convertible notes payable | $ | 984,743 | $ | 390,753 | ||||
See accompanying notes to the unaudited consolidated financial statements.
| F-3 |
Inception Mining, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2018
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) to change its name to Silver America, Inc. and (2) increased its authorized common stock from 100,000,000 to 500,000,000.
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 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented.
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 Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently, the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.
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 of 240,225,901 shares of common stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early Mayan and Spanish occupation.
On January 11, 2016, the Company implemented a 5.5 to 1 reverse stock split. This reverse stock split was effective on May 26, 2016. All share and per share references have been retroactively adjusted to reflect this 5.5 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented. Immediately before the Reverse Split, the Company had 266,669,980 shares of common stock outstanding. Immediately after the Reverse Split, the Company had 48,485,451 shares of common stock outstanding, pending fractional-share rounding-up calculations to adjust for the Reverse Split.
The Company’s primary mine is located on the 200 hectare Clavo Rico Concession, located in southern Honduras. This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest and later increased its ownership to 99.9%.
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, the Company incurred a net loss of $5,664,256 during the period ended September 30, 2018, and had a working capital deficit of $18,589,105 as of September 30, 2018. These factors among others indicate that the Company may be unable to continue as a going concern for at least one year from the date the consolidated financial statements are issued or available to be issued.
| F-4 |
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
Management is currently working to make changes that will result in profitable operations and to obtain additional funding sources to meet the Company’s need for cash for at least one year from the date the consolidated financial statements are issued or available to be issued.
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Inception Mining, Inc. and its wholly owned subsidiaries, Inception Development, Corp., Clavo Rico Development Corp., Clavo Rico, Ltd. and Compañía Minera Cerros del Río, S.A. de C.V., and its controlling interest subsidiaries, Compañía Minera Cerros del Sur, S.A. de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. (collectively, the “Company”). All intercompany accounts have been eliminated upon consolidation.
Basis of Presentation - The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
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 September 30, 2018 and December 31, 2017, the Company had no cash equivalents. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has never experienced any losses in such accounts.
Inventories, Stockpiles and Mineralized Material on Leach Pads - Inventories, including stockpiles and mineralized material on leach pads are carried at the lower of cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, mineralized material on leach pads and inventories to net realizable value are reported as a component of costs applicable to mining revenue. Cost is comprised of production costs for mineralized material produced and processed. Production costs include the costs of materials, costs of processing, direct labor, mine site and processing facility overhead costs and depreciation, amortization and depletion.
Stockpiles - Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion relating to mining operations, and removed at each stockpile’s average cost per ton.
Mineralized Material on Leach Pads - The Company utilizes a heap leaching process to recover gold from its mineralized material. Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution that dissolves the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered. Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad.
The estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage.
Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the quantities and grades of material placed on leach pads to the quantities and grades quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
In-process Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process.
Finished Goods Inventories - Finished goods inventories include gold that has been processed through the Company’s ADR facility and are valued at the average cost of their production.
| F-5 |
Exploration and Development Costs - 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 in accordance with FASB ASC 930, Extractive Activities- Mining. 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.
Mineral Rights and Properties - We defer acquisition costs until we determine the viability of the property. Since we do not have proven and probable reserves as defined by Securities and Exchange Commission (“SEC”) Industry Guide 7, exploration expenditures are expensed as incurred. We expense care and maintenance costs as incurred.
We review the carrying value of our mineral rights and properties for impairment whenever there are negative indicators of impairment. Our estimate of the gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties affecting the recoverability of our investment in the mineral claims and properties. Although we have made our best, most current estimate of these factors, it is possible that near term changes could adversely affect estimated net cash flows from our mineral claims and properties and possibly require future asset impairment write-downs.
Where estimates of future net operating cash flows are not available and where other conditions suggest impairment, we assess recoverability of carrying value from other means, including net cash flows generated by the sale of the asset. We use the units-of-production method to deplete the mineral rights and properties.
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 Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.
| F-6 |
Long-Lived Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flows.
Properties, Plant and Equipment - We record properties, plant and equipment at historical cost. We provide depreciation and amortization in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value. We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful lives as follows:
| Building | 7 to 15 years | |
| Vehicles and equipment | 3 to 7 years | |
| Processing and laboratory | 5 to 15 years | |
| Furniture and fixtures | 2 to 3 years |
Reclamation Liabilities and Asset Retirement Obligations - Minimum standards for site reclamation and closure have been established for us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site.
Revenue Recognition – The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASC 606. The Company recognizes revenue based on the following five criteria: 1) Identifying the contract, 2) Identifying separate performance obligations, 3) Determining the transaction price, 4) Allocating the transaction price among the performance obligations and 5) Recognizing revenue when the performance obligations are satisfied. Precious metals revenue is recorded at an agreed upon spot price and metals ounce measurement resulting in revenue and a receivable at the time the metals are transferred to the buyer. Precious metals revenue is recorded net of any discounts.
All accounts receivable amounts are due from a single customer. Substantially all mining revenues recorded in the current period also related to the same customer. As gold can be sold through numerous gold market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product.
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, whichever is the most reliably measurable on the date of issue.
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. 20,587,912 common share equivalents have been excluded from the diluted loss per share calculation for the period ended September 30, 2018 because it would be anti-dilutive.
Comprehensive Loss - Comprehensive loss is made up of the exchange differences arising on translating foreign operations and the net loss for the ninex months ending September 30, 2018 and the year ended December 31, 2017.
Derivative Liabilities - Derivatives liabilities are recorded at fair value when issued and the subsequent change in fair value each period is recorded in other income (expense) in the consolidated statements of operations. We do not hold or issue any derivative financial instruments for speculative trading purposes.
Income Taxes - The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than not.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
Business Segments – The Company operates in one segment and therefore segment information is not presented.
| F-7 |
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.
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.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09 “Revenue from Contracts with Customers” (ASC 606), which supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition”. The Company adopted ASU 2014-09 on January 1, 2018 and recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASC 606. The Company recognizes revenue based on the following five criteria: 1) Identifying the contract, 2) Identifying separate performance obligations, 3) Determining the transaction price, 4) Allocating the transaction price among the performance obligations and 5) Recognizing revenue when the performance obligations are satisfied. The pronouncement will not have a material impact on the Company’s financial statements.
3. Joint Venture – Corpus Gold, LLC
On October 1, 2017, the Company entered into a joint venture agreement with Corpus Mining and Exploration, Ltd. (Corpus) and formed a new entity, Corpus Gold, LLC (Corpus Gold). Corpus Gold is to provide a framework within which the Company will provide management services in directing and managing an exploration, drilling and evaluation of the mineral resources in concessions owned by the Company and Corpus will provide the capital necessary to complete such purpose. All revenues will be shared based on the revenue sharing agreement of 80% to Corpus and 20% to the Company. The Company pays the monthly expenses of Corpus Gold and is reimbursed by Corpus. As of September 30, 2018, the Company had a receivable of $10,477 for expenses spent in the nine months ended September 30, 2018.
4. Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories, stockpiles and mineralized materials on leach pads at September 30, 2018 and December 31, 2017 consisted of the following:
| September 30, 2018 | December 31, 2017 | |||||||
| Supplies | $ | 89,261 | $ | 70,261 | ||||
| Mineralized Material on Leach Pads | 323,735 | 843,183 | ||||||
| ADR Plant | 64,191 | 159,463 | ||||||
| Finished Ore | 77,370 | 357,275 | ||||||
| Total Inventories | $ | 554,557 | $ | 1,430,182 | ||||
| F-8 |
There were no stockpiles at September 30, 2018 and December 31, 2017. In April 2018, management decided to impair the inventory on the old leach pad. The Company recorded an impairment of $700,101 for the inventory in process on the leach pad as of September 30, 2018.
5. Derivative Financial Instruments
The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 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 nonperformance. 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 September 30, 2018 and December 31, 2017:
| Debt Derivative Liabilities | ||||
| Balance, December 31, 2016 | $ | - | ||
| Transfers in upon initial fair value of derivative liabilities | 1,069,533 | |||
| Change in fair value of derivative liabilities and warrant liability | (421,726 | ) | ||
| Balance, December 31, 2017 | $ | 647,807 | ||
| Transfers in upon initial fair value of derivative liabilities | 1,080,409 | |||
| Extinguishment of derivative liability | (769,128 | ) | ||
| Change in fair value of derivative liabilities and warrant liability | 2,142,100 | |||
| Balance, September 30, 2018 | $ | 3,101,189 | ||
| Net loss for the period included in earnings relating to the liabilities held at September 30, 2018 | $ | 1,372,972 | ||
| Net gain for the period included in earnings relating to the liabilities held at December 31, 2017 | $ | 421,726 | ||
Debt derivatives – 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 September 30, 2018, the Company marked to market the fair value of the debt derivatives and determined a fair value of $3,101,189. The Company recorded a net loss from change in fair value and the extinguishment of debt derivatives of $1,372,972 for the period ended September 30, 2018. The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 187.13% through 252.99%, (3) weighted average risk-free interest rate of 2.36% through 2.81% (4) expected life of 0.53 through 1.85 years, and (5) the quoted market price of the Company’s common stock at each valuation date.
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.
6. Property, Plant and Equipment, Net
Property, plant and equipment at September 30, 2018 and December 31, 2017 consisted of the following:
| September 30, 2018 | December 31, 2017 | |||||||
| Land | $ | 273,954 | $ | 279,344 | ||||
| Buildings | 2,393,963 | 2,441,552 | ||||||
| Machinery and Equipment | 960,520 | 967,008 | ||||||
| Office Equipment and Furniture | 43,044 | 43,605 | ||||||
| Vehicles | 86,126 | 87,838 | ||||||
| Construction in Process | 7,607 | - | ||||||
| 3,765,214 | 3,819,347 | |||||||
| Less Accumulated Depreciation | (3,048,196 | ) | (2,937,287 | ) | ||||
| Total Property, Plant and Equipment | $ | 717,018 | $ | 882,060 | ||||
| F-9 |
In December 2016, the Company determined that the leach pad at the Clavo Rico mine was reaching its capacity. It was determined that the depreciation of the leach pad should be accelerated to fully depreciate the leach pad by March 31, 2017. This constitutes a change in management estimates. During the nine months ended September 30, 2018 and 2017, the Company recognized depreciation expense of $169,787 and $616,398, respectively. The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative expenses.
| Depreciation Allocation | September 30, 2018 | September 30, 2018 | ||||||
| Cost of Goods Sold | $ | 140,817 | $ | 505,166 | ||||
| General and Administrative | 28,970 | 111,232 | ||||||
| Total | $ | 169,787 | $ | 616,398 | ||||
7. Mine Reclamation Liability
The Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and re-vegetating various portions of our site after mining and mineral processing operations are completed. These reclamation efforts are conducted in accordance with plans reviewed and approved by the appropriate regulatory agencies.
The fair value of the long-term liability of $345,838 and $352,713 as of September 30, 2018 and December 31, 2017, respectively, for our obligation to reclaim our mine facility is based on our most recent reclamation plan, as revised, submitted and approved by the Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA) on the Clavo Rico Mine complex. The Clavo Rico Mine Complex consists of pits, leach pad, ADR plant, management buildings and service yard. The Company is currently removing materials from the old leach pad to be used as road base for the community roads. This will enable the pad to be used again in the future for leach ore rich material. The reclamation liability is based on the entire complex and footprint. Such costs are based on management’s current estimate of then expected amounts for the remediation work, assuming the work is performed in accordance with current laws and regulations and using a credit adjusted risk free rate of 18.00% and an inflation rate of 5.3%. It is reasonably possible that, due to uncertainties associated with the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology, the ultimate cost of reclamation and remediation could change in the future. We periodically review the accrued reclamation liability for information indicating that our assumptions should change.
The decrease in the reclamation liability in 2018 was due to the currency exchange rate. The increase in the reclamation liability in 2017 was related to the expansion of the heap leach facility and related infrastructure. The write-off of the precious metal inventory in process did not affect the reclamation liability because the leach pad has not changed in size or volume of material on it.
Changes to the asset retirement obligation were as follows:
| September 30, 2018 | December 31, 2017 | |||||||
| Balance, Beginning of Period | $ | 352,713 | $ | 256,070 | ||||
| Liabilities incurred | (6,875 | ) | 96,643 | |||||
| Disposal | - | - | ||||||
| Balance, End of Period | $ | 345,838 | $ | 352,713 | ||||
8. Accounts Payable and Accrued Liabilities
Accounts Payable and accrued liabilities at September 30, 2018 and December 31, 2017 consisted of the following:
| September 30, 2018 | December 31, 2017 | |||||||
| Accounts Payable | $ | 1,064,105 | $ | 899,939 | ||||
| Accrued Liabilities | 346,032 | 270,123 | ||||||
| Accrued Salaries and Benefits | 297,917 | 262,323 | ||||||
| Advances Payable | 154,381 | 107,932 | ||||||
| Total Accrued Liabilities | $ | 1,862,435 | $ | 1,540,317 | ||||
| F-10 |
9. Secured Borrowings
On June 20, 2017, the Company entered into four new financing arrangements with third parties for a combined principal amount of $195,720. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $19,572, for a total expected remittance of $215,292. The maturity date of the notes is June 21, 2018. The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the Company expects to liquidate gold held and satisfy the liability in cash. The Company reached agreements with the third parties to settle the financing arrangements as of June 21, 2018. The Company liquidated the gold held to satisfy the debt obligations. All four debt holders agreed to rollover all or portion of their funds into new financing agreements. The debt obligation of $40,647 that was being liquidated was paid in full in July 2018.
On June 25, 2018, the Company entered into four new financing arrangements with third parties for a combined principal amount of $225,000. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $22,500, for a total expected remittance of $247,500. The maturity date of the notes is June 26, 2019. The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the Company expects to liquidate gold held and satisfy the liability in cash. As of September 30, 2018, the Company held 39 ounces of gold, valued at a cost of $46,748, to satisfy the liabilities upon maturity leaving a net obligation of $184,220, which is recorded on the Company’s balance sheet as secured borrowings.
| Secured Borrowings | September 30, 2018 | December 31, 2017 | ||||||
| Secured obligations | $ | 225,005 | $ | 195,720 | ||||
| Guaranteed interest | 22,500 | 19,572 | ||||||
| Deferred interest | (16,537 | ) | (9,198 | ) | ||||
| 230,968 | 206,094 | |||||||
| Gold held as security | (46,747 | ) | (119,361 | ) | ||||
| Secured Borrowings, net | $ | 184,221 | $ | 86,733 | ||||
10. Notes Payable
Notes payable were comprised of the following as of September 30, 2018 and December 31, 2017:
| Notes Payable | September 30, 2018 | December 31, 2017 | ||||||
| 3-2-1 Partners, Inc. | $ | - | $ | 40,000 | ||||
| GS Capital Partners | - | 80,000 | ||||||
| Phil Zobrist | 60,000 | 60,000 | ||||||
| Total Notes Payable | 60,000 | 180,000 | ||||||
| Less Unamortized Discount | - | (698 | ) | |||||
| Total Notes Payable, Net of Unamortized Debt Discount | $ | 60,000 | $ | 179,302 | ||||
3-2-1 Partners, LLC – On November 30, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC in the principal amount of $40,000 (the “Note”) due on December 14, 2017 and bears a 5% interest rate. The Company made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on January 16, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
GS Capital Partners – On August 11, 2017, the Company issued an unsecured Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on April 11, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $76,000 (less an original issue discount (“OID”) of $4,000). For six months ended June 30, 2018, the Company amortized $698 of debt discount to current period operations as interest expense. The Company made a payment of $109,468 towards the principal balance and accrued interest of $29,468 on February 5, 2018. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Phil Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount of $60,000 (the “Note”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $60,000. On October 2, 2015, the Company entered into a new convertible note with Phil Zobrist that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $29,412 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $121,337 for the remaining derivative liability and of $11,842 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $60,000 and accrued interest was $61,782.
| F-11 |
11. Notes Payable – Related Parties
Notes payable – related parties were comprised of the following as of September 30, 2018 and December 31, 2017:
| Notes Payable - Related Parties | Relationship | September 30, 2018 | December 31, 2017 | |||||||
| Claymore Management | Affiliate - Controlled by Director | $ | 185,000 | $ | 185,000 | |||||
| Debra D’ambrosio | Immediate Family Member | 100,000 | - | |||||||
| Diamond 80, LLC | Immediate Family Member | 49,000 | 49,000 | |||||||
| Francis E. Rich IRA | Immediate Family Member | 100,000 | - | |||||||
| GAIA Ltd | Affiliate - Controlled by Director | 1,150,000 | 1,150,000 | |||||||
| Legends Capital | Affiliate - Controlled by Director | 765,000 | 815,000 | |||||||
| LWB Irrev Trust | Affiliate - Controlled by Director | 1,101,000 | 1,101,000 | |||||||
| MDL Ventures | Affiliate - Controlled by Director | 1,357,342 | 1,171,793 | |||||||
| Silverbrook Corporation | Affiliate - Controlled by Director | 2,227,980 | 2,227,980 | |||||||
| WOC Energy LLC | Affiliate - Controlled by Director | 40,000 | 40,000 | |||||||
| Total Notes Payable - Related Parties | $ | 7,075,322 | $ | 6,739,773 | ||||||
Claymore Management – On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management, an affiliated company controlled by a director of the Company, in the principal amount of $185,000 (the “Note”) due on demand and bore 0% per annum interest. The total net proceeds the Company received was $185,000. On October 2, 2015, the Company entered into a new convertible note with Claymore Management that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from March 18, 2011 in the amount of $151,355 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $448,369 for the remaining derivative liability and of $36,513 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $185,000 and accrued interest was $251,164.
D. D’Ambrosio – On February 13, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $88,000 (the “Note”) due on March 30, 2018 and bears a 5.70% interest rate. The Company made a payment of $93,000 towards the principal balance and accrued interest of $5,000 on March 30, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On April 4, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $80,000 (the “Note”) due April 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $84,000 towards the principal balance and accrued interest of $4,000 on April 16, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On April 19, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $80,000 (the “Note”) due on April 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $84,000 towards the principal balance and accrued interest of $4,000 on April 30, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On May 3, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $90,000 (the “Note”) due on May 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $94,500 towards the principal balance and accrued interest of $4,500 on May 14, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On May 9, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $10,000 (the “Note”) due on May 14, 2018 and bears a 5.00% interest rate. The Company made a payment of $10,500 towards the principal balance and accrued interest of $500 on May 14, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On May 16, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $90,000 (the “Note”) due on May 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $94,500 towards the principal balance and accrued interest of $4,500 on May 23, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
| F-12 |
D. D’Ambrosio – On May 24, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on June 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $93,000 towards the principal balance and accrued interest of $5,000 on March 30, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On June 5, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on June 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on June 25, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On June 27, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $120,000 (the “Note”) due on July 18, 2018 and bears a 5.0% interest rate. The Company made a payment of $126,000 towards the principal balance and accrued interest of $6,000 on July 5, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On July 6, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $150,000 (the “Note”) due on August 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $157,500 towards the principal balance and accrued interest of $7,500 on August 7, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On August 10, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on August 31, 2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on August 29, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On August 31, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on September 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on September 13, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On September 17, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on October 5, 2018 and bears a 5.0% interest rate. As of September 30, 2018, the outstanding balance of the Note was $100,000 and accrued interest was $5,000.
Diamond 80, LLC – On April 3, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $50,000 (the “Note”) due on December 31, 2018 and bears a 7.0% interest rate. The Company made a payment of $1,075 towards the principal balance of $1,000 and accrued interest of $75 on June 30, 2017. As of September 30, 2018, the outstanding balance of the Note was $49,000 and accrued interest was $0.
Diamond 80, LLC – On August 20, 2018, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $40,000 (the “Note”) due on August 31, 2018 and bears a 7.0% interest rate. The Company made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on August 29, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
Francis E. Rich IRA – On January 31, 2018, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on February 14, 2019 and bears a 30.0% interest rate. As of September 30, 2018, the outstanding balance of the Note was $100,000 and accrued interest was $3,740.
GAIA Ltd. – Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to GAIA Ltd., an affiliated company controlled by a director of the Company, for a total principal amount of $1,150,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $1,150,000. On October 2, 2015, the Company entered into a new convertible note with GAIA Ltd. that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $724,463 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $2,524,747 for the remaining derivative liability and of $226,974 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $1,150,000 and accrued interest was $1,334,896.
| F-13 |
Legends Capital Group – Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends Capital Group, an affiliated company controlled by a director of the Company, for a total principal amount of $765,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $765,000. On October 2, 2015, the Company entered into a new convertible note with Legends Capital Group that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $504,806 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and of $150,987 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $765,000 and accrued interest was $917,529.
Legends Capital Group – On May 16, 2017, the Company issued an unsecured Short-Term Promissory Note to Legends Capital Group, an affiliated company controlled by a director of the Company, in the principal amount of $100,000 (the “Note”) due on September 15, 2017 and bears a 7.0% interest rate. The Company made a payment of $50,000 towards the principal balance and accrued interest of $0 on June 27, 2017. The Company made a payment of $40,000 towards the principal balance on February 28, 2018. The Company made a payment of $10,000 towards the principal balance on May 2, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $7,000.
LW Briggs Irrevocable Trust – Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes to LW Briggs Irrevocable Trust, an affiliated company controlled by a director of the Company, for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and of $217,303 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $1,101,000 and accrued interest was $1,408,781.
MDL Ventures – The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is 100% owned by a Company officer, effective October 1, 2014, due on December 31, 2016 and bears 18% per annum interest, due at maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of the lower of $0.99 (0.18 pre-split) or 50% of the lowest three daily volume weighted average prices of the Company’s common stock during the 20 consecutive days prior to the date of conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2018. The Company recognized a gain on the extinguishment of debt of $1,487,158 for the remaining derivative liability. As of September 30, 2018, the gross balance of the note was $1,357,342 and accrued interest was $0.
Silverbrook Corporation – Between March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook Corporation, an affiliated company controlled by a director of the Company, for a total principal amount of $2,227,980 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $2,227,980. On October 2, 2015, the Company entered into a new convertible note with Silverbrook Corporation that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $1,209,606 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $4,656,189 for the remaining derivative liability and of $439,733 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $2,227,980 and accrued interest was $2,411,616.
WOC Energy, LLC – On November 6, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $40,000 (the “Note”) due on January 6, 2018 and bears a 4.0% interest rate. As of September 30, 2018, the outstanding balance of the Note was $40,000 and accrued interest was $0.
WOC Energy, LLC – On June 5, 2018, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $60,000 (the “Note”) due on June 29, 2018 and bears a 5.0% interest rate. The Company made a payment of $63,000 towards the principal balance and accrued interest of $3,000 on June 29, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
WOC Energy, LLC – On July 19, 2018, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $70,000 (the “Note”) due on August 15, 2018 and bears a 5.0% interest rate. The Company made a payment of $73,000 towards the principal balance and accrued interest of $3,000 on August 8, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
| F-14 |
12. Convertible Notes Payable
Convertible notes payable were comprised of the following as of September 30, 2018 and December 31, 2017:
| Convertible Notes Payable | September 30, 2018 | December 31, 2017 | ||||||
| Adar Bays LLC | $ | 105,000 | $ | 63,000 | ||||
| Auctus Fund | - | 110,000 | ||||||
| Coolidge Capital | 75,000 | - | ||||||
| Crossover Capital | 82,894 | 110,500 | ||||||
| Crown Bridge Partners | 50,000 | 50,000 | ||||||
| Discover Growth | 150,000 | - | ||||||
| Eagle Equities | 103,000 | 63,000 | ||||||
| Ema Financial | - | 112,000 | ||||||
| GS Capital Partners | 180,000 | - | ||||||
| JS Investments | 128,000 | - | ||||||
| Labrys Funding | 114,500 | - | ||||||
| LG Capital Funding | 75,000 | 52,500 | ||||||
| Power Up Lending | 116,000 | 98,000 | ||||||
| Silo Equity Partners | - | 53,000 | ||||||
| Total Convertible Notes Payable | 1,179,394 | 712,000 | ||||||
| Less Unamortized Discount | (601,825 | ) | (480,233 | ) | ||||
| Total Convertible Notes Payable, Net of Unamortized Debt Discount | $ | 577,569 | $ | 231,767 | ||||
Adar Bays, LLC – On December 6, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Adar Bays, LLC (“Adar Bays”), in the principal amount of $63,000 (the “Note”) due on December 6, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 24, 2018, the Company paid $87,374 to pay off the principal balance of $63,000 and $24,374 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $58,685 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Adar Bays, LLC – On May 29, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Adar Bays, LLC (“Adar Bays”), in the principal amount of $105,000 (the “Note”) due on May 29, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $35,644 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $105,000 and accrued interest was $2,854.
Auctus Fund – On August 17, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Auctus Fund (“Auctus”), in the principal amount of $110,000 (the “Note”) due on May 17, 2018 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $99,750 (less an original issue discount (“OID”) of $10,250). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 15 trading day period prior to conversion. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions on this note. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount while the “Chill” is in effect. On February 5, 2018, the Company paid $156,759 to pay off the principal balance of $110,000 and $46,759 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $55,201 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Coolidge Capital, LLC – On May 21, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $75,000. The total net proceeds the Company received was $70,500 (less an original issue discount (“OID”) of $4,500). The Note has a maturity date of February 21, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $4,500 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $2,152 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $75,000 and accrued interest was $3,255.
Crossover Capital Fund II, LLC – On November 30, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $110,500 (the “Note”) due on August 30, 2018 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $10,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 23, 2018, the Company paid $157,777 to pay off the principal balance of $110,500 and $47,277 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $97,952 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
| F-15 |
Crossover Capital Fund II, LLC – On July 10, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $82,894 (the “Note”) due on April 10, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $75,000 (less an original issue discount (“OID”) of $7,894). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $24,808 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $82,894 and accrued interest was $2,235.
Crown Bridge Partners – On August 10, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $50,000 (the “Note”) due on August 10, 2018 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $43,000 (less an original issue discount (“OID”) of $7,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On January 24, 2018, the Company paid $74,623 to pay off the principal balance of $50,000 and $24,623 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $30,411 of debt discount to current period operations as interest expense. As of September 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
Crown Bridge Partners – On May 11, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $50,000 (the “Note”) due on May 11, 2019 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $43,000 (less an original issue discount (“OID”) of $7,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $19,452 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $50,000 and accrued interest was $973.
Discover Growth Fund – On August 2, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Discover Growth Fund (“Discover Growth”), in the principal amount of $150,000 (the “Note”) due on August 2, 2020 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $150,000. The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $12,107 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $150,000 and accrued interest was $2,425.
Eagle Equities, LLC – On December 12, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $63,000 (the “Note”) due on December 12, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On June 5, 2018, the Company paid $91,564 to pay off the principal balance of $63,000 and $28,564 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $59,721 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Eagle Equities, LLC – On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $103,000 (the “Note”) due on June 8, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the nine months ended September 30, 2018, the Company amortized $32,170 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $103,000 and accrued interest was $2,574.
EMA Financial – On December 5, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to EMA Financial, in the principal amount of $112,000 (the “Note”) due on December 5, 2018 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $100,800 (less an original issue discount (“OID”) of $11,200). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. However, if the Company’s share price at any time loses the bid, then the conversion price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion price of $0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the conversion shares to the Holder, or any date thereafter while conversion shares are held by the Holder, the closing bid price per share of common stock on the principal market on the trading day on which the common shares are traded is less than the sale price used to calculate the conversion price, then such conversion price shall be automatically reduced using the new low closing bid price and additional shares issued to the Holder. In the event the Company experiences a DTC “Chill” on its shares, or if the closing sale price at any time falls below $0.145, then the conversion price shall be decreased an additional 15% discount. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 5% discount will apply to all future conversions on this note. On June 4, 2018, the Company paid $160,080 to pay off the principal balance of $112,000 and $48,080 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $104,022 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
| F-16 |
GS Capital Partners – On February 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on February 1, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $76,000 (less an original issue discount (“OID”) of $4,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. On July 30, 2018, the Company paid $107,156 to pay off the principal balance of $80,000 and $27,156 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $80,000 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
GS Capital Partners – On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on June 8, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $76,000 (less an original issue discount (“OID”) of $4,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the nine months ended September 30, 2018, the Company amortized $24,986 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $80,000 and accrued interest was $1,999.
GS Capital Partners – On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on August 1, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the nine months ended September 30, 2018, the Company amortized $16,201 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $100,000 and accrued interest was $1,315.
JSJ Investments – On January 24, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to JSJ Investments (“JSJ”), in the principal amount of $60,000 (the “Note”) due on January 24, 2019 and bears 12% per annum interest (default interest increases to 18% while default continues), due at maturity. The total net proceeds the Company received was $58,000 (less an original issue discount (“OID”) of $2,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 18, 2018, the Company paid $83,111 to pay off the principal balance of $60,000 and $23,111 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $60,000 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
JSJ Investments – On May 16, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to JSJ Investments (“JSJ”), in the principal amount of $128,000 (the “Note”) due on May 16, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $125,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $48,044 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $128,000 and accrued interest was $5,765.
Labrys Fund LP – On May 25, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with LABRYS FUND, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate principal amount of $114,500. The Note has a maturity date of November 25, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note, provided it makes a payment to the Purchaser as set forth in the Note within 180 days of its Issue Date. The transactions described above closed on May 25, 2018. In connection with the issuance of the Note, the Company issued to the Purchaser 316,298 shares of its common stock (the “Returnable Shares”) that shall be returned to the Company’s treasury if the Note is fully repaid and satisfied. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.30 as set forth in the Note, subject to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions. The Company issued 55,250 shares of common stock in connection with this note, which were valued at $26,038 and recorded as a debt discount. The Company recognized a debt discount on this note of $29,624 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $20,608 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $114,500 and accrued interest was $4,818.
LG Capital Funding – On September 9, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to LG Capital Funding (“LG Cap”), in the principal amount of $52,500 (the “Note”) due on September 7, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $2,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On March 9, 2018, the Company paid $76,400 to pay off the principal balance of $52,500 and $23,900 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $35,959 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
| F-17 |
LG Capital Funding – On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to LG Capital Funding (“LG Cap”), in the principal amount of $75,000 (the “Note”) due on June 8, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $71,250 (less an original issue discount (“OID”) of $3,750). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $1,301 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $75,000 and accrued interest was $2,811.
Power Up Lending Group – On August 18, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $35,000. The total net proceeds the Company received was $32,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of May 30, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. On January 31, 2018, the Company paid $49,767 to pay off the principal balance of $35,000 and $14,767 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $1,579 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
On December 5, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of September 15, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. On June 5, 2018, the Company paid $89,943 to pay off the principal balance of $63,000 and $26,943 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $2,725 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
On February 1, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $43,000. The total net proceeds the Company received was $40,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of November 15, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. On July 12, 2018, the Company paid $60,531 to pay off the principal balance of $43,000 and $17,531 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $3,000 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
| F-18 |
On June 5, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of March 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $1,178 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $63,000 and accrued interest was $2,423.
On July 12, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $53,000. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of April 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $1,239 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $63,000 and accrued interest was $1,394.
Silo Equity Partners – On August 22, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Silo Equity Partners (“Silo”), in the principal amount of $53,000 (the “Note”) due on August 22, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On February 9, 2018, the Company paid $77,030 to pay off the principal balance of $53,000 and $24,030 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $33,978 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
13. Stockholders’ Deficit
Common Stock
On January 1, 2018, 760,000 shares of common stock were issued to officers, former officers and members of the board of directors of the Company as payment for consulting services performed. These shares were valued at $0.2846 per share for a value of $216,296.
On January 1, 2018, 20,000 shares of common stock were issued to a former officers and members of the board of directors of the Company as part of a settlement agreement. These shares were valued at $0.2846 per share for a value of $5,692.
On January 30, 2018, the Company issued 250,000 shares of common stock for $27,500 in cash. These shares were valued at $0.11 per share.
On March 30, 2018, the Company issued 36,385 shares for services performed per a consulting agreement in 2015. These shares were valued and expensed based on quoted market prices at that time. These shares had never been issued.
On May 25, 2018, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 55,250 shares of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.19 per share for a total value of $10,498.
On May 29, 2018, the Company entered into a Settlement Agreement with a consultant through which the consultant agreed to return 36,364 shares of common stock to the Company. The 36,364 shares were returned to the Company and were immediately cancelled.
On June 28, 2018, the Company issued 100,000 shares of common stock to Justin Wilson per a consulting agreement. These shares were payment for services and were valued at $0.1601 per share for a total value of $16,010.
On July 3, 2018, 100,000 shares of common stock were issued to a member of the board of directors of the Company as part of a settlement agreement for consulting services. These shares were valued at $0.1601 per share for a value of $16,010. The Company recognized a loss on this settlement of $8,510 and reduced payables by $7,500.
On July 19, 2018, the Company issued 200,000 shares of common stock for $14,500 in cash. These shares were valued at $0.725 per share.
| F-19 |
On September 26, 2018, the Company entered into a Settlement Agreement with a consultant through which the consultant agreed to return 450,000 shares of common stock to the Company. The 450,000 shares were returned to the Company and were immediately cancelled.
On September 28, 2018, 600,000 shares of common stock were issued to officers, former officers and members of the board of directors of the Company as payment for consulting services performed. These shares were valued at $0.1891 per share for a value of $113,460.
Warrants
The following tables summarize the warrant activity during the nine months ended September 30, 2018 and the year ended December 31, 2017:
| Stock Warrants | Number of Warrants | Weighted Average Exercise Price | ||||||
| Balance at December 31, 2017 | 743,637 | $ | 1.28 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forfeited | - | - | ||||||
| Balance at September 30, 2018 | 743,637 | $ | 1.28 | |||||
| 2018 Outstanding Warrants | Warrants Exercisable | |||||||||||||||||||
| Range of Exercise Price | Number Outstanding at September 30, 2018 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at September 30, 2018 | Weighted Average Exercise Price | |||||||||||||||
| $ | 0.50 - 6.88 | 743,637 | 0.80 years | $ | 1.28 | 743,637 | $ | 1.28 | ||||||||||||
14. Related Party Transactions
Consulting Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $18,000 per month for twelve months. In October 2017, the agreement was renegotiated to increase the monthly amount to $25,000 per month. As of September 30, 2018, the Company owed $1,110,000 to the stockholder/director in accrued consulting fees. See Note 11 for additional details.
15. Commitments and Contingencies
Litigation
The Company at times is subject to other legal proceedings that arise in the ordinary course of business.
On January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami (“Bertolami”) in the United States District Court for the Western District of North Carolina, Statesville Division. The Plaintiffs filed a First Amended Complaint on May 8, 2017. The Amended Complaint alleges fraud, breach of contract, state securities fraud, federal securities fraud, breach of fiduciary duty, unjust enrichment, and negligent misrepresentation against the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin). The allegations arise from the change of control transaction in February 2013 and other documents related to that transaction. The Company filed a motion to dismiss on jurisdictional grounds on May 19, 2017. Magistrate Judge David S. Cayer issued a Memorandum and Recommendation and Order that the Motion to Dismiss should be granted. Judge Connor, the Federal Judge to whom the case was assigned, entered an Order and Judgement on March 29, 2018 adopting the Recommendation of the Magistrate and Dismissing the case.
On June 12, 2017, Danzig Ltd, filed an arbitration in Boston, Massachusetts, with the American Arbitration Association (AAA) against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). The Boston arbitration asserted claims that largely mirror those in the lawsuit in North Carolina, and sought $782,931 in damages, plus attorneys’ fees and costs. Messrs. D’Ambrosio and Ahlin were dismissed on the ground that they were not proper parties to the Arbitration. A hearing occurred the week of April 9, 2018. On August 8, 2018, the Arbitrator entered a Partial Final Award ruling in favor of the Company that denied all of the claims of Danzig and on October 25, 2018 a Final Award was entered, incorporating the previously issued Partial Final Award, and granting attorneys’ fees and costs to the Company in the total amount of $361,710.74. Steps will be taken to confirm the award.
| F-20 |
On July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). The Salt Lake City arbitration alleges federal securities fraud, state securities fraud, breach of contract, unjust enrichment, fraud, breach of fiduciary duty, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing, relating to a Consulting Agreement executed between the Company and Elliott Foxcroft on March 27, 2014. Mr. Foxcroft seeks at least $232,000 in damages in that Arbitration. The Company has retained counsel to vigorously defend the allegations in that arbitrations. The Company has also alleged a counterclaim for breach of the consulting agreement with Mr. Foxcroft in the Salt Lake City arbitration, seeking damages in the initial amount of $150,000. A motion to determine whether the arbitrator has authority to determine whether Messrs. D’Ambrosio and Ahlin are proper parties to the arbitration was filed and resulted in the arbitrator dismissing the individual Respondents. In August 2018 the Company filed a motion for summary disposition of Foxcroft’s claims. After it was fully briefed but not decided, Foxcroft advised the AAA that he was insolvent and he would not be able to pay any fees and costs related to the Arbitration, either outstanding or subsequently invoiced amounts. Based upon non-payment of fees, the Company filed a Motion to Dismiss with Prejudice the entirety of the case, which motion is pending decision.
On August 22, 2017, the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin) filed a complaint against Danzig Ltd., Elliott Foxcroft, and Brett Bertolami in the United States District Court, District of Utah, Central Division. The complaint was filed to determine whether the Consulting Agreements which form the basis for the Boston Arbitration and the Salt Lake City Arbitration allow the Claimants in those arbitrations to proceed against the individual Respondents in those arbitrations and to enjoin the Claimants in those arbitrations from pursuing claims against the individual Respondents. Judge Nuffer issued a Memorandum Decision and Order on February 27, 2018, concluding that he had the authority to determine whether the arbitration provision which formed the basis for the Foxcroft Arbitration in Salt Lake City allowed a claim against the individual Respondents Ahlin and D’Ambrosio and that it was improper to name those individuals in the arbitration. Judge Nuffer did not rule on the claims in the Boston Arbitration because those claims were the same as formed the basis for the North Carolina Federal case, deferring to that case as having been first filed. Judge Nuffer indicated that he would enjoin Foxcroft from proceeding against the individuals in the Salt Lake City Arbitration. Foxcroft advised the court that he was no longer pursuing those individuals in the Salt Lake City Arbitration.
The Defendants Danzig Ltd., Elliott and Brett Bertolami in the Utah Federal case before Judge Nuffer have since filed a Counterclaim against Inception, Ahlin and D’Ambrosio purporting to state claims substantially the same as those filed in the still pending Boston and Salt Lake City Arbitrations. The Company, Ahlin and D’Ambrosio have filed a Motion to Dismiss and for More Definite Statement of that Counterclaim (which remains pending), and will vigorously defend against that Counterclaim.
| F-21 |
16. Concentrations
We generally sell a significant portion of our mineral production to a relatively small number of customers. For the nine months ended September 30, 2018, 100 percent of our consolidated product revenues were attributable to A-Mark Precious Metals and to Asahi Refining, Inc., our current and only two customers as of September 30, 2018. We are not dependent upon any one purchaser and have alternative purchasers readily available at competitive market prices if there is a disruption in services or other events that cause us to search for other ways to sell our production.
The Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine was disrupted or closed.
17. Subsequent Events
Management has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through November 14, 2018, the date which the financial statements were available to be issued and there are no material subsequent events.
| F-22 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Except for historical information, the following Management’s Discussion and Analysis contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) discussions about mineral resources and mineralized material, (b) our projected sales and profitability, (c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for working capital, (g) our lack of operational experience and (h) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10-Q and in the Company’s other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.
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 September 30, 2018, the results of its consolidated statements of comprehensive income/(loss) for the nine-month period ended September 30, 2018, and its consolidated cash flows for the nine-month period ended September 30, 2018. 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
We are a mining company that was formed in Nevada on July 2, 2007. As a mining company, we are engaged in the production of precious metals. Our activities are not limited to production and they also include production, acquisition, exploration, and development of mineral properties, primarily for gold, from owned mining properties. Inception Mining has acquired two projects, the UP and Burlington mine and the Clavo Rico mine, as further described below. Our target properties are those that have been the subject of historical exploration. We have generated revenue and are generating revenue from mining operations.
UP and Burlington Gold Mine
On February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly known as the UP and Burlington Gold Mine (“UP and Burlington” or the “Mine”) pursuant to that certain asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). Accordingly, the Company owns and controls this property exclusively; there are no third parties who impose conditions of any kind on operations at this location. We are presently in the exploration stage at UP and Burlington. UP and Burlington contain two federal patented mining claims which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises UP and Burlington. Production at this mine is subject to a 3% net smelter royalty, which may increase or decrease depending on the amount of gold produced.
Discovered in 1892, UP and Burlington is a private gold property that has been held unused in a family trust for the past 75 years. UP and Burlington is located in Lemhi County, Northwest of Salmon, Idaho, at an elevation of 7,994 feet. The UP and Burlington site is located six miles from the city of Salmon; is 0.6 miles away from the closest major road (Ridge Rd.); and is 1.56 miles away from the closest major power line. We believe Salmon, along with the surrounding County of Lemhi, provides an excellent infrastructure for our mine. Salmon has a population of 3,122 and Lemhi County has a population of 7,806. In September 2011, heavy maintenance and right-of-way repair was completed and a new road to UP and Burlington was constructed.
| 3 |
UP and Burlington’s two gold mining claims were brought to patent in 1900, which covers the Mine’s 40 acres. Subsequently, in 1989, a U.S. Forest Survey was performed on the UP and Burlington site confirming that the patented claims cover an area which is six hundred feet by three thousand feet (600’x3000’). The Mine’s patented claims remove the challenges associated when working on U.S. Forest lands, Bureau of Land Management (“BLM”), state or other property types. With our purchase of UP and Burlington, we have the benefit of working on private land, which requires only a hauling / road permit to commence significant operations.
The Company has obtained the necessary permitting, cut additional access roads, made surface improvements, and initiated surface mining on a 2,500 foot per day lighted vein for bulk sampling, vein definition and ore valuation. In Phase II, we plan to contract an underground mining and operations plan, expand portal development leveraging existing underground access, and implement underground mining to a depth based on optimizing costs versus processed ore value. There is no guarantee that we will be successful in implementing any stage of our plans.
Our plan includes the continuation of obtaining a Lemhi County Conditional Use Permit and an Idaho Department of Lands Surface Reclamation Bond. Since receiving the permitting for the U.S. Forest Service Access Road, the access road is now complete. In addition, we have contracts such as geotechnical contracts, mining contracts, toll processing contracts, and underground mine plan contracts.
The Company and its independent consultants are in the process of developing a detailed exploration-drilling program to confirm and expand mineralized zones in the Mine and collect additional environmental and technical data. The first phase began in 2013. The Company intends to continue drilling, metallurgical testing, engineering and environmental programs and studies and has updated the historic feasibility study and environmental permit applications.
We also plan to review opportunities and acquire additional mineral properties with current or historic precious and base metal mineralization with meaningful exploration potential.
Clavo Rico Mine
On October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. (“Clavo Rico”). Clavo Rico is a privately held Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. and holds other mining concessions. Its workings include several historical underground mining operations dating back to the early Mayan and Spanish occupation.
The Company’s primary mine is located on the 200-hectare Clavo Rico Concession, located in southern Honduras. This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía Minera Cerros del Sur, S. de R.L. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest and later increased its ownership to 99.9%. This company has since invested over five million dollars in the expansion and development of the mine and surrounding properties. Today, the Company operates this mine through exploration of surface-level material.
Mining operations begin by crushing extracted material to approximately 3/8-inch size pebbles, which is then mixed with additional material and loaded on the recovery pad for processing. The pebble material is sprinkled with a solution that leaches the gold from the rock, and the solution is collected and processed on-site at Clavo Rico’s own ADR plant. The doré bars that result from this process are shipped to the USA for refining.
Prior to the expansion, the mine had only been processing approximately less than 500 tons of extracted material per day. The current recovery operational increase has been sized to handle from 500 to 750 tons of extracted material per day on a recovery bed that has the capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012 and believes that sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity by the end of June 30, 2020.
The Company has engaged in preliminary drilling of this area and the resulting assays of samples indicate that the material should have grades in the range of 0-5 grams of gold per ton.
| 4 |
Results of Operations
Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017
We incurred a net loss of $5,664,256 for the nine months ended September 30, 2018, and a net loss of $2,470,972 for the nine months ended September 30, 2017. This change in our results over the two periods is primarily the result of the write-down in metals inventory in process based on the evaluation of ore on the leach pad, changes in derivatives and an increase in interest expense which are included in other income/expense. The following table summarizes key items of comparison and their related increase (decrease) for the nine months ended September 30, 2018 and 2017:
| Nine Months Ended September 30, | Increase/ | |||||||||||
| 2018 | 2017 | (Decrease) | ||||||||||
| Revenues | $ | 3,155,812 | $ | 2,940,961 | $ | 214,851 | ||||||
| Cost of Sales | 3,195,266 | 2,633,406 | 561,860 | |||||||||
| General and Administrative | 1,623,506 | 1,173,509 | 449,997 | |||||||||
| Depreciation and Amortization Expenses | 28,970 | 111,232 | (82,262 | ) | ||||||||
| Total Operating Expenses | 4,847,742 | 3,918,147 | 929,595 | |||||||||
| Income (Loss) from Operations | (1,691,930 | ) | (977,186 | ) | 714,744 | |||||||
| Other Income (expense) | 2,790 | 8,578 | 5,788 | |||||||||
| Change in Derivative Liabilities | (1,372,972 | ) | (193,583 | ) | 1,179,389 | |||||||
| Loss on Extinguishment of Debt | (8,510 | ) | (3,325 | ) | 5,185 | |||||||
| Change in Consignment Gold | - | 16,338 | 16,338 | |||||||||
| Interest Expense | (2,593,634 | ) | (1,321,794 | ) | 1,271,840 | |||||||
| Income (Loss) from Operations Before Taxes | (5,664,256 | ) | (2,470,972 | ) | 3,193,284 | |||||||
| Net Income (Loss) | $ | (5,664,256 | ) | $ | (2,470,972 | ) | $ | 3,193,284 | ||||
Three months ended September 30, 2018 compared to the three months ended September 30, 2017
We incurred a net loss of $3,394,410 for the three months ended September 30, 2018, and a net loss of $981,237 for the three months ended September 30, 2017. This change in our results over the two periods is primarily the result of the write-down in metals inventory in process based on the evaluation of ore on the leach pad, changes in derivatives and an increase in interest expense which are included in other income/expense. The following table summarizes key items of comparison and their related increase (decrease) for the three months ended September 30, 2018 and 2017:
| Three Months Ended September 30, | Increase/ | |||||||||||
| 2018 | 2017 | (Decrease) | ||||||||||
| Revenues | $ | 794,227 | $ | 1,145,591 | $ | (351,364 | ) | |||||
| Cost of Sales | 654,141 | 936,392 | (282,251 | ) | ||||||||
| General and Administrative | 646,716 | 410,364 | 236,352 | |||||||||
| Depreciation and Amortization Expenses | 9,459 | 4,807 | 4,652 | |||||||||
| Total Operating Expenses | 1,310,316 | 1,351,563 | (41,247 | ) | ||||||||
| Income (Loss) from Operations | (516,089 | ) | (205,972 | ) | 310,117 | |||||||
| Other Income (expense) | 771 | 4,474 | 3,703 | |||||||||
| Change in Derivative Liabilities | (2,148,545 | ) | (193,583 | ) | 1,954,962 | |||||||
| Loss on Extinguishment of Debt | (8,510 | ) | - | 8,510 | ||||||||
| Change in Consignment Gold | - | - | - | |||||||||
| Interest Expense | (722,037 | ) | (586,156 | ) | 135,881 | |||||||
| Income (Loss) from Operations Before Taxes | (3,394,410 | ) | (981,237 | ) | 2,413,173 | |||||||
| Net Income (Loss) | $ | (3,394,410 | ) | $ | (981,237 | ) | $ | 2,413,173 | ||||
Liquidity and Capital Resources
Our balance sheet as of September 30, 2018 reflects assets of $1,376,000. We had cash in the amount of $15,985 and working capital deficit in the amount of $18,589,105 as of September 30, 2018. 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
| September 30, 2018 | December 31, 2017 | |||||||
| Current assets | $ | 621,357 | $ | 1,528,591 | ||||
| Current liabilities | 19,210,462 | 15,037,381 | ||||||
| Working capital deficit | $ | (18,589,105 | ) | $ | (13,508,790 | ) | ||
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 $22,046,656. In addition, there is a working capital deficit of $18,589,105 as of September 30, 2018. 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.
| 5 |
| Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Net Cash Provided by Operating Activities | $ | 24,790 | $ | 137,954 | ||||
| Net Cash Used in Investing Activities | (19,994 | ) | (285,228 | ) | ||||
| Net Cash Provided by (Used in) Financing Activities | (48,868 | ) | 58,525 | |||||
| Effects of Exchange Rate Changes on Cash | 8,257 | 59 | ||||||
| Net Decrease in Cash | $ | (35,815 | ) | $ | (88,690 | ) | ||
Operating Activities
Net cash flow provided by operating activities during the nine months ended September 30, 2018 was $24,790, a decrease of $113,164 from the $137,954 net cash used during the nine months ended September 30, 2017. This decrease in the cash provided by operating activities was primarily due to the increase of in the cost of precious metals production due to impairment of the metals in process by the Company.
Investing Activities
Investing activities during the nine months ended September 30, 2018 used $19,994, a decrease of $265,234 from the $285,228 used by investing activities during the nine months ended September 30, 2017. During the nine months ended September 30, 2018, the Company purchased $19,994 in fixed assets.
Financing Activities
Financing activities during the nine months ended September 30, 2018 used $48,868, a decrease of $107,393 from the $58,525 provided by financing activities during the nine months ended September 30, 2017. During the nine months ended September 30, 2018, the Company received $17,093 in proceeds from secured borrowings, $42,000 from the issuance of common stock, $1,478,200 in proceeds from notes payable - related parties, and $1,289,750 in proceeds from convertible notes payable. The Company made $120,000 in payments on notes payable, and $1,886,949 in payments on notes payable – related parties and $895,000 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 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.
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.
| 6 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to include disclosure 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 September 30, 2018.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles, or GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
With the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2018 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation and the material weaknesses described below, management concluded that the Company’s internal controls were not effective based on financial reporting as of December 31, 2017 and September 30, 2018 based on the COSO framework criteria. Management has identified control deficiencies regarding the lack of segregation of duties, tax compliance issues and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff and reliance on outside consultants for external reporting. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.
To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and outside accounting consultants. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.
In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the quarter ended September 30, 2018 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the quarter ended September 30, 2018 are fairly stated, in all material respects, in accordance with US GAAP.
This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
| 7 |
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.
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 January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami (“Bertolami”) in the United States District Court for the Western District of North Carolina, Statesville Division. The Plaintiffs filed a First Amended Complaint on May 8, 2017. The Amended Complaint alleges fraud, breach of contract, state securities fraud, federal securities fraud, breach of fiduciary duty, unjust enrichment, and negligent misrepresentation against the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin). The allegations arise from the change of control transaction in February 2013 and other documents related to that transaction. The Company filed a motion to dismiss on jurisdictional grounds on May 19, 2017. Magistrate Judge David S. Cayer issued a Memorandum and Recommendation and Order that the Motion to Dismiss should be granted. Judge Connor, the Federal Judge to whom the case was assigned, entered an Order and Judgement on March 29, 2018 adopting the Recommendation of the Magistrate and Dismissing the case.
On June 12, 2017, Danzig Ltd, filed an arbitration in Boston, Massachusetts, with the American Arbitration Association (AAA) against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). The Boston arbitration asserted claims that largely mirror those in the lawsuit in North Carolina, and sought $782,931 in damages, plus attorneys’ fees and costs. Messrs. D’Ambrosio and Ahlin were dismissed on the ground that they were not proper parties to the Arbitration. A hearing occurred the week of April 9, 2018. On August 8, 2018, the Arbitrator entered a Partial Final Award ruling in favor of the Company that denied all of the claims of Danzig and on October 25, 2018 a Final Award was entered, incorporating the previously issued Partial Final Award, and granting attorneys’ fees and costs to the Company in the total amount of $361,710.74. Steps will be taken to confirm the award.
On July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). The Salt Lake City arbitration alleges federal securities fraud, state securities fraud, breach of contract, unjust enrichment, fraud, breach of fiduciary duty, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing, relating to a Consulting Agreement executed between the Company and Elliott Foxcroft on March 27, 2014. Mr. Foxcroft seeks at least $232,000 in damages in that Arbitration. The Company has retained counsel to vigorously defend the allegations in that arbitrations. The Company has also alleged a counterclaim for breach of the consulting agreement with Mr. Foxcroft in the Salt Lake City arbitration, seeking damages in the initial amount of $150,000. A motion to determine whether the arbitrator has authority to determine whether Messrs. D’Ambrosio and Ahlin are proper parties to the arbitration was filed and resulted in the arbitrator dismissing the individual Respondents. In August 2018 the Company filed a motion for summary disposition of Foxcroft’s claims. After it was fully briefed but not decided, Foxcroft advised the AAA that he was insolvent and he would not be able to pay any fees and costs related to the Arbitration, either outstanding or subsequently invoiced amounts. Based upon non-payment of fees, the Company filed a Motion to Dismiss with Prejudice the entirety of the case, which motion is pending decision.
On August 22, 2017, the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin) filed a complaint against Danzig Ltd., Elliott Foxcroft, and Brett Bertolami in the United States District Court, District of Utah, Central Division. The complaint was filed to determine whether the Consulting Agreements which form the basis for the Boston Arbitration and the Salt Lake City Arbitration allow the Claimants in those arbitrations to proceed against the individual Respondents in those arbitrations and to enjoin the Claimants in those arbitrations from pursuing claims against the individual Respondents. Judge Nuffer issued a Memorandum Decision and Order on February 27, 2018, concluding that he had the authority to determine whether the arbitration provision which formed the basis for the Foxcroft Arbitration in Salt Lake City allowed a claim against the individual Respondents Ahlin and D’Ambrosio and that it was improper to name those individuals in the arbitration. Judge Nuffer did not rule on the claims in the Boston Arbitration because those claims were the same as formed the basis for the North Carolina Federal case, deferring to that case as having been first filed. Judge Nuffer indicated that he would enjoin Foxcroft from proceeding against the individuals in the Salt Lake City Arbitration. Foxcroft advised the court that he was no longer pursuing those individuals in the Salt Lake City Arbitration.
The Defendants Danzig Ltd., Elliott and Brett Bertolami in the Utah Federal case before Judge Nuffer have since filed a Counterclaim against Inception, Ahlin and D’Ambrosio purporting to state claims substantially the same as those filed in the still pending Boston and Salt Lake City Arbitrations. The Company, Ahlin and D’Ambrosio have filed a Motion to Dismiss and for More Definite Statement of that Counterclaim (which remains pending), and will vigorously defend against that Counterclaim.
| 8 |
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
Since the filing of its last report, the Company issued the following equity securities:
On July 19, 2018, 200,000 shares of common stock of the Company were issued to John Bushnell for a cash payment of $14,500 or $0.725 per share. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.
On August 28, 2018, the Company issued 100,000 shares of common stock to its director, Whitney Cluff. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.
On September 26, 2018, 450,000 shares of common stock of the company once issued to Red Rock Marketing and Media, Inc. were cancelled pursuant to a court order obtained by the Company.
On September 28, 2018, the Company issued shares of common stock to its directors, officer, and certain consultants for their service to the Company. Trent D’Ambrosio was issued 500,000 shares of common stock, Whitney Cluff was issued 25,000 shares of common stock, Rodney Sperry was issued 25,000 shares of common stock and Kyle Pickard was issued 50,000 shares of common stock. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.
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.
None.
| 9 |
| 10 |
| 31.2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2* | Certification of Chief Financial Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| * | 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. |
| 11 |
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: November 14, 2018 | By: | /s/ Trent D’Ambrosio |
| Name: | Trent D’Ambrosio | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| 12 |
Exhibit 31.1
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Trent D’Ambrosio, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Inception Mining Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2018 | By: | /s/ Trent D’Ambrosio |
| Name: | Trent D’Ambrosio | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302
I, Trent D’Ambrosio, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Inception Mining Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2018 | By: | /s/ Trent D’Ambrosio |
| Name: | Trent D’Ambrosio | |
| Title: | Chief Financial Officer (Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Inception Mining Inc. (the “Company”) for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Trent D’Ambrosio, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 14, 2018 | By: | /s/ Trent D’Ambrosio |
| Name: | Trent D’Ambrosio | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Inception Mining Inc. (the “Company”) for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Trent D’Ambrosio, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 14, 2018 | By: | /s/ Trent D’Ambrosio |
| Name: | Trent D’Ambrosio | |
| Title: | Chief Financial Officer (Principal Accounting Officer) |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 14, 2018 |
|
| Document And Entity Information | ||
| Entity Registrant Name | INCEPTION MINING INC. | |
| Entity Central Index Key | 0001416090 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2018 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Small Business Flag | true | |
| Entity Emerging Growth Company | false | |
| Entity Ex Transition Period | false | |
| Entity Common Stock, Shares Outstanding | 53,819,032 | |
| Trading Symbol | IMII | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2018 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value | $ 0.00001 | $ 0.00001 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | 51 | 51 |
| Preferred stock, shares outstanding | 51 | 51 |
| Common stock, par value | $ 0.00001 | $ 0.00001 |
| Common stock, shares authorized | 500,000,000 | 500,000,000 |
| Common stock, shares issued | 53,819,032 | 52,183,761 |
| Common stock, shares outstanding | 53,819,032 | 52,183,761 |
Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Income Statement [Abstract] | ||||
| Precious Metals Income | $ 794,227 | $ 1,145,591 | $ 3,155,812 | $ 2,940,961 |
| Operating Expenses | ||||
| Cost of sales | 654,141 | 936,392 | 3,195,266 | 2,633,406 |
| General and administrative | 646,716 | 410,364 | 1,623,506 | 1,173,509 |
| Depreciation and amortization | 9,459 | 4,807 | 28,970 | 111,232 |
| Total Operating Expenses | 1,310,316 | 1,351,563 | 4,847,742 | 3,918,147 |
| Loss from Operations | (516,089) | (205,972) | (1,691,930) | (977,186) |
| Other Income/(Expenses) | ||||
| Other income (expense) | 771 | 4,474 | 2,790 | 8,578 |
| Change in derivative liability | (2,148,545) | (193,583) | (1,372,972) | (193,583) |
| Change in gold purchase fund | 16,338 | |||
| Loss on extinguishment of debt | (8,510) | (8,510) | (3,325) | |
| Interest expense | (722,037) | (586,156) | (2,593,634) | (1,321,794) |
| Total Other Income/(Expenses) | (2,878,321) | (775,265) | (3,972,326) | (1,493,786) |
| Net Loss from Operations before Income Taxes | (3,394,410) | (981,237) | (5,664,256) | (2,470,972) |
| Provision for Income Taxes | ||||
| NET LOSS | (3,394,410) | (981,237) | (5,664,256) | (2,470,972) |
| NET LOSS - Non-Controlling Interest | 438 | 22 | 871 | 402 |
| NET LOSS - Controlling Interest | $ (3,393,972) | $ (981,215) | $ (5,663,385) | $ (2,470,570) |
| Net loss per share - Basic and Diluted | $ (0.06) | $ (0.02) | $ (0.11) | $ (0.05) |
| Weighted average number of shares outstanding during the period - Basic and Diluted | 53,617,945 | 51,861,287 | 53,335,657 | 51,450,612 |
| Other Comprehensive Loss | ||||
| Exchange differences arising on translating foreign operations | $ (11,225) | $ 6,427 | $ 2,306 | $ 19,958 |
| Total Comprehensive Loss | (3,405,635) | (974,810) | (5,661,950) | (2,451,014) |
| Total Comprehensive Loss - Non-Controlling Interest | 253 | (31) | (118) | (402) |
| Total Comprehensive Loss - Controlling Interest | $ (3,405,382) | $ (974,841) | $ (5,662,068) | $ (2,451,416) |
Nature of Business |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Nature of Business |
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) to change its name to Silver America, Inc. and (2) increased its authorized common stock from 100,000,000 to 500,000,000.
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 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented.
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 Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an entity owned by and under the control of the majority shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). Inception was a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of the gold mine pursuant to the terms of the Asset Purchase Agreement. As a result of such acquisition, the Company’s operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently, the Company believes that acquisition has caused us to cease to be a shell company as it no longer has nominal operations.
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 of 240,225,901 shares of common stock of Inception and assumed promissory notes in the amount of $5,488,980 and accrued interest of $3,434,426. Under this merger agreement, there was a change in control and it has been treated for accounting purposes as a reverse recapitalization with Clavo Rico, Ltd. being the surviving entity. Its workings include several historical underground operations dating back to the early Mayan and Spanish occupation.
On January 11, 2016, the Company implemented a 5.5 to 1 reverse stock split. This reverse stock split was effective on May 26, 2016. All share and per share references have been retroactively adjusted to reflect this 5.5 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented. Immediately before the Reverse Split, the Company had 266,669,980 shares of common stock outstanding. Immediately after the Reverse Split, the Company had 48,485,451 shares of common stock outstanding, pending fractional-share rounding-up calculations to adjust for the Reverse Split.
The Company’s primary mine is located on the 200 hectare Clavo Rico Concession, located in southern Honduras. This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía Minera Cerros del Sur, S.A. de C.V. as a small family business. In 2003, Clavo Rico’s predecessor purchased a 20% interest and later increased its ownership to 99.9%. |
Summary of Significant Accounting Policies |
9 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||
| Accounting Policies [Abstract] | |||||||||||||
| Summary of Significant Accounting Policies |
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, the Company incurred a net loss of $5,664,256 during the period ended September 30, 2018, and had a working capital deficit of $18,589,105 as of September 30, 2018. These factors among others indicate that the Company may be unable to continue as a going concern for at least one year from the date the consolidated financial statements are issued or available to be issued.
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
Management is currently working to make changes that will result in profitable operations and to obtain additional funding sources to meet the Company’s need for cash for at least one year from the date the consolidated financial statements are issued or available to be issued.
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Inception Mining, Inc. and its wholly owned subsidiaries, Inception Development, Corp., Clavo Rico Development Corp., Clavo Rico, Ltd. and Compañía Minera Cerros del Río, S.A. de C.V., and its controlling interest subsidiaries, Compañía Minera Cerros del Sur, S.A. de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. (collectively, the “Company”). All intercompany accounts have been eliminated upon consolidation.
Basis of Presentation - The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
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 September 30, 2018 and December 31, 2017, the Company had no cash equivalents. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has never experienced any losses in such accounts.
Inventories, Stockpiles and Mineralized Material on Leach Pads - Inventories, including stockpiles and mineralized material on leach pads are carried at the lower of cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, mineralized material on leach pads and inventories to net realizable value are reported as a component of costs applicable to mining revenue. Cost is comprised of production costs for mineralized material produced and processed. Production costs include the costs of materials, costs of processing, direct labor, mine site and processing facility overhead costs and depreciation, amortization and depletion.
Stockpiles - Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion relating to mining operations, and removed at each stockpile’s average cost per ton.
Mineralized Material on Leach Pads - The Company utilizes a heap leaching process to recover gold from its mineralized material. Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution that dissolves the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered. Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad.
The estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage.
Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the quantities and grades of material placed on leach pads to the quantities and grades quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
In-process Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process.
Finished Goods Inventories - Finished goods inventories include gold that has been processed through the Company’s ADR facility and are valued at the average cost of their production.
Exploration and Development Costs - 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 in accordance with FASB ASC 930, Extractive Activities- Mining. 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.
Mineral Rights and Properties - We defer acquisition costs until we determine the viability of the property. Since we do not have proven and probable reserves as defined by Securities and Exchange Commission (“SEC”) Industry Guide 7, exploration expenditures are expensed as incurred. We expense care and maintenance costs as incurred.
We review the carrying value of our mineral rights and properties for impairment whenever there are negative indicators of impairment. Our estimate of the gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties affecting the recoverability of our investment in the mineral claims and properties. Although we have made our best, most current estimate of these factors, it is possible that near term changes could adversely affect estimated net cash flows from our mineral claims and properties and possibly require future asset impairment write-downs.
Where estimates of future net operating cash flows are not available and where other conditions suggest impairment, we assess recoverability of carrying value from other means, including net cash flows generated by the sale of the asset. We use the units-of-production method to deplete the mineral rights and properties.
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 Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.
Long-Lived Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flows.
Properties, Plant and Equipment - We record properties, plant and equipment at historical cost. We provide depreciation and amortization in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value. We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful lives as follows:
Reclamation Liabilities and Asset Retirement Obligations - Minimum standards for site reclamation and closure have been established for us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site.
Revenue Recognition – The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASC 606. The Company recognizes revenue based on the following five criteria: 1) Identifying the contract, 2) Identifying separate performance obligations, 3) Determining the transaction price, 4) Allocating the transaction price among the performance obligations and 5) Recognizing revenue when the performance obligations are satisfied. Precious metals revenue is recorded at an agreed upon spot price and metals ounce measurement resulting in revenue and a receivable at the time the metals are transferred to the buyer. Precious metals revenue is recorded net of any discounts.
All accounts receivable amounts are due from a single customer. Substantially all mining revenues recorded in the current period also related to the same customer. As gold can be sold through numerous gold market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product.
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, whichever is the most reliably measurable on the date of issue.
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. 20,587,912 common share equivalents have been excluded from the diluted loss per share calculation for the period ended September 30, 2018 because it would be anti-dilutive.
Comprehensive Loss - Comprehensive loss is made up of the exchange differences arising on translating foreign operations and the net loss for the ninex months ending September 30, 2018 and the year ended December 31, 2017.
Derivative Liabilities - Derivatives liabilities are recorded at fair value when issued and the subsequent change in fair value each period is recorded in other income (expense) in the consolidated statements of operations. We do not hold or issue any derivative financial instruments for speculative trading purposes.
Income Taxes - The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than not.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
Business Segments – The Company operates in one segment and therefore segment information is not presented.
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.
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.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09 “Revenue from Contracts with Customers” (ASC 606), which supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition”. The Company adopted ASU 2014-09 on January 1, 2018 and recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASC 606. The Company recognizes revenue based on the following five criteria: 1) Identifying the contract, 2) Identifying separate performance obligations, 3) Determining the transaction price, 4) Allocating the transaction price among the performance obligations and 5) Recognizing revenue when the performance obligations are satisfied. The pronouncement will not have a material impact on the Company’s financial statements. |
Joint Venture - Corpus Gold, LLC |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Joint Venture - Corpus Gold Llc | |
| Joint Venture - Corpus Gold, LLC |
3. Joint Venture – Corpus Gold, LLC
On October 1, 2017, the Company entered into a joint venture agreement with Corpus Mining and Exploration, Ltd. (Corpus) and formed a new entity, Corpus Gold, LLC (Corpus Gold). Corpus Gold is to provide a framework within which the Company will provide management services in directing and managing an exploration, drilling and evaluation of the mineral resources in concessions owned by the Company and Corpus will provide the capital necessary to complete such purpose. All revenues will be shared based on the revenue sharing agreement of 80% to Corpus and 20% to the Company. The Company pays the monthly expenses of Corpus Gold and is reimbursed by Corpus. As of September 30, 2018, the Company had a receivable of $10,477 for expenses spent in the nine months ended September 30, 2018. |
Inventories, Stockpiles and Mineralized Materials on Leach Pads |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories, Stockpiles and Mineralized Materials on Leach Pads |
4. Inventories, Stockpiles and Mineralized Materials on Leach Pads
Inventories, stockpiles and mineralized materials on leach pads at September 30, 2018 and December 31, 2017 consisted of the following:
There were no stockpiles at September 30, 2018 and December 31, 2017. In April 2018, management decided to impair the inventory on the old leach pad. The Company recorded an impairment of $700,101 for the inventory in process on the leach pad as of September 30, 2018. |
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Derivative Financial Instruments |
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Financial Instruments |
5. Derivative Financial Instruments
The Company adopted the provisions of ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 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 nonperformance. 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 September 30, 2018 and December 31, 2017:
Debt derivatives – 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 September 30, 2018, the Company marked to market the fair value of the debt derivatives and determined a fair value of $3,101,189. The Company recorded a net loss from change in fair value and the extinguishment of debt derivatives of $1,372,972 for the period ended September 30, 2018. The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 187.13% through 252.99%, (3) weighted average risk-free interest rate of 2.36% through 2.81% (4) expected life of 0.53 through 1.85 years, and (5) the quoted market price of the Company’s common stock at each valuation date.
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. |
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Property, Plant and Equipment, Net |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment, Net |
6. Property, Plant and Equipment, Net
Property, plant and equipment at September 30, 2018 and December 31, 2017 consisted of the following:
In December 2016, the Company determined that the leach pad at the Clavo Rico mine was reaching its capacity. It was determined that the depreciation of the leach pad should be accelerated to fully depreciate the leach pad by March 31, 2017. This constitutes a change in management estimates. During the nine months ended September 30, 2018 and 2017, the Company recognized depreciation expense of $169,787 and $616,398, respectively. The following table summarizes the allocation of depreciation expense between cost of goods sold and general and administrative expenses.
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Mine Reclamation Liability |
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| Mine Reclamation Liability | ||||||||||||||||||||||||||||||||||||||||||||||
| Mine Reclamation Liability |
7. Mine Reclamation Liability
The Company is required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and re-vegetating various portions of our site after mining and mineral processing operations are completed. These reclamation efforts are conducted in accordance with plans reviewed and approved by the appropriate regulatory agencies.
The fair value of the long-term liability of $345,838 and $352,713 as of September 30, 2018 and December 31, 2017, respectively, for our obligation to reclaim our mine facility is based on our most recent reclamation plan, as revised, submitted and approved by the Honduran Institute of Geology and Mines (INHGEOMIN) and Ministry of Natural Resources and Environment (SERNA) on the Clavo Rico Mine complex. The Clavo Rico Mine Complex consists of pits, leach pad, ADR plant, management buildings and service yard. The Company is currently removing materials from the old leach pad to be used as road base for the community roads. This will enable the pad to be used again in the future for leach ore rich material. The reclamation liability is based on the entire complex and footprint. Such costs are based on management’s current estimate of then expected amounts for the remediation work, assuming the work is performed in accordance with current laws and regulations and using a credit adjusted risk free rate of 18.00% and an inflation rate of 5.3%. It is reasonably possible that, due to uncertainties associated with the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology, the ultimate cost of reclamation and remediation could change in the future. We periodically review the accrued reclamation liability for information indicating that our assumptions should change.
The decrease in the reclamation liability in 2018 was due to the currency exchange rate. The increase in the reclamation liability in 2017 was related to the expansion of the heap leach facility and related infrastructure. The write-off of the precious metal inventory in process did not affect the reclamation liability because the leach pad has not changed in size or volume of material on it.
Changes to the asset retirement obligation were as follows:
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Accounts Payable and Accrued Liabilities |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable and Accrued Liabilities |
8. Accounts Payable and Accrued Liabilities
Accounts Payable and accrued liabilities at September 30, 2018 and December 31, 2017 consisted of the following:
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Secured Borrowings |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Borrowings |
9. Secured Borrowings
On June 20, 2017, the Company entered into four new financing arrangements with third parties for a combined principal amount of $195,720. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $19,572, for a total expected remittance of $215,292. The maturity date of the notes is June 21, 2018. The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the Company expects to liquidate gold held and satisfy the liability in cash. The Company reached agreements with the third parties to settle the financing arrangements as of June 21, 2018. The Company liquidated the gold held to satisfy the debt obligations. All four debt holders agreed to rollover all or portion of their funds into new financing agreements. The debt obligation of $40,647 that was being liquidated was paid in full in July 2018.
On June 25, 2018, the Company entered into four new financing arrangements with third parties for a combined principal amount of $225,000. The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $22,500, for a total expected remittance of $247,500. The maturity date of the notes is June 26, 2019. The terms of repayment allow the Company to remit to the lender a certain quantity of gold to satisfy the liability though the Company expects to liquidate gold held and satisfy the liability in cash. As of September 30, 2018, the Company held 39 ounces of gold, valued at a cost of $46,748, to satisfy the liabilities upon maturity leaving a net obligation of $184,220, which is recorded on the Company’s balance sheet as secured borrowings.
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Notes Payable |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable |
10. Notes Payable
Notes payable were comprised of the following as of September 30, 2018 and December 31, 2017:
3-2-1 Partners, LLC – On November 30, 2017, the Company issued an unsecured Short-Term Promissory Note to 3-2-1 Partners, LLC in the principal amount of $40,000 (the “Note”) due on December 14, 2017 and bears a 5% interest rate. The Company made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on January 16, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
GS Capital Partners – On August 11, 2017, the Company issued an unsecured Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on April 11, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $76,000 (less an original issue discount (“OID”) of $4,000). For six months ended June 30, 2018, the Company amortized $698 of debt discount to current period operations as interest expense. The Company made a payment of $109,468 towards the principal balance and accrued interest of $29,468 on February 5, 2018. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Phil Zobrist – On January 11, 2013, the Company issued an unsecured Promissory Note to Phil Zobrist in the principal amount of $60,000 (the “Note”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $60,000. On October 2, 2015, the Company entered into a new convertible note with Phil Zobrist that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $29,412 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $121,337 for the remaining derivative liability and of $11,842 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $60,000 and accrued interest was $61,782. |
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Notes Payable - Related Parties |
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| Notes Payable - Related Parties |
11. Notes Payable – Related Parties
Notes payable – related parties were comprised of the following as of September 30, 2018 and December 31, 2017:
Claymore Management – On March 18, 2011, the Company issued an unsecured Promissory Note to Claymore Management, an affiliated company controlled by a director of the Company, in the principal amount of $185,000 (the “Note”) due on demand and bore 0% per annum interest. The total net proceeds the Company received was $185,000. On October 2, 2015, the Company entered into a new convertible note with Claymore Management that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from March 18, 2011 in the amount of $151,355 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $448,369 for the remaining derivative liability and of $36,513 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $185,000 and accrued interest was $251,164.
D. D’Ambrosio – On February 13, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $88,000 (the “Note”) due on March 30, 2018 and bears a 5.70% interest rate. The Company made a payment of $93,000 towards the principal balance and accrued interest of $5,000 on March 30, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On April 4, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $80,000 (the “Note”) due April 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $84,000 towards the principal balance and accrued interest of $4,000 on April 16, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On April 19, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $80,000 (the “Note”) due on April 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $84,000 towards the principal balance and accrued interest of $4,000 on April 30, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On May 3, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $90,000 (the “Note”) due on May 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $94,500 towards the principal balance and accrued interest of $4,500 on May 14, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On May 9, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $10,000 (the “Note”) due on May 14, 2018 and bears a 5.00% interest rate. The Company made a payment of $10,500 towards the principal balance and accrued interest of $500 on May 14, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On May 16, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $90,000 (the “Note”) due on May 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $94,500 towards the principal balance and accrued interest of $4,500 on May 23, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On May 24, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on June 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $93,000 towards the principal balance and accrued interest of $5,000 on March 30, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On June 5, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on June 30, 2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on June 25, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On June 27, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $120,000 (the “Note”) due on July 18, 2018 and bears a 5.0% interest rate. The Company made a payment of $126,000 towards the principal balance and accrued interest of $6,000 on July 5, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On July 6, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $150,000 (the “Note”) due on August 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $157,500 towards the principal balance and accrued interest of $7,500 on August 7, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On August 10, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on August 31, 2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on August 29, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On August 31, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on September 15, 2018 and bears a 5.00% interest rate. The Company made a payment of $105,000 towards the principal balance and accrued interest of $5,000 on September 13, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
D. D’Ambrosio – On September 17, 2018, the Company issued an unsecured Short-Term Promissory Note to D. D’Ambrosio, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on October 5, 2018 and bears a 5.0% interest rate. As of September 30, 2018, the outstanding balance of the Note was $100,000 and accrued interest was $5,000.
Diamond 80, LLC – On April 3, 2017, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $50,000 (the “Note”) due on December 31, 2018 and bears a 7.0% interest rate. The Company made a payment of $1,075 towards the principal balance of $1,000 and accrued interest of $75 on June 30, 2017. As of September 30, 2018, the outstanding balance of the Note was $49,000 and accrued interest was $0.
Diamond 80, LLC – On August 20, 2018, the Company issued an unsecured Short-Term Promissory Note to Diamond 80, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $40,000 (the “Note”) due on August 31, 2018 and bears a 7.0% interest rate. The Company made a payment of $42,000 towards the principal balance and accrued interest of $2,000 on August 29, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
Francis E. Rich IRA – On January 31, 2018, the Company issued an unsecured Short-Term Promissory Note to Francis E. Rich IRA, an immediate family member of a Company officer, in the principal amount of $100,000 (the “Note”) due on February 14, 2019 and bears a 30.0% interest rate. As of September 30, 2018, the outstanding balance of the Note was $100,000 and accrued interest was $3,740.
GAIA Ltd. – Between December 2011 and October 2012, the Company issued seven unsecured Promissory Notes to GAIA Ltd., an affiliated company controlled by a director of the Company, for a total principal amount of $1,150,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $1,150,000. On October 2, 2015, the Company entered into a new convertible note with GAIA Ltd. that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $724,463 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $2,524,747 for the remaining derivative liability and of $226,974 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $1,150,000 and accrued interest was $1,334,896.
Legends Capital Group – Between October 2011 and September 2012, the Company issued eleven unsecured Promissory Notes to Legends Capital Group, an affiliated company controlled by a director of the Company, for a total principal amount of $765,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $765,000. On October 2, 2015, the Company entered into a new convertible note with Legends Capital Group that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $504,806 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and of $150,987 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $765,000 and accrued interest was $917,529.
Legends Capital Group – On May 16, 2017, the Company issued an unsecured Short-Term Promissory Note to Legends Capital Group, an affiliated company controlled by a director of the Company, in the principal amount of $100,000 (the “Note”) due on September 15, 2017 and bears a 7.0% interest rate. The Company made a payment of $50,000 towards the principal balance and accrued interest of $0 on June 27, 2017. The Company made a payment of $40,000 towards the principal balance on February 28, 2018. The Company made a payment of $10,000 towards the principal balance on May 2, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $7,000.
LW Briggs Irrevocable Trust – Between December 2010 and January 2013, the Company issued eight unsecured Promissory Notes to LW Briggs Irrevocable Trust, an affiliated company controlled by a director of the Company, for a total principal amount of $1,101,000 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $1,101,000. On October 2, 2015, the Company entered into a new convertible note with LW Briggs Irrevocable Trust that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $814,784 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $2,564,130 for the remaining derivative liability and of $217,303 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $1,101,000 and accrued interest was $1,408,781.
MDL Ventures – The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is 100% owned by a Company officer, effective October 1, 2014, due on December 31, 2016 and bears 18% per annum interest, due at maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of the lower of $0.99 (0.18 pre-split) or 50% of the lowest three daily volume weighted average prices of the Company’s common stock during the 20 consecutive days prior to the date of conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2018. The Company recognized a gain on the extinguishment of debt of $1,487,158 for the remaining derivative liability. As of September 30, 2018, the gross balance of the note was $1,357,342 and accrued interest was $0.
Silverbrook Corporation – Between March 2011 and February 2015, the Company issued 23 unsecured Promissory Notes to Silverbrook Corporation, an affiliated company controlled by a director of the Company, for a total principal amount of $2,227,980 (the “Notes”) due on demand and bearing 0% per annum interest. The total net proceeds the Company received was $2,227,980. On October 2, 2015, the Company entered into a new convertible note with Silverbrook Corporation that matures on December 31, 2016 and bears 18% per annum interest. The Company agreed to accrue interest from inception of these Notes in the amount of $1,209,606 and charged this amount to interest expense during the year ended December 31, 2015. The Note is convertible into common stock, at holder’s option, at a price of $0.99 (0.18 pre-split) or a 50% discount to the average of the three lowest VWAP of the common stock during the 20 trading day period prior to conversion. On October 2, 2016, the Company renegotiated the note payable. The convertible feature was removed and the note was extended until December 31, 2017. The Company recognized a gain on the extinguishment of debt of $4,656,189 for the remaining derivative liability and of $439,733 for the remaining debt discount. As of September 30, 2018, the gross balance of the note was $2,227,980 and accrued interest was $2,411,616.
WOC Energy, LLC – On November 6, 2017, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $40,000 (the “Note”) due on January 6, 2018 and bears a 4.0% interest rate. As of September 30, 2018, the outstanding balance of the Note was $40,000 and accrued interest was $0.
WOC Energy, LLC – On June 5, 2018, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $60,000 (the “Note”) due on June 29, 2018 and bears a 5.0% interest rate. The Company made a payment of $63,000 towards the principal balance and accrued interest of $3,000 on June 29, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0.
WOC Energy, LLC – On July 19, 2018, the Company issued an unsecured Short-Term Promissory Note to WOC Energy, LLC, an affiliated company controlled by a director of the Company, in the principal amount of $70,000 (the “Note”) due on August 15, 2018 and bears a 5.0% interest rate. The Company made a payment of $73,000 towards the principal balance and accrued interest of $3,000 on August 8, 2018. As of September 30, 2018, the outstanding balance of the Note was $0 and accrued interest was $0. |
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Convertible Notes Payable |
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| Convertible Notes Payable |
12. Convertible Notes Payable
Convertible notes payable were comprised of the following as of September 30, 2018 and December 31, 2017:
Adar Bays, LLC – On December 6, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Adar Bays, LLC (“Adar Bays”), in the principal amount of $63,000 (the “Note”) due on December 6, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 24, 2018, the Company paid $87,374 to pay off the principal balance of $63,000 and $24,374 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $58,685 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Adar Bays, LLC – On May 29, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Adar Bays, LLC (“Adar Bays”), in the principal amount of $105,000 (the “Note”) due on May 29, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $35,644 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $105,000 and accrued interest was $2,854.
Auctus Fund – On August 17, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Auctus Fund (“Auctus”), in the principal amount of $110,000 (the “Note”) due on May 17, 2018 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $99,750 (less an original issue discount (“OID”) of $10,250). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 15 trading day period prior to conversion. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 10% discount will apply to all future conversions on this note. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount while the “Chill” is in effect. On February 5, 2018, the Company paid $156,759 to pay off the principal balance of $110,000 and $46,759 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $55,201 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Coolidge Capital, LLC – On May 21, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Coolidge Capital, LLC. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $75,000. The total net proceeds the Company received was $70,500 (less an original issue discount (“OID”) of $4,500). The Note has a maturity date of February 21, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $4,500 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $2,152 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $75,000 and accrued interest was $3,255.
Crossover Capital Fund II, LLC – On November 30, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $110,500 (the “Note”) due on August 30, 2018 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $10,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 23, 2018, the Company paid $157,777 to pay off the principal balance of $110,500 and $47,277 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $97,952 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Crossover Capital Fund II, LLC – On July 10, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crossover Capital Fund II, LLC (“Crossover Capital”), in the principal amount of $82,894 (the “Note”) due on April 10, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $75,000 (less an original issue discount (“OID”) of $7,894). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $24,808 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $82,894 and accrued interest was $2,235.
Crown Bridge Partners – On August 10, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $50,000 (the “Note”) due on August 10, 2018 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $43,000 (less an original issue discount (“OID”) of $7,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On January 24, 2018, the Company paid $74,623 to pay off the principal balance of $50,000 and $24,623 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $30,411 of debt discount to current period operations as interest expense. As of September 31, 2018, the gross balance of the note was $0 and accrued interest was $0.
Crown Bridge Partners – On May 11, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Crown Bridge Partners (“Crown Bridge”), in the principal amount of $50,000 (the “Note”) due on May 11, 2019 and bears 5% per annum interest, due at maturity. The total net proceeds the Company received was $43,000 (less an original issue discount (“OID”) of $7,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $19,452 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $50,000 and accrued interest was $973.
Discover Growth Fund – On August 2, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Discover Growth Fund (“Discover Growth”), in the principal amount of $150,000 (the “Note”) due on August 2, 2020 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $150,000. The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $12,107 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $150,000 and accrued interest was $2,425.
Eagle Equities, LLC – On December 12, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $63,000 (the “Note”) due on December 12, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On June 5, 2018, the Company paid $91,564 to pay off the principal balance of $63,000 and $28,564 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $59,721 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
Eagle Equities, LLC – On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to Eagle Equities, LLC (“Eagle Equities”), in the principal amount of $103,000 (the “Note”) due on June 8, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the nine months ended September 30, 2018, the Company amortized $32,170 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $103,000 and accrued interest was $2,574.
EMA Financial – On December 5, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to EMA Financial, in the principal amount of $112,000 (the “Note”) due on December 5, 2018 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $100,800 (less an original issue discount (“OID”) of $11,200). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. However, if the Company’s share price at any time loses the bid, then the conversion price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion price of $0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the conversion shares to the Holder, or any date thereafter while conversion shares are held by the Holder, the closing bid price per share of common stock on the principal market on the trading day on which the common shares are traded is less than the sale price used to calculate the conversion price, then such conversion price shall be automatically reduced using the new low closing bid price and additional shares issued to the Holder. In the event the Company experiences a DTC “Chill” on its shares, or if the closing sale price at any time falls below $0.145, then the conversion price shall be decreased an additional 15% discount. At any time after the closing date, if the Company’s common stock is not deliverable by DWAC, then an additional 5% discount will apply to all future conversions on this note. On June 4, 2018, the Company paid $160,080 to pay off the principal balance of $112,000 and $48,080 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $104,022 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
GS Capital Partners – On February 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on February 1, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $76,000 (less an original issue discount (“OID”) of $4,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. On July 30, 2018, the Company paid $107,156 to pay off the principal balance of $80,000 and $27,156 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $80,000 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
GS Capital Partners – On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $80,000 (the “Note”) due on June 8, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $76,000 (less an original issue discount (“OID”) of $4,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the nine months ended September 30, 2018, the Company amortized $24,986 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $80,000 and accrued interest was $1,999.
GS Capital Partners – On August 1, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to GS Capital Partners (“GS Capital”), in the principal amount of $100,000 (the “Note”) due on August 1, 2019 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $95,000 (less an original issue discount (“OID”) of $5,000). The Note is convertible into common stock, at holder’s option, at a 42% discount of the lowest closing price of the common stock during the 12 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 10% discount while the “Chill” is in effect. For the nine months ended September 30, 2018, the Company amortized $16,201 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $100,000 and accrued interest was $1,315.
JSJ Investments – On January 24, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to JSJ Investments (“JSJ”), in the principal amount of $60,000 (the “Note”) due on January 24, 2019 and bears 12% per annum interest (default interest increases to 18% while default continues), due at maturity. The total net proceeds the Company received was $58,000 (less an original issue discount (“OID”) of $2,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On May 18, 2018, the Company paid $83,111 to pay off the principal balance of $60,000 and $23,111 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $60,000 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
JSJ Investments – On May 16, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to JSJ Investments (“JSJ”), in the principal amount of $128,000 (the “Note”) due on May 16, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $125,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $48,044 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $128,000 and accrued interest was $5,765.
Labrys Fund LP – On May 25, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with LABRYS FUND, LP (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate principal amount of $114,500. The Note has a maturity date of November 25, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note, provided it makes a payment to the Purchaser as set forth in the Note within 180 days of its Issue Date. The transactions described above closed on May 25, 2018. In connection with the issuance of the Note, the Company issued to the Purchaser 316,298 shares of its common stock (the “Returnable Shares”) that shall be returned to the Company’s treasury if the Note is fully repaid and satisfied. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of $0.30 as set forth in the Note, subject to adjustment as set forth in the Note if the Note is in Default. The Default Note Conversion Price is a 45% discount of the lowest trading price of the common stock during the 30 trading day period prior to conversion. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased an additional 15% discount on all future conversions. The Company issued 55,250 shares of common stock in connection with this note, which were valued at $26,038 and recorded as a debt discount. The Company recognized a debt discount on this note of $29,624 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $20,608 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $114,500 and accrued interest was $4,818.
LG Capital Funding – On September 9, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to LG Capital Funding (“LG Cap”), in the principal amount of $52,500 (the “Note”) due on September 7, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $2,500). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On March 9, 2018, the Company paid $76,400 to pay off the principal balance of $52,500 and $23,900 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $35,959 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
LG Capital Funding – On June 8, 2018, the Company issued an unsecured Convertible Promissory Note (“Note”) to LG Capital Funding (“LG Cap”), in the principal amount of $75,000 (the “Note”) due on June 8, 2019 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $71,250 (less an original issue discount (“OID”) of $3,750). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. For the nine months ended September 30, 2018, the Company amortized $1,301 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $75,000 and accrued interest was $2,811.
Power Up Lending Group – On August 18, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $35,000. The total net proceeds the Company received was $32,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of May 30, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. On January 31, 2018, the Company paid $49,767 to pay off the principal balance of $35,000 and $14,767 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $1,579 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
On December 5, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of September 15, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. On June 5, 2018, the Company paid $89,943 to pay off the principal balance of $63,000 and $26,943 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $2,725 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
On February 1, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $43,000. The total net proceeds the Company received was $40,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of November 15, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. On July 12, 2018, the Company paid $60,531 to pay off the principal balance of $43,000 and $17,531 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $3,000 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0.
On June 5, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $63,000. The total net proceeds the Company received was $60,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of March 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $1,178 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $63,000 and accrued interest was $2,423.
On July 12, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with POWER UP LENDING GROUP LTD. (the “Purchaser”), pursuant to which the Company issued to the Purchaser a Convertible Promissory Note (the “Note”) in the aggregate amount of $53,000. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note has a maturity date of April 30, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12% - 22% default interest per annum) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company may prepay the Note in whole provided that the Purchaser be given written notice not more than three (3) Trading Days. The outstanding principal amount of the Note (if any) is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion price of the greater of the fixed conversion price of or a variable conversion price as set forth in the Note. The fixed conversion price is $0.00009. The variable conversion price is 61% (39% discount) of the market price. Market price is the average of the lowest two trading prices in a ten trading day look back period. The company recognized a debt discount on this note of $3,000 which will be amortized over the life of the note. For the nine months ended September 30, 2018, the Company amortized $1,239 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $63,000 and accrued interest was $1,394.
Silo Equity Partners – On August 22, 2017, the Company issued an unsecured Convertible Promissory Note (“Note”) to Silo Equity Partners (“Silo”), in the principal amount of $53,000 (the “Note”) due on August 22, 2018 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less an original issue discount (“OID”) of $3,000). The Note is convertible into common stock, at holder’s option, at a 40% discount of the lowest trading price of the common stock during the 20 trading day period prior to conversion. On February 9, 2018, the Company paid $77,030 to pay off the principal balance of $53,000 and $24,030 in accrued interest and prepayment penalty. For the nine months ended September 30, 2018, the Company amortized $33,978 of debt discount to current period operations as interest expense. As of September 30, 2018, the gross balance of the note was $0 and accrued interest was $0. |
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Stockholders' Deficit |
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Deficit |
13. Stockholders’ Deficit
Common Stock
On January 1, 2018, 760,000 shares of common stock were issued to officers, former officers and members of the board of directors of the Company as payment for consulting services performed. These shares were valued at $0.2846 per share for a value of $216,296.
On January 1, 2018, 20,000 shares of common stock were issued to a former officers and members of the board of directors of the Company as part of a settlement agreement. These shares were valued at $0.2846 per share for a value of $5,692.
On January 30, 2018, the Company issued 250,000 shares of common stock for $27,500 in cash. These shares were valued at $0.11 per share.
On March 30, 2018, the Company issued 36,385 shares for services performed per a consulting agreement in 2015. These shares were valued and expensed based on quoted market prices at that time. These shares had never been issued.
On May 25, 2018, in connection with the issuance of the Note to Labrys Fund LP, the Company issued to the Note Purchaser 55,250 shares of its common stock as commitment shares for the issuance of the note. These shares were valued at $0.19 per share for a total value of $10,498.
On May 29, 2018, the Company entered into a Settlement Agreement with a consultant through which the consultant agreed to return 36,364 shares of common stock to the Company. The 36,364 shares were returned to the Company and were immediately cancelled.
On June 28, 2018, the Company issued 100,000 shares of common stock to Justin Wilson per a consulting agreement. These shares were payment for services and were valued at $0.1601 per share for a total value of $16,010.
On July 3, 2018, 100,000 shares of common stock were issued to a member of the board of directors of the Company as part of a settlement agreement for consulting services. These shares were valued at $0.1601 per share for a value of $16,010. The Company recognized a loss on this settlement of $8,510 and reduced payables by $7,500.
On July 19, 2018, the Company issued 200,000 shares of common stock for $14,500 in cash. These shares were valued at $0.725 per share.
On September 26, 2018, the Company entered into a Settlement Agreement with a consultant through which the consultant agreed to return 450,000 shares of common stock to the Company. The 450,000 shares were returned to the Company and were immediately cancelled.
On September 28, 2018, 600,000 shares of common stock were issued to officers, former officers and members of the board of directors of the Company as payment for consulting services performed. These shares were valued at $0.1891 per share for a value of $113,460.
Warrants
The following tables summarize the warrant activity during the nine months ended September 30, 2018 and the year ended December 31, 2017:
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Related Party Transactions |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions |
14. Related Party Transactions
Consulting Agreement – In February 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $18,000 per month for twelve months. In October 2017, the agreement was renegotiated to increase the monthly amount to $25,000 per month. As of September 30, 2018, the Company owed $1,110,000 to the stockholder/director in accrued consulting fees. See Note 11 for additional details. |
Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
15. Commitments and Contingencies
Litigation
The Company at times is subject to other legal proceedings that arise in the ordinary course of business.
On January 26, 2017, the Company was served a copy of a complaint filed by Danzig Ltd. (“Danzig”) and Brett Bertolami (“Bertolami”) in the United States District Court for the Western District of North Carolina, Statesville Division. The Plaintiffs filed a First Amended Complaint on May 8, 2017. The Amended Complaint alleges fraud, breach of contract, state securities fraud, federal securities fraud, breach of fiduciary duty, unjust enrichment, and negligent misrepresentation against the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin). The allegations arise from the change of control transaction in February 2013 and other documents related to that transaction. The Company filed a motion to dismiss on jurisdictional grounds on May 19, 2017. Magistrate Judge David S. Cayer issued a Memorandum and Recommendation and Order that the Motion to Dismiss should be granted. Judge Connor, the Federal Judge to whom the case was assigned, entered an Order and Judgement on March 29, 2018 adopting the Recommendation of the Magistrate and Dismissing the case.
On June 12, 2017, Danzig Ltd, filed an arbitration in Boston, Massachusetts, with the American Arbitration Association (AAA) against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). The Boston arbitration asserted claims that largely mirror those in the lawsuit in North Carolina, and sought $782,931 in damages, plus attorneys’ fees and costs. Messrs. D’Ambrosio and Ahlin were dismissed on the ground that they were not proper parties to the Arbitration. A hearing occurred the week of April 9, 2018. On August 8, 2018, the Arbitrator entered a Partial Final Award ruling in favor of the Company that denied all of the claims of Danzig and on October 25, 2018 a Final Award was entered, incorporating the previously issued Partial Final Award, and granting attorneys’ fees and costs to the Company in the total amount of $361,710.74. Steps will be taken to confirm the award.
On July 20, 2017, Elliott Foxcroft filed an AAA arbitration in Salt Lake City, Utah, against the Company and two if its officers and directors (Trent D’Ambrosio and Michael Ahlin). The Salt Lake City arbitration alleges federal securities fraud, state securities fraud, breach of contract, unjust enrichment, fraud, breach of fiduciary duty, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing, relating to a Consulting Agreement executed between the Company and Elliott Foxcroft on March 27, 2014. Mr. Foxcroft seeks at least $232,000 in damages in that Arbitration. The Company has retained counsel to vigorously defend the allegations in that arbitrations. The Company has also alleged a counterclaim for breach of the consulting agreement with Mr. Foxcroft in the Salt Lake City arbitration, seeking damages in the initial amount of $150,000. A motion to determine whether the arbitrator has authority to determine whether Messrs. D’Ambrosio and Ahlin are proper parties to the arbitration was filed and resulted in the arbitrator dismissing the individual Respondents. In August 2018 the Company filed a motion for summary disposition of Foxcroft’s claims. After it was fully briefed but not decided, Foxcroft advised the AAA that he was insolvent and he would not be able to pay any fees and costs related to the Arbitration, either outstanding or subsequently invoiced amounts. Based upon non-payment of fees, the Company filed a Motion to Dismiss with Prejudice the entirety of the case, which motion is pending decision.
On August 22, 2017, the Company and two of its officers and directors (Trent D’Ambrosio and Michael Ahlin) filed a complaint against Danzig Ltd., Elliott Foxcroft, and Brett Bertolami in the United States District Court, District of Utah, Central Division. The complaint was filed to determine whether the Consulting Agreements which form the basis for the Boston Arbitration and the Salt Lake City Arbitration allow the Claimants in those arbitrations to proceed against the individual Respondents in those arbitrations and to enjoin the Claimants in those arbitrations from pursuing claims against the individual Respondents. Judge Nuffer issued a Memorandum Decision and Order on February 27, 2018, concluding that he had the authority to determine whether the arbitration provision which formed the basis for the Foxcroft Arbitration in Salt Lake City allowed a claim against the individual Respondents Ahlin and D’Ambrosio and that it was improper to name those individuals in the arbitration. Judge Nuffer did not rule on the claims in the Boston Arbitration because those claims were the same as formed the basis for the North Carolina Federal case, deferring to that case as having been first filed. Judge Nuffer indicated that he would enjoin Foxcroft from proceeding against the individuals in the Salt Lake City Arbitration. Foxcroft advised the court that he was no longer pursuing those individuals in the Salt Lake City Arbitration.
The Defendants Danzig Ltd., Elliott and Brett Bertolami in the Utah Federal case before Judge Nuffer have since filed a Counterclaim against Inception, Ahlin and D’Ambrosio purporting to state claims substantially the same as those filed in the still pending Boston and Salt Lake City Arbitrations. The Company, Ahlin and D’Ambrosio have filed a Motion to Dismiss and for More Definite Statement of that Counterclaim (which remains pending), and will vigorously defend against that Counterclaim. |
Concentrations |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Risks and Uncertainties [Abstract] | |
| Concentrations |
16. Concentrations
We generally sell a significant portion of our mineral production to a relatively small number of customers. For the nine months ended September 30, 2018, 100 percent of our consolidated product revenues were attributable to A-Mark Precious Metals and to Asahi Refining, Inc., our current and only two customers as of September 30, 2018. We are not dependent upon any one purchaser and have alternative purchasers readily available at competitive market prices if there is a disruption in services or other events that cause us to search for other ways to sell our production.
The Company currently is producing all of its precious metals from one mine located in Honduras. This location has most of the Company’s fixed assets and inventories. It would cause considerable disruption to the Company’s operations and revenue if this mine was disrupted or closed. |
Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Subsequent Events [Abstract] | |
| Subsequent Events |
17. Subsequent Events
Management has evaluated subsequent events, in accordance with FASB ASC Topic 855, “Subsequent Events,” through November 14, 2018, the date which the financial statements were available to be issued and there are no material subsequent events. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||
| Accounting Policies [Abstract] | |||||||||||||
| Going Concern |
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, the Company incurred a net loss of $5,664,256 during the period ended September 30, 2018, and had a working capital deficit of $18,589,105 as of September 30, 2018. These factors among others indicate that the Company may be unable to continue as a going concern for at least one year from the date the consolidated financial statements are issued or available to be issued.
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
Management is currently working to make changes that will result in profitable operations and to obtain additional funding sources to meet the Company’s need for cash for at least one year from the date the consolidated financial statements are issued or available to be issued. |
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| Principles of Consolidation |
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Inception Mining, Inc. and its wholly owned subsidiaries, Inception Development, Corp., Clavo Rico Development Corp., Clavo Rico, Ltd. and Compañía Minera Cerros del Río, S.A. de C.V., and its controlling interest subsidiaries, Compañía Minera Cerros del Sur, S.A. de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. (collectively, the “Company”). All intercompany accounts have been eliminated upon consolidation. |
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| Basis of Presentation |
Basis of Presentation - The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. |
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| Cash and Cash Equivalents |
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 September 30, 2018 and December 31, 2017, the Company had no cash equivalents. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has never experienced any losses in such accounts. |
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| Inventories, Stockpiles and Mineralized Material on Leach Pads |
Inventories, Stockpiles and Mineralized Material on Leach Pads - Inventories, including stockpiles and mineralized material on leach pads are carried at the lower of cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, mineralized material on leach pads and inventories to net realizable value are reported as a component of costs applicable to mining revenue. Cost is comprised of production costs for mineralized material produced and processed. Production costs include the costs of materials, costs of processing, direct labor, mine site and processing facility overhead costs and depreciation, amortization and depletion.
Stockpiles - Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion relating to mining operations, and removed at each stockpile’s average cost per ton.
Mineralized Material on Leach Pads - The Company utilizes a heap leaching process to recover gold from its mineralized material. Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution that dissolves the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered. Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad.
The estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage.
Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the quantities and grades of material placed on leach pads to the quantities and grades quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
In-process Inventories - In-process inventories represent mineralized materials that are currently in the process of being converted to a saleable product through the absorption, desorption, recovery (ADR) process. The value of in-process material is measured based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process.
Finished Goods Inventories - Finished goods inventories include gold that has been processed through the Company’s ADR facility and are valued at the average cost of their production. |
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| Exploration and Development Costs |
Exploration and Development Costs - 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 in accordance with FASB ASC 930, Extractive Activities- Mining. 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. |
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| Mineral Rights and Properties |
Mineral Rights and Properties - We defer acquisition costs until we determine the viability of the property. Since we do not have proven and probable reserves as defined by Securities and Exchange Commission (“SEC”) Industry Guide 7, exploration expenditures are expensed as incurred. We expense care and maintenance costs as incurred.
We review the carrying value of our mineral rights and properties for impairment whenever there are negative indicators of impairment. Our estimate of the gold price, mineralized materials, operating capital, and reclamation costs are subject to risks and uncertainties affecting the recoverability of our investment in the mineral claims and properties. Although we have made our best, most current estimate of these factors, it is possible that near term changes could adversely affect estimated net cash flows from our mineral claims and properties and possibly require future asset impairment write-downs.
Where estimates of future net operating cash flows are not available and where other conditions suggest impairment, we assess recoverability of carrying value from other means, including net cash flows generated by the sale of the asset. We use the units-of-production method to deplete the mineral rights and properties. |
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| Fair Value Measurements |
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 Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed below are that of volatility and market price of the underlying common stock of the Company. |
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| Long-Lived Assets |
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. |
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| Properties, Plant and Equipment |
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:
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| Reclamation Liabilities and Asset Retirement Obligations |
Reclamation Liabilities and Asset Retirement Obligations - Minimum standards for site reclamation and closure have been established for us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site. |
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| Revenue Recognition |
Revenue Recognition – The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASC 606. The Company recognizes revenue based on the following five criteria: 1) Identifying the contract, 2) Identifying separate performance obligations, 3) Determining the transaction price, 4) Allocating the transaction price among the performance obligations and 5) Recognizing revenue when the performance obligations are satisfied. Precious metals revenue is recorded at an agreed upon spot price and metals ounce measurement resulting in revenue and a receivable at the time the metals are transferred to the buyer. Precious metals revenue is recorded net of any discounts.
All accounts receivable amounts are due from a single customer. Substantially all mining revenues recorded in the current period also related to the same customer. As gold can be sold through numerous gold market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product. |
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| Stock Issued for Goods and Services |
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, whichever is the most reliably measurable on the date of issue. |
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| Stock-Based Compensation |
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. |
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| Income (Loss) Per Common Share |
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. 20,587,912 common share equivalents have been excluded from the diluted loss per share calculation for the period ended September 30, 2018 because it would be anti-dilutive. |
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| Comprehensive Loss |
Comprehensive Loss - Comprehensive loss is made up of the exchange differences arising on translating foreign operations and the net loss for the ninex months ending September 30, 2018 and the year ended December 31, 2017. |
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| Derivative Liabilities |
Derivative Liabilities - Derivatives liabilities are recorded at fair value when issued and the subsequent change in fair value each period is recorded in other income (expense) in the consolidated statements of operations. We do not hold or issue any derivative financial instruments for speculative trading purposes. |
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| Income Taxes |
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. |
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| Business Segments |
Business Segments – The Company operates in one segment and therefore segment information is not presented. |
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| Use of Estimates |
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. |
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| Non-Controlling Interest Policy |
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. |
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| Recently Issued Accounting Pronouncements |
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.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09 “Revenue from Contracts with Customers” (ASC 606), which supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition”. The Company adopted ASU 2014-09 on January 1, 2018 and recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services in accordance with ASC 606. The Company recognizes revenue based on the following five criteria: 1) Identifying the contract, 2) Identifying separate performance obligations, 3) Determining the transaction price, 4) Allocating the transaction price among the performance obligations and 5) Recognizing revenue when the performance obligations are satisfied. The pronouncement will not have a material impact on the Company’s financial statements. |
Summary of Significant Accounting Policies (Tables) |
9 Months Ended | ||||||||||||
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Sep. 30, 2018 | |||||||||||||
| Accounting Policies [Abstract] | |||||||||||||
| Schedule of Property and Equipment Useful Lives |
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Inventories, Stockpiles and Mineralized Materials on Leach Pads (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories |
Inventories, stockpiles and mineralized materials on leach pads at September 30, 2018 and December 31, 2017 consisted of the following:
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Derivative Financial Instruments (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Changes in Fair Value of Level 3 Financial Liabilities |
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2018 and December 31, 2017:
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Property, Plant and Equipment, Net (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment |
Property, plant and equipment at September 30, 2018 and December 31, 2017 consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Allocation of Depreciation Expense |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mine Reclamation Liability (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Mine Reclamation Liability | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Changes in Assets Retirement Obligation |
Changes to the asset retirement obligation were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||
Accounts Payable and Accrued Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Payable and Accrued Liabilities |
Accounts Payable and accrued liabilities at September 30, 2018 and December 31, 2017 consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured Borrowings (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Borrowings Abstract | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Secured Borrowings |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Notes Payable |
Notes payable were comprised of the following as of September 30, 2018 and December 31, 2017:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable - Related Parties (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Notes Payable Related Parties |
Notes payable – related parties were comprised of the following as of September 30, 2018 and December 31, 2017:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Notes Payable (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Convertible Notes Payable |
Convertible notes payable were comprised of the following as of September 30, 2018 and December 31, 2017:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Deficit (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Warrants |
The following tables summarize the warrant activity during the nine months ended September 30, 2018 and the year ended December 31, 2017:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Warrants Activity |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Business (Details Narrative) - USD ($) |
9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Jan. 11, 2016 |
Oct. 02, 2015 |
Feb. 25, 2013 |
Nov. 21, 2012 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
Mar. 05, 2010 |
Dec. 31, 2003 |
|
| Common stock authorized | 500,000,000 | 500,000,000 | 100,000,000 | ||||||
| Reverse stock split description | On January 11, 2016, the Company implemented a 5.5 to 1 reverse stock split. This reverse stock split was effective on May 26, 2016. All share and per share references have been retroactively adjusted to reflect this 5.5 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented. | On November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented. | |||||||
| Number of reverse stock split | 48,485,451 | 200 | |||||||
| Description of equity interests issued or issuable to acquire the entity | Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. | ||||||||
| Stock issued during period for consideration of acquisition, shares | 16,000,000 | ||||||||
| Promissory note issued to related party | $ 950,000 | ||||||||
| Percentage of net royalty | 3.00% | ||||||||
| Shares issued for conversion of debt | $ 16,009 | $ 8,325 | |||||||
| Number of common stock before reverse split | 266,669,980 | ||||||||
| Percentage of equity ownership interest rate | 99.90% | ||||||||
| Clavo Rico Ltd [Member] | |||||||||
| Shares issued for conversion of debt, shares | 240,225,901 | ||||||||
| Shares issued for conversion of debt | $ 5,488,980 | ||||||||
| Accrued interest | $ 3,434,426 | ||||||||
| Percentage of equity ownership interest rate | 20.00% | ||||||||
Summary of Significant Accounting Policies (Details Narrative) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2018
USD ($)
Segment
shares
|
Sep. 30, 2017
USD ($)
|
Dec. 31, 2017
USD ($)
|
|
| Accounting Policies [Abstract] | |||||
| Net loss | $ (3,394,410) | $ (981,237) | $ (5,664,256) | $ (2,470,972) | |
| Working capital deficit | 18,589,105 | 18,589,105 | |||
| Cash equivalents | |||||
| Cash deposit insured by FDIC | $ 250,000 | $ 250,000 | |||
| Common share equivalents diluted loss per share | shares | 20,587,912 | ||||
| Number of operating segment | Segment | 1 | ||||
Summary of Significant Accounting Policies - Schedule of Property and Equipment Useful Lives (Details) |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| Building [Member] | Minimum [Member] | |
| Properties, plant and equipment useful lives | 7 years |
| Building [Member] | Maximum [Member] | |
| Properties, plant and equipment useful lives | 15 years |
| Vehicles and Equipment [Member] | Minimum [Member] | |
| Properties, plant and equipment useful lives | 3 years |
| Vehicles and Equipment [Member] | Maximum [Member] | |
| Properties, plant and equipment useful lives | 7 years |
| Processing and Laboratory [Member] | Minimum [Member] | |
| Properties, plant and equipment useful lives | 5 years |
| Processing and Laboratory [Member] | Maximum [Member] | |
| Properties, plant and equipment useful lives | 15 years |
| Furniture and Fixtures [Member] | Minimum [Member] | |
| Properties, plant and equipment useful lives | 2 years |
| Furniture and Fixtures [Member] | Maximum [Member] | |
| Properties, plant and equipment useful lives | 3 years |
Joint Venture - Corpus Gold, LLC (Details Narrative) - Revenue Sharing Agreement [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
USD ($)
| |
| Revenues percentage | 20.00% |
| Corpus Mining and Exploration, Ltd [Member] | |
| Revenues percentage | 80.00% |
| Receivable amount | $ 10,477 |
Inventories, Stockpiles and Mineralized Materials on Leach Pads (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Inventory Disclosure [Abstract] | ||
| Stockpiles | ||
| Inventory impairment | $ 700,101 |
Inventories, Stockpiles and Mineralized Materials on Leach Pads - Schedule of Inventories (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Supplies | $ 89,261 | $ 70,261 |
| Mineralized Material on Leach Pads | 323,735 | 843,183 |
| ADR Plant | 64,191 | 159,463 |
| Finished Ore | 77,370 | 357,275 |
| Total Inventories | $ 554,557 | $ 1,430,182 |
Derivative Financial Instruments - Summary of Changes in Fair Value of Level 3 Financial Liabilities (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Net gain for the period included in earnings relating to the liabilities held | $ 3,101,189 | |
| Fair Value, Inputs, Level 3 [Member] | ||
| Derivative liabilities, beginning balances | 647,807 | |
| Transfers in upon initial fair value of derivative liabilities | 1,080,409 | 1,069,533 |
| Change in fair value of derivative liabilities and warrant liability | 2,142,100 | (421,726) |
| Extinguishment of derivative liability | (769,128) | |
| Derivative liabilities, ending balances | 3,101,189 | 647,807 |
| Net gain for the period included in earnings relating to the liabilities held | $ 1,372,972 | $ 421,726 |
Property, Plant and Equipment, Net (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 169,787 | $ 616,398 |
Property, Plant and Equipment, Net - Schedule of Property and Equipment (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Property, Plant and Equipment [Abstract] | ||
| Land | $ 273,954 | $ 279,344 |
| Buildings | 2,393,963 | 2,441,552 |
| Machinery and Equipment | 960,520 | 967,008 |
| Office Equipment and Furniture | 43,044 | 43,605 |
| Vehicles | 86,126 | 87,838 |
| Construction in Process | 7,607 | |
| Total Property, Plant and Equipment | 3,765,214 | 3,819,347 |
| Less Accumulated Depreciation | (3,048,196) | (2,937,287) |
| Total Property, Plant and Equipment, Net | $ 717,018 | $ 882,060 |
Property, Plant and Equipment, Net - Summary of Allocation of Depreciation Expense (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Depreciation expense | $ 169,787 | $ 616,398 |
| Cost of Goods Sold [Member] | ||
| Depreciation expense | 140,817 | 505,166 |
| General and Administrative [Member] | ||
| Depreciation expense | $ 28,970 | $ 111,232 |
Mine Reclamation Liability (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Mine reclamation obligation | $ 345,838 | $ 352,713 |
| Inflation Rate [Member] | ||
| Inflation rate | 5.30% | |
| Measurement Input, Risk Free Interest Rate [Member] | ||
| Fair value of weighted average risk-free interest rate | 18.00% |
Mine Reclamation Liability - Schedule of Changes in Assets Retirement Obligation (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Mine Reclamation Liability | ||
| Balance, Beginning of Year | $ 352,713 | $ 256,070 |
| Liabilities incurred | (6,875) | 96,643 |
| Disposal | ||
| Balance, End of Year | $ 345,838 | $ 352,713 |
Accounts Payable and Accrued Liabilities - Schedule of Accounts Payable and Accrued Liabilities (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accounts Payable | $ 1,064,105 | $ 899,939 |
| Accrued Liabilities | 346,032 | 270,123 |
| Accrued Salaries and Benefits | 297,917 | 262,323 |
| Advances Payable | 154,381 | 107,932 |
| Total Accrued Liabilities | $ 1,862,435 | $ 1,540,317 |
Secured Borrowings (Details Narrative) |
Jun. 25, 2018
USD ($)
|
Jun. 20, 2017
USD ($)
|
Sep. 30, 2018
USD ($)
Number
|
Jul. 31, 2018
USD ($)
|
Dec. 31, 2017
USD ($)
|
|---|---|---|---|---|---|
| Ounces of gold | Number | 39 | ||||
| Gold held cost | $ 46,747 | $ 119,361 | |||
| Secured borrowings | $ 184,221 | $ 86,733 | |||
| Four New Arrangements [Member] | |||||
| Debt instrument face amount | $ 225,000 | $ 195,720 | |||
| Debt instrument description | The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $22,500, for a total expected remittance of $247,500. The maturity date of the notes is June 26, 2019. | The terms of the arrangements require the Company to pay the combined principal balance plus a guaranteed return of no less than 10 percent, or $19,572, for a total expected remittance of $215,292. | |||
| Guaranteed return, percent | 10.00% | 10.00% | |||
| Guaranteed return, amount | $ 22,500 | $ 19,572 | |||
| Payments of expected remittance | $ 247,500 | $ 215,292 | |||
| Debt instrument, maturity date | Jun. 26, 2019 | Jun. 21, 2018 | |||
| Debt obligation | $ 40,647 |
Secured Borrowings - Schedule of Secured Borrowings (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Secured obligations | $ 225,005 | $ 195,720 |
| Guaranteed interest | 22,500 | 19,572 |
| Deferred interest | (16,537) | (9,198) |
| Secured Borrowings, gross | 230,968 | 206,094 |
| Gold held as security | (46,747) | (119,361) |
| Secured Borrowings, net | $ 184,221 | $ 86,733 |
Notes Payable (Details Narrative) |
3 Months Ended | 6 Months Ended | 9 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Feb. 05, 2018
USD ($)
|
Jan. 16, 2018
USD ($)
|
Nov. 30, 2017
USD ($)
|
Aug. 11, 2017
USD ($)
|
Jan. 11, 2016 |
Oct. 02, 2015 |
Jan. 11, 2013
USD ($)
|
Sep. 30, 2018
USD ($)
$ / shares
|
Sep. 30, 2017
USD ($)
|
Jun. 30, 2018
USD ($)
|
Sep. 30, 2018
USD ($)
Number
$ / shares
|
Sep. 30, 2017
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
| Reverse stock split | On January 11, 2016, the Company implemented a 5.5 to 1 reverse stock split. This reverse stock split was effective on May 26, 2016. All share and per share references have been retroactively adjusted to reflect this 5.5 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented. | On November 21, 2012, the Company implemented a 200 to 1 reverse stock split. Upon effectiveness of the stock split, each shareholder canceled 200 shares of common stock for every share of common stock owned as of November 21, 2012. This reverse stock split was effective on February 13, 2013. All share and per share references have been retroactively adjusted to reflect this 200 to 1 reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented. | |||||||||||
| Gain on extinguishment of debt | $ (8,510) | $ (8,510) | $ (3,325) | ||||||||||
| 3-2-1 Partners, Inc. [Member] | Unsecured Short-Term Promissory Note [Member] | |||||||||||||
| Unsecured short-term promissory note | $ 40,000 | ||||||||||||
| Debt instruments maturity date | Dec. 14, 2017 | ||||||||||||
| Debt instruments interest rate | 5.00% | ||||||||||||
| Debt instrument, periodic payment | $ 42,000 | ||||||||||||
| Accrued interest | $ 2,000 | 0 | 0 | ||||||||||
| Outstanding balance | 0 | 0 | |||||||||||
| GS Capital Partners [Member] | Unsecured Promissory Note [Member] | |||||||||||||
| Unsecured short-term promissory note | $ 80,000 | ||||||||||||
| Debt instruments maturity date | Apr. 11, 2018 | ||||||||||||
| Debt instruments interest rate | 8.00% | ||||||||||||
| Debt instrument, periodic payment | $ 109,468 | ||||||||||||
| Accrued interest | $ 29,468 | 0 | 0 | ||||||||||
| Outstanding balance | 0 | 0 | |||||||||||
| Proceeds from debt | $ 76,000 | ||||||||||||
| Debt discount | $ 4,000 | ||||||||||||
| Interest expense | $ 698 | ||||||||||||
| Phil Zobrist [Member] | Unsecured Promissory Note [Member] | |||||||||||||
| Unsecured short-term promissory note | $ 60,000 | ||||||||||||
| Debt instruments maturity date | Dec. 31, 2016 | ||||||||||||
| Debt instruments interest rate | 18.00% | 0.00% | |||||||||||
| Accrued interest | 61,782 | 61,782 | $ 29,412 | ||||||||||
| Outstanding balance | $ 60,000 | $ 60,000 | |||||||||||
| Proceeds from debt | $ 60,000 | ||||||||||||
| Debt instruments conversion price per share | $ / shares | $ 0.99 | $ 0.99 | |||||||||||
| Reverse stock split | 0.18 Pre-split | ||||||||||||
| Percentage of debt discount | 50.00% | ||||||||||||
| Number of conversion trading days | Number | 20 | ||||||||||||
| Gain on extinguishment of debt | $ 121,337 | ||||||||||||
| Derivative liability | $ 11,842 | $ 11,842 | |||||||||||
Notes Payable - Schedule of Notes Payable (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Total Notes Payable, Net of Unamortized Debt Discount | $ 60,000 | $ 179,302 |
| 3-2-1 Partners, Inc. [Member] | ||
| Total Notes Payable | 40,000 | |
| GS Capital Partners [Member] | ||
| Total Notes Payable | 80,000 | |
| Phil Zobrist [Member] | ||
| Total Notes Payable | 60,000 | 60,000 |
| Notes Payable [Member] | ||
| Total Notes Payable | 60,000 | 180,000 |
| Less Unamortized Discount | (698) | |
| Total Notes Payable, Net of Unamortized Debt Discount | $ 60,000 | $ 179,302 |
Notes Payable - Related Parties - Schedule of Notes Payable Related Parties (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Note payable - related party | $ 7,075,322 | $ 6,739,773 |
| Claymore Management [Member] | ||
| Relationship | Affiliate - Controlled by Director | Affiliate - Controlled by Director |
| Note payable - related party | $ 185,000 | $ 185,000 |
| Debra D'ambrosio [Member] | ||
| Relationship | Immediate Family Member | Immediate Family Member |
| Note payable - related party | $ 100,000 | |
| Diamond 80, LLC [Member] | ||
| Relationship | Immediate Family Member | Immediate Family Member |
| Note payable - related party | $ 49,000 | $ 49,000 |
| Francis E. Rich IRA [Member] | ||
| Relationship | Immediate Family Member | Immediate Family Member |
| Note payable - related party | $ 100,000 | |
| GAIA Ltd. [Member] | ||
| Relationship | Affiliate - Controlled by Director | Affiliate - Controlled by Director |
| Note payable - related party | $ 1,150,000 | $ 1,150,000 |
| Legends Capital [Member] | ||
| Relationship | Affiliate - Controlled by Director | Affiliate - Controlled by Director |
| Note payable - related party | $ 765,000 | $ 815,000 |
| LW Briggs Irrevocable Trust [Member] | ||
| Relationship | Affiliate - Controlled by Director | Affiliate - Controlled by Director |
| Note payable - related party | $ 1,101,000 | $ 1,101,000 |
| MDL Ventures, LLC [Member] | ||
| Relationship | Affiliate - Controlled by Director | Affiliate - Controlled by Director |
| Note payable - related party | $ 1,357,342 | $ 1,171,793 |
| Silverbrook Corporation [Member] | ||
| Relationship | Affiliate - Controlled by Director | Affiliate - Controlled by Director |
| Note payable - related party | $ 2,227,980 | $ 2,227,980 |
| WOC Energy, LLC [Member] | ||
| Relationship | Affiliate - Controlled by Director | Affiliate - Controlled by Director |
| Note payable - related party | $ 40,000 | $ 40,000 |
Stockholders' Deficit - Schedule of Warrants (Details) - Warrant [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
$ / shares
shares
| |
| Number of Warrants, Beginning Balance | shares | 743,637 |
| Number of Warrants, Granted | shares | |
| Number of Warrants, Exercised | shares | |
| Number of Warrants, Forfeited | shares | |
| Number of Warrants, Ending Balance | shares | 743,637 |
| Weighted Average Exercise Price, Beginning Balance | $ / shares | $ 1.28 |
| Weighted Average Exercise Price, Granted | $ / shares | |
| Weighted Average Exercise Price, Exercised | $ / shares | |
| Weighted Average Exercise Price, Forfeited | $ / shares | |
| Weighted Average Exercise Price, Ending Balance | $ / shares | $ 1.28 |
Stockholders' Deficit - Schedule of Warrants Activity (Details) - Warrant [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2018
$ / shares
shares
| |
| Outstanding Warrants, Range of Exercise Price Minimum | $ 0.50 |
| Outstanding Warrants, Range of Exercise Price Maximum | $ 6.88 |
| Number of Warrants, Ending Balance | shares | 743,637 |
| Weighted Average Remaining Contractual Life | 9 months 18 days |
| Warrants Outstanding, Weighted Average Exercise Price | $ 1.28 |
| Number of Warrants Exercisable Ending Balance | shares | 743,637 |
| Warrants Exercisable, Weighted Average Exercise Price | $ 1.28 |
Related Party Transactions (Details Narrative) - USD ($) |
1 Months Ended | ||
|---|---|---|---|
Oct. 31, 2017 |
Feb. 28, 2014 |
Sep. 30, 2018 |
|
| Stockholder/Director [Member] | |||
| Accrued consulting fees | $ 1,110,000 | ||
| Consulting Services [Member] | |||
| Payment of consulting fees per month | $ 25,000 | $ 18,000 | |
| Lease term | 12 months | ||
Commitments and Contingencies (Details Narrative) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Jul. 20, 2017 |
Jun. 12, 2017 |
Sep. 30, 2018 |
|
| Damages and attorney fees | $ 782,931 | ||
| October 25, 2018 [Member] | |||
| Granting attorneys’ fees and costs | $ 361,711 | ||
| Mr. Foxcroft [Member] | |||
| Damages and attorney fees | $ 232,000 | ||
| Arbitration seeking damages initial amount | $ 150,000 |
Concentrations (Details Narrative) - Sales Revenue, Net [Member] |
9 Months Ended |
|---|---|
Sep. 30, 2018 | |
| A-Mark Precious Metals [Member] | |
| Concentrations risk percentage | 100.00% |
| Asahi Refining, Inc., [Member] | |
| Concentrations risk percentage | 100.00% |