0001683168-18-002420.txt : 20180820 0001683168-18-002420.hdr.sgml : 20180820 20180820110453 ACCESSION NUMBER: 0001683168-18-002420 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180820 DATE AS OF CHANGE: 20180820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAGELLAN GOLD Corp CENTRAL INDEX KEY: 0001515317 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 273566922 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54658 FILM NUMBER: 181027527 BUSINESS ADDRESS: STREET 1: 2010A HARBISON DR., #312 CITY: VACAVILLE STATE: CA ZIP: 95687 BUSINESS PHONE: 707-884-3766 MAIL ADDRESS: STREET 1: 2010A HARBISON DR., #312 CITY: VACAVILLE STATE: CA ZIP: 95687 10-Q 1 magellan_10q-063018.htm FORM 10-Q

 

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018

 

 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________

 

Commission file number: 333-174287

 

MAGELLAN GOLD CORPORATION 

(Exact name of registrant as specified in its charter)

 

    Nevada     

(State or other jurisdiction of incorporation or organization)

     27-3566922    

(IRS Employer Identification Number)

   

2010A Harbison Drive #312, Vacaville, CA

(Address of principal executive offices)

    95687    

(Zip Code)

 

Registrant's telephone number, including area code:   (707) 884-3766

 

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 ☒    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 ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)   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 ☒

 

On August 13, 2018, there were 124,186,382 shares of the registrant’s common stock, $.001 par value, issued and outstanding. 

 

 

 

 

   

 

 

MAGELLAN GOLD CORPORATION

Form 10-Q June 30, 2018

Table of Contents

 

 

    Page
PART I. FINANCIAL INFORMATION    
     
Item 1. Financial Statements   3
Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017   3
Consolidated Statements of Operations and Comprehensive Loss for the Three and Six months ended June 30, 2018 and 2017 (unaudited)   4
Consolidated Statements of Cash Flows for the Six Months ended June 30, 2018 and 2017   5
Notes to Consolidated Financial Statements   6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk   27
     
Item 4. Controls and Procedures   27
     
PART II. OTHER INFORMATION    
    28
Item 1. Legal Proceedings    
     
Item 1A. Risk Factors   28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   28
     
Item 3. Defaults Upon Senior Securities   28
     
Item 4. mine Safety Disclosures   28
     
Item 5. Other Information   28
     
Item 6. Exhibits   28
   
Signatures   29

 

 

 

 

 2 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   June 30, 2018   December 31, 2017 
ASSETS        
Current Assets          
Cash  $2,030   $421 
Due from Rose Petroleum       27,147 
Investment in Rio Silver equities   83,656    109,532 
Prepaid expenses & other current assets   72,676    121,283 
           
Total current assets   158,362    258,383 
           
Mineral rights, net of impairment   323,200    323,200 
           
Property, plant & equipment net of accumulated depreciation of $70,025 and $11,822, respectively     1,082,977       1,155,811  
                 
Other Assets:          
Prepaid expenses and other assets   255,513    216,151 
Total other assets   255,513    216,151 
           
Total assets  $1,820,052   $1,953,545 
           
LIABILITIES AND SHAREHOLDERS' DEFICIT          
Current liabilities:          
Accounts payable  $409,773   $270,424 
Accrued liabilities   157,865    60,296 
Line of credit - related party   832,500    932,500 
Notes payable - related parties   1,190,859    1,197,437 
Note payable   105,354    100,783 
Accrued interest - related parties   316,461    238,651 
Convertible note payable   368,750    271,697 
Accrued interest   25,834    5,750 
Advances payable, related parties   64,292    8,100 
Total current liabilities   3,471,688    3,085,638 
           
Long term liabilities:          
Asset Retirement Obligation   114,462    115,914 
           
Total liabilities   3,586,150    3,201,552 
           
Shareholders' deficit:          
Preferred shares, $0.001 par value, 25,000,000 shares authorized, no shares issued and outstanding        
Common shares - $0.001 par value; 1,000,000,000 shares authorized, 117,081,382 and 95,581,382 shares issued and outstanding, respectively     117,081       95,581  
Additional paid-in capital   3,220,451    2,803,870 
Accumulated other comprehensive loss   (152,041)   (87,570)
Accumulated deficit   (4,951,589)   (4,059,888)
Shareholders' deficit   (1,766,098)   (1,248,007)
Total liabilities and shareholders' deficit  $1,820,052   $1,953,545 

  

See accompanying notes to the unaudited consolidated financial statements

 

 

 

 3 

 

 

MAGELLAN GOLD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

  Three months ended June 30,   Six months ended June 30, 
   2018   2017   2018   2017 
Revenues, net  $122,829   $   $122,829   $ 
                     
Operating costs and expenses:                    
Cost of Sales   315,227        315,227     
Exploration costs   3,255    33,905    10,035    42,861 
General and administrative expenses   172,851    131,399    425,330    286,515 
Total operating costs and expenses   491,333    165,304    750,592    329,376 
                     
Operating loss   (368,504)   (165,304)   (627,763)   (329,376)
                     
Other income (expense):                    
Interest expense   (394,201)   (15,800)   (477,950)   (30,993)
Foreign currency exchange gain   343        343     
Loss on extinguishment of debt   (73,250)       (73,250)    
Gain (loss) on change in derivative liability   286,919    (713,306)   286,919    (655,876)
Net loss   (548,693)   (894,410)   (891,701)   (1,016,245)
                     
Other comprehensive income (loss):                    
Foreign currency translation   (118,944)   (390)   (38,595)   (520)
Unrealized loss on available-for-sale securities   (23,041)       (25,876)    
                     
Net comprehensive loss  $(690,678)  $(894,800)  $(956,172)  $(1,016,765)
                     
Basic and diluted net loss per common share   $ (0.00 )   $ (0.01 )   $ (0.01 )   $ (0.01  )
                     
Basic and diluted weighted-average common shares outstanding     110,224,239       70,111,317       104,114,531       67,889,112  

 

See accompanying notes to the unaudited consolidated financial statements

 

 

 4 

 

  

MAGELLAN GOLD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  Six months ended June 30, 
   2018   2017 
Operating activities:          
Net loss  $(891,701)  $(1,016,245)
Adjustments to reconcile net loss to net cash used in operating activities:                
Accretion of discounts on notes payable   366,795     
Amortization of service contracts   81,250    32,804 
Depreciation expense   61,025     
Loss on extinguishment of debt   73,250     
(Gain) loss on change in derivative liability   (286,919)   655,876 
Changes in operating assets and liabilities:          
Due from Rose Petroleum   27,147     
Prepaid expenses and other assets   (72,005)   (20,200)
Accounts payable and accrued liabilities   236,918    132,475 
Accrued interest   97,894    30,609 
Net cash used in operating activities   (306,346)   (184,681)
           
Investing activities:          
Purchase of Rio Silver equity securities       (58,297)
Payment of option to acquire SDA mill       (150,000)
Net cash used in investing activities       (208,297)
           
Financing activities:          
Proceeds from advances from related parties   56,192    20,550 
Payments on advances from related parties       (20,050)
Proceeds from Notes payable - related parties       275,000 
Payments of notes payable - related parties   (50,000)    
Proceeds from sale of common stock   250,000    125,000 
Proceeds from sale of warrants   80,000     
Net cash provided by financing activities   336,192    400,500 
           
Effect of foreign currency exchange   (28,237)   (520)
Net increase in cash   1,609    7,002 
Cash at beginning of period   421    485 
Cash at end of period  $2,030   $7,487 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $12,357   $382 
Cash paid for income taxes  $   $ 
           
Non-cash financing and investing activities:          
Unrealized loss on available-for-sale securities  $25,876   $ 
Conversion of line of credit to common stock  $100,000   $ 
Conversion of notes payable and accrued interest to common stock  $   $23,000 
Reclassifications of derivative liability to APIC  $8,081   $442,076 
Reclassifications of convertible note payable and accrued interest to accounts payable   $   $8,850 

 

See accompanying notes to the unaudited consolidated financial statements

 

 

 

 5 

 

 

MAGELLAN GOLD CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 – Organization, Basis of Presentation, and Nature of Operations

 

Magellan Gold Corporation (“we” “our”, “us”, the “Company” or “Magellan”) was incorporated on September 28, 2010, under the laws of the State of Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which we have mining rights contain mineral reserves that are economically recoverable.

 

On November 30, 2017, the Company purchased from Rose Petroleum plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA Mill”) as well as its associated assets, licenses and agreements.

 

On October 17, 2017, the Company amended the agreement to include the acquisition of Minerales Vane Operaciones ("MVO") (the entity that provides labor to the Mill) for $2,500. In January 2018 the Company paid the purchase price and obtained legal control of MVO. MVO is the sister entity which was organized for the purpose of employing all personnel of the SDA mill. The acquisition of MVO did not result in the acquisition of any additional assets or liabilities.

 

Our primary focus with the acquisition of the SDA Mill in Mexico is to transform Magellan into a production company, to continue to advance our Arizona silver project towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities. Our mineral lease payments, permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any significant revenue.

 

Basis of Presentation

 

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-months ended June 30, 2018 are not necessarily indicative of the results for the full year. While we believe that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto contained in our annual report on Form 10-K for the year ended December 31, 2017.

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiaries, Gulf + Western Industries, Inc., Magellan Acquistion Corporation, Minerales Vane 2, S.A. de C.V., and Minerales Vane Operaciones, S.A de C.V. All intercompany transactions and balances have been eliminated. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize 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. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The Company adopted the standard effective January 1, 2018 at which point it had no impact on the Company.

 

The Company recognizes revenue for all of its products upon transfer of control in an amount that reflects the consideration it expects to receive in exchange for those products. Transfer of control is in accordance with the terms of contracts, which is generally upon delivery of the product. While payment terms vary by contract, terms generally include payment to be made within 30 days. Revenue during the six months ended June 30, 2018, were related to the sale of concentrate to a local smelter following the processing of tailings at the SDA Mill.

 

 

 

 

 6 
 

 

Reclassification

 

Certain reclassifications have been made to the prior periods to conform to the current period presentation.

 

Recent Accounting Pronouncements

 

Accounting Standards Update No. 2014-09—Revenue from Contracts with Customers (Topic 606). On May 28, 2014, the FASB issued guidance that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU was further amended by ASU No. 2015-14, No. 2016-08, No. 2016-10, No. 2016-12 and No. 2016-20. The guidance provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. The Company has performed an assessment of the revised guidance and the impacts on the Company’s Consolidated Financial Statements and disclosures and has determined that the adoption of this guidance did not have an impact. The Company adopted the new guidance effective January 1, 2018 using the modified retrospective approach.

  

Liquidity and Going Concern

 

Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At June 30, 2018, we had not yet generated any revenues or achieved profitable operations and we have accumulated losses of $4,951,589. We expect to incur further losses in the development of our business, all of which raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.

 

During the six months ended June 30, 2018, we sold 12,500,000 units consisting of common stock and warrants and realized net proceeds of $250,000. Additionally, 4,000,000 warrants were exercised during the same period and net proceeds of $80,000 were realized. Proceeds from these transactions were generally used to fund working capital.

 

Additionally through various transactions with related parties during the year ended December 31, 2017, the Company realized approximately $1,075,000 which is primarily reflected in a series of promissory notes ("Series 2017 Notes"). The proceeds were generally used to fund the purchase of the SDA Mill in Mexico. The Series 2017 Notes are secured by a pledge of all the outstanding shares of Magellan Acquisition Corporation, a wholly-owned subsidiary that owns the SDA Mill through Minerales Vane 2.

 

We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure than any future financings will occur.

 

Note 2 – Mineral Rights and Properties

 

Silver District

 

In August 2012, we entered into an option agreement with Columbus Exploration f/k/a Columbus Silver Corporation, which granted us the right to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. The properties acquired from Columbus were assigned into our subsidiary Gulf+Western Industries, Inc. and our total acquisition cost capitalized was $323,200.

 

The Silver District property consists of 110 unpatented lode and mill site mining claims, six patented lode claims, and an Arizona State Exploration Permit, all of which are held directly or under lease agreements, totaling over 2,000 acres. Certain of the claims are subject to third party net smelter royalties and/or net profits of varying percentages.

 

 

 

 7 
 

 

In August 2017, we renewed the BLM lode and mill site claims in La Paz County, Arizona with the Bureau of Land Management and these claims will remain in good standing through August 31, 2018. Additionally, in both August 2017 and 2016, we made advance minimum royalty payments of $10,000 to a third party landowner on the Red Cloud lease, which includes the Red Cloud Patented claim and two BLM lode claims. We also expanded the Arizona State Exploration Permit to approximately 334.85 acres on the Arizona State section that comprises part of our Silver District land package and are current on our obligations under this permit.

 

On July 9, 2015, G+W entered into two Lease and Purchase Agreements (“Agreements”) with an individual that grant the Company certain exploration and mining rights for two patented lode claims located in the Silver District, La Paz County, Arizona. The Agreements provide for scheduled variable annual advance minimum royalty payments to the lessor. In addition, the Agreements have an initial term of 20 years, and provide for the purchase of the properties for $125,000 each during the term of the lease, net of any advance royalty payments made up to the date of the purchase. The Company paid the initial advance royalty payments totaling $3,000 and advance royalty payments of $1,000 in July 2016 to maintain these Agreements. Due to an uncertainty associated with the clarification of the legal title for these two patented lode claims, these payments have not been capitalized as mining rights, and therefore are included in exploration costs during the period in which the obligation was due.

  

Note 3 – Mining Option Agreement

 

On June 30, 2016 the Company signed a non-binding Letter of Intent (“LOI”) with Rio Silver Inc., and on October 24, 2016 the Company executed a definitive Mining Option Agreement (“Option Agreement), pursuant to which Magellan is granted the option to earn an undivided 50% interest in the Niñobamba Silver-Gold Property (“Property”), located 330 kilometers southeast of Lima in the Department of Ayacucho, Peru.

 

As a condition of the LOI, the Company had paid a refundable $12,000 deposit. This payment was recorded as a deposit and was subsequently used to maintain certain mining concessions on the property.

 

In addition to the deposit, the Company was obliged to subscribe to two private placement unit financings in Rio Silver, each for aggregate proceeds of Cdn$75,000. The Company completed the first unit private placement on August 23, 2016. The first placement included 1,500,000 units priced at Cdn$0.05, which included one share of Rio Silver common stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.05 preliminarily set to expire on February 23, 2018. The cost of the units in the first private placement totaled USD $59,753. The second placement included 1,250,000 units priced at Cdn$0.06, which was completed on January 19, 2017, and included one share of Rio Silver common stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.06 preliminarily set to expire on July 19, 2018. The cost of the units in the second private placement totaled USD $58,297. Each of these transactions were recorded as an investment in Rio Silver equity securities and included on the accompanying consolidated balance sheets at June 30, 2018 and December 31, 2017. During the six months ended June 30, 2018, we have recorded an unrealized loss of $25,876 to write-down the investment. The shares of common stock and warrants of Rio Silver have been pledged by the Company to John Power to secure repayment of a $125,000 loan.

 

Under the terms of the Agreement, the Company had the right to earn an undivided 50% interest in the Niñobamba Silver/Gold Project in central Peru. To earn its 50% interest, the Company was required to spend $2.0 million in exploration over three years. The Niñobamba project is comprised of five concessions that total 36.5 square kilometers (9,026 acres). The concessions include the original Rio Silver concession, three concessions recently acquired from a Peruvian company owned jointly by Newmont Mining Corporation and Southern Peru Copper Corporation, and one concession for which application was made, and which was granted in 2017.

 

On January 5, 2018, Magellan entered into a Termination Agreement, effective December 31, 2017, with Rio Silver Inc. to mutually terminate the Company’s option to earn an interest in Rio Silver’s Niñobamba exploration property in Peru. In connection with the termination of the agreement, Rio Silver agreed to apply to the TSX Venture Exchange for an 18-month extension of 2,750,000 warrants that Magellan holds in Rio Silver stock, which otherwise would expire in February and July 2018. The TSX Venture Exchange subsequently approved the extensions.

 

In connection with the termination of the agreement, Magellan agreed to grant Rio Silver a right of first refusal on any sale of the 2,750,000 shares of Rio Silver stock that Magellan currently holds.

 

Additionally effective in 2018, the Company sold its interest in Magellan Gold Peru S.A.C. for consideration of $1.00. The Company realized a loss on disposition of $567.

 

 

 8 
 

 

Note 4 – Acquisition of SDA Mill

 

On March 3, 2017 the Company entered into a Memorandum of Understanding (“MOU”) with Rose Petroleum plc (“Rose”), a multi-asset natural resource business, to purchase an operating floatation plant that also includes a precious metals leach circuit and associated assets, licenses and agreements (together, the “SDA Mill”) located in the State of Nayarit, Mexico.

 

Prior to closing, all of the assets and operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2.

 

The total purchase price for the SDA Mill was determined to be $1,476,025 which consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 paid for the option-to-purchase extension, and 14,200,834 shares of common stock (the “Shares”) with a fair value of $426,025. The note was non-interest bearing and was paid in full April 12, 2018. This note was grouped with Notes Payable Related Party due to Rose’s share ownership in the Company. The Shares will be held in escrow for a period of 12 months and the Company has the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months and $550,000 in months 7 to 12.

 

On April 12, 2018, the Company satisfied its note payable in the amount of $50,000 in favor of Rose Petroleum, plc in respective of the purchase of the SDA Mill, as required under terms of the Stock Purchase Agreement.

 

Subsequent to the purchase of the SDA Mill, the Company and Rose Petroleum executed an IVA Agreement which implemented the provisions of the Stock Purchase Agreement with respect to the payment of the IVA Tax assessed by the Mexican taxing authorities on the sale and purchase of the IVA Mill. Under the terms of the IVA Agreement, Rose Petroleum advanced the IVA tax, in Mexican Pesos, for the payment of the IVA tax, approximately $260,000. The Company has agreed that all future tax credits or refunds that it receives from the Mexican taxing authority will be paid over to Rose until such time as Rose has recouped the advance, in full. Mr. Carson executed a Guaranty of the Company's obligations under the IVA Agreement effective March 8, 2018.

 

In March 2018, the Company and Rose Petroleum, plc satisfied their respective obligations for payment of Mexican VAT on purchase of the SDA Mill, as required under terms of the Stock Purchase Agreement.

 

Pro forma results of operations for the six months ended 2017 as though the Company had acquired the SDA Mill on the first day of the fiscal year of 2017 are set forth below:

 

  June 30, 
   2017 
  Pro Forma 
Net Sales  $227,793 
Operating Expenses   1,823,202 
Net Loss  $(1,595,409)

 

Note 5 – Interim Toll Milling Agreement

 

On November 7, 2017 the Company and Rose executed an Interim Milling Agreement (the “Agreement”), with an effective date of November 1, 2017, whereby, pending closing of the SDA Mill acquisition, Rose shall cause its subsidiary, Minerales Vane S.A. de C.V., a Mexico corporation (“Vane”), to reopen the SDA Mill and recommence operations on a toll milling basis for a third-party. Under the Agreement, the Company is required to provide the working capital to fund the operations and is entitled to all the positive cash flow after covering the related expenses.

 

The Agreement was completed and terminated during November 2017. The Company has an outstanding receivable from Rose of $-0- as of June 30, 2018 and $27,147 as of December 31, 2017, respectively.

 

 

 

 

 9 
 

 

Note 6 – Fair Value of Financial Instruments

 

Financial assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:

 

Level 1— Quoted market prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2— Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

 

Level 3— Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

 

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

 

   Fair Value at    Fair Value Measurement at June 30, 2018 
   June 30, 2018   Level 1   Level 2   Level 3 
Investment in Rio Silver equities  $83,656   $83,656   $   $ 

 

  Fair Value at

   Fair Value Measurement at December 31, 2017 
  December 31, 2017   Level 1   Level 2   Level 3 
Investment in Rio Silver equities  $109,532   $109,532   $   $ 

 

The carrying values for cash and cash equivalents, prepaid assets, accounts payable and accrued liabilities, related party line of credit and notes payable approximate their fair value due to their short-term maturities.

 

Note 7 – Line of Credit – Related Party

 

Effective December 31, 2012, we entered into a line of credit arrangement with John D. Gibbs, a significant investor, to facilitate timely cash flows for the Company’s operations. The line of credit originally provided for a maximum balance of $250,000, accrued interest at 6% annually, and matured on December 31, 2014.

 

On December 31, 2013 we amended our credit agreement with Mr. Gibbs to increase the borrowing limit under the line of credit to $750,000. All other terms of the credit agreement, including the interest rate and maturity date remained unchanged.

 

On December 31, 2014, we again amended the credit agreement to increase the borrowing limit to $900,000 and extend the maturity date to December 31, 2015. As part of the 2014 amendment and the subsequent appointment of Dr. Pierce Carson as the President, CEO and Director of G+W effective June 1, 2015, we had pledged all of our 85% equity interest in G+W, which owns the Silver District properties, as security for all amounts outstanding under the credit agreement. In July 2016, we completed a share exchange with Dr. Carson to re-acquire the 15% interest in G+W, and therefore at September 30, 2017 our entire 100% interest in G+W remains pledged as security for outstanding amounts under this credit agreement.

 

 

 

 

 10 
 

 

On December 31, 2015 we again amended the credit agreement to increase the borrowing limit to $1,000,000 and extended the maturity date to December 31, 2016. Finally, on March 31, 2017 with an effective date of December 31, 2016 we again amended the credit agreement to extend the maturity date to December 31, 2018. All other terms of the agreement were unchanged. At June 30, 2018 the Company has $167,500 available under the credit line.

 

No draws were made during the six months ended June 30, 2018. During the same period Mr. Gibbs converted $100,000 of the outstanding balance on the line of credit into 5,000,000 shares of common stock at $0.02 per share. The outstanding balance under the line of credit was $832,500 and $932,500 at June 30, 2018 and December 31, 2017, respectively. In addition, a total of $240,695 and $213,657 of interest has been accrued on this obligation and is included in Accrued interest - related parties on the accompanying consolidated balance sheets at June 30, 2018 and December 31, 2017, respectively.

 

Note 8 – Notes Payable – Related Parties

 

In August 2011, we entered into an unsecured loan from John Power, the Company’s Director, evidenced by a $20,000 promissory note. The promissory note bears interest at 6% per annum and is payable on demand with thirty days’ notice from the lender. During 2014, the Company made payments totaling $5,000 to pay down the principal balance of the note. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At both June 30, 2018 and December 31, 2017, the note balance was $15,000. At June 30, 2018 and December 31, 2017, interest totaling $893 and $1,576, respectively, was accrued on this note payable and is included in Accrued interest – related parties on the accompanying consolidated balance sheets.

 

In January 2014, we entered into an additional unsecured loan from Mr. Power, evidenced by a $50,000 promissory note. The promissory note bears interest at 6.75% per annum and is payable on demand with thirty days’ notice from the lender. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At June 30, 2018 and December 31, 2017, interest totaling $2,975 and $6,249, respectively, was accrued on this note payable and is included in Accrued interest – related parties on the accompanying consolidated balance sheets. At both June 30, 2018 and December 31, 2017, the note balance was $50,000.

 

On May 31, 2017 we entered into three short-term notes with Mr. Gibbs, Dr. Carson and Mr. Power in the principal amounts of $100,000, $25,000 and $25,000, respectively. The notes bear interest at 6% and matured on November 15, 2017. A total of $3,760 and $4,512 of interest is accrued on these notes as of June 30, 2018 and December 31, 2017, respectively. The note balances were subsequently rolled into the Series 2017 Notes.

 

On June 30, 2017 we entered into an additional secured loan for advances from Mr. Power and evidenced by a $125,000 promissory note. The promissory note bears interest at 6% per annum and matured on December 31, 2017 and is currently in default. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. The note is collateralized by our investment in Rio Silver shares and warrants. At both June 30, 2018 and December 31, 2017, the note balance was $125,000. A total of $7,438 and $3,781 of interest is accrued on these notes as of June 30, 2018 and December 31, 2017, respectively and is included in Accrued interest – related parties on the accompanying consolidated balance sheets.

 

On November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.

 

Net proceeds on the issuance after reducing for the transfers previously listed total $900,000. The notes are secured by a stock pledge agreement covering 100% of the outstanding common stock of Magellan Acquisition Corporation, bear interest at 10% and mature on December 31, 2018.

 

The total of portion of the Series 2017 Notes from related parties totaled $1,045,000, including financing fees of $95,000 recorded as discount to the notes. Mr. Gibbs, Dr. Carson, and Mr. Power transferred $100,000, $25,000, and $25,000, respectively, from the May 31, 2017 short term related party notes into the Series 2017 Notes. As of June 30, 2018 the balance on the Series 2017 Notes from related parties, net of unamortized discount of $44,141, is $1,000,859 with accrued interest of $60,696. As of December 31, 2017, the balance on the Series 2017 Notes from related parties, net of unamortized discount of $87,563, is $957,437 with accrued interest of $8,875.

 

During the six months ended June 30, 2018 $43,422 of debt discount related to the above notes was amortized to interest expense.

 

 

 

 

 11 
 

 

Note 9 – Notes payable

 

As discussed in Note 8 – Notes Payable – Related Parties, on November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.

 

The total of portion of the Series 2017 Notes from non-related parties totaled $110,000, including financing fees of $10,000 recorded as discount to the notes. As of June 30, 2018 the balance on the notes from non-related parties, net of unamortized discount of $4,646, is $105,354 with accrued interest of $6,389. As of December 31, 2017, the balance on the notes from non-related parties, net of unamortized discount of $9,217 is $100,783 with accrued interest of $934.

 

During the six months ended June 30, 2018 $4,571 of debt discount related to the above notes was amortized to interest expense.

 

Note 10 – Convertible Note Payable

 

On November 1, 2017, the Company sold a 10% Convertible Promissory Note (“Auctus Note”) in a principal amount of $170,000. After deducting the investor’s discount and legal fees, net proceeds to the Company were $153,650. The Note matures on November 1, 2018 and can be converted into the Company’s common stock after 180 days from the date the Note is issued. In early May 2018 when the note became convertible at a variable price the conversion feature was valued and recorded as a derivative liability. The conversion option continued to qualify for derivative treatment until the note was amended on June 8, 2018 (see below) and a minimum conversion price was added to the instrument. The derivative was initially valued at $176,860 which was allocated $170,000 as a debt discount and $6,860 as a loss on derivative liability. The debt discount was fully amortized and the derivative liability was adjusted to $0 as June 8, 2018 when the debt was amended. The result was $170,000 of amortization of debt discount included in interest expense and $176,860 of gain on change in derivative liability.

 

On November 2, 2017, the Company sold a 10% Convertible Promissory Note (“EMA Note”) in principal amount of $125,000. After deducting the investor’s discount and legal fees, net proceeds to the Company were $113,500. The Note matures on November 2, 2018 and can be converted into the Company’s common stock after 180 days from the date the Note is issued. In early May 2018 when the note became convertible at a variable price the conversion feature was valued and recorded as a derivative liability. The conversion option continued to qualify for derivative treatment until the note was amended on June 8, 2018 (see below) and a minimum conversion price was added to the instrument. The derivative was initially valued at $225,711 which was allocated $125,000 as a debt discount and $100,711 as a loss on derivative liability. The debt discount was fully amortized and the derivative liability was adjusted to $0 as June 8, 2018 when the debt was amended. The result was $125,000 of amortization of debt discount included in interest expense and $225,711 of gain on change in derivative liability.

 

The Company evaluated other convertible instruments and determined that the outstanding common stock warrants were required to be treated as a derivative during the period from May 1, 2018 through June 8, 2018 as a result of the variable conversion feature on the above notes. As a result an initial derivative liability of $62,569 was recorded and reclassified out of equity and a final derivative liability of $70,650 was reclassified back into equity at the point the common stock warrants no longer qualified as a derivative. The impact was the recording of a loss on derivative liability of $8,081.

 

Effective June 8, 2018 the Company and Auctus Fund, LLC (“Auctus”) signed an Amendment No. 1 to the Convertible Promissory Noted (the “Auctus Note”) dated November 1, 2017 (the “Auctus Amendment”). Under the terms of the Auctus Amendment, the principal outstanding balance of the Auctus Note has been increased from $170,000, to $212,500. Also, Auctus agreed to forbear from exercising rights arising from certain Events of Default (as defined in the Note) unless a new Event of Default occurs or the Company fails to become current in its required SEC filings by June 30, 2018. Auctus also agreed not to exercise its conversion privileges under the Auctus Note at prices below $0.02 per share until September 30, 2018. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting. It was then determined that no beneficial conversion feature existed at the time of debt issuance. The Company recorded the change in the debt instrument as an extinguishment and recorded the increase in principal balance of $42,500 as a loss on extinguishment of debt.

 

 

 

 

 12 
 

 

Effective June 8, 2018 the Company and EMA Financial, LLC (“EMA”) signed an Amendment No. 1 to the Convertible Promissory Noted (the “EMA Note”) dated November 2, 2017 (the “EMA Amendment”). Under the terms of the EMA Amendment, the principal outstanding balance of the EMA Note has been increased from $125,000, to $156,250. Also, EMA agreed to forbear from exercising rights arising from certain Events of Default (as defined in the Note) unless a new Event of Default occurs or the Company fails to become current in its required SEC filings by June 30, 2018. EMA also agreed not to exercise its conversion privileges under the EMA Note at prices below $0.02 per share until September 30, 2018. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting. It was then determined that no beneficial conversion feature existed at the time of debt issuance. The Company recorded the change in the debt instrument as an extinguishment and recorded the increase in principal balance of $31,250 as a loss on extinguishment of debt.

 

As of June 30, 2018 the balance on the notes, net of unamortized discount of $0, is $368,750 with accrued interest of $19,444. As of December 31, 2017, the balance on the notes, net of unamortized discount of $23,303 is $271,697 with accrued interest of $4,815. During the three and six months ended June 30, 2018, $6,867 and $18,024 of debt discount related to the above notes, respectively, was amortized to interest expense. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting. It was then determined that no beneficial conversion feature existed at the time of debt issuance.

 

Note 11 – Stockholders’ Deficit

 

Sales of common stock and warrants:

 

During the six months ended June 30, 2018, the Company raised $250,000 through the sale of 12,500,000 common stock and warrants (“Units”) at a price of $0.02 per Unit, each Unit consisting of one share of common stock and one warrant exercisable until June 30, 2018 to purchase one additional share of common stock at an exercise price of $0.02 per share. The expiration date of the warrants was subsequently extended to August 31, 2018. Of this raise $240,000 was purchased by directors or significant shareholders. A price protection feature of the offering provides that if at December 31, 2018, the Company has issued common stock at a price less than $0.02 per share, then the number of Units issuable to each investor shall be increased so as to reduce the Unit price to the lower price. The allocation of relative fair values of the equity instruments at the dates of the sale transactions was as follows: common stock at 61% and the warrants at 39%.

 

During the six months ended June 30, 2018, the Company received net proceeds of $80,000 from the exercise of 4,000,000 warrants at $0.02 per share.

 

Stock Options and the 2017 Equity Incentive Plan:

 

Under the 2017 Equity Incentive Plan, the Company is authorized to grant rights to acquire up to a maximum of 10,000,000 shares of common stock. The 2017 Plan provides for the grant of (1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation rights.

 

During the year ended December 31, 2017, the Company granted ten-year options to purchase 3,600,000 shares of common stock at an option exercise price of $0.04 per share, the closing price on the date of grant. As of June 30, 2018 the Company had 6,400,000 shares available for future grant.

 

 

 

 

 13 
 

 

Stock option activity within the 2017 Equity Incentive Plan and warrant activity outside the plan, for the six months ended June 30, 2018 is as follows:

 

   Stock Options   Stock Warrants 
       Weighted Average       Weighted Average 
   Shares   Exercise Price   Shares   Exercise Price 
Outstanding at December 31, 2017   3,600,000   $0.04    1,850,000   $0.10 
Granted           12,500,000   $0.02 
Cancelled                
Expired                
Exercised           (4,000,000)   (0.02)
Outstanding at June 30, 2018   3,600,000   $0.04    10,350,000   $0.03 
Exercisable at June 30, 2018   3,600,000   $0.04    10,350,000   $0.03 

 

As of June 30, 2018 the outstanding stock options have a weighted average remaining term of 9.33 years and no intrinsic value, and the outstanding stock warrants have a weighted average remaining term of 0.34 years and an intrinsic value of $85,000.

  

Note 12 – Commitments and Contingencies

 

Mining Claims

 

As part of our acquisition of the Silver District properties from Columbus Exploration, we assumed the Red Cloud lease whose initial term expires in August 2026. The lease requires annual advance minimum royalty payments of $10,000 through the term of the lease due on the annual anniversary of the agreement. The lease is also subject to a 2% net production royalty to be paid to the lessor from the sale of precious metals extracted from the leased property. In order to maintain the BLM lode and mill site claims, annual payments are required before the end of August of each year. Payments are also due annually on two patented claims we leased in July 2015 and on our Arizona State Minerals Exploration Permit. As of June 30, 2018, all of these claims and leases are in good standing except for the two patented claims leased in 2015.

 

Leases

 

As part of our acquisition of MV2 in Mexico, we assumed the following leases payable in local currency as follows:

 

a)Ejido S.D.A, 10 year lease, 6 hectares, executed January 2016, expires December 2025. Annual payments 25,000 MX pesos. Renewable for 10 years.

 

b)Silverio Medina Ozuna, 3 year lease, 1 hectare, executed May 2017, expires April 2020. Annual payments 15,000 MX pesos. Renewable for 3 year periods.

 

c)Silverio Medina Ozuna, 10 year lease, 2 hectares, executed May 2010, expires April 2020. Payment 100,000 MX pesos paid in advance at lease execution. Renewable for 10 years.

 

 

 

 

 14 
 

 

The minimum future payments due on these leases are as follows for the next five years and thereafter and have been translated to US dollars using an exchange rate at June 30, 2018 of 19.92 MX pesos to US dollars:

 

Payment Due Date  Minimum Due ($) 
2018   1,255 
2019   2,008 
2020   1,255 
2021   1,255 
2022 and thereafter   5,020 

 

Other contractual arrangements

 

On November 1, 2016 the Company executed a Finder’s Agreement (“Agreement”), with a third party consultant to introduce the Company to potential investors beginning with its November 2016 private placement offering. The term of the Agreement is six months, or until the Company informs the consultant it has located investors to purchase the securities. The consultant is to be compensated for the services by cash payments totaling $30,000, payable at or before the termination of the Agreement. As of June 30, 2018, the Company paid approximately $23,500 in total to the consultant pursuant to the Agreement, including $12,500 paid during year ended December 31, 2017 and $11,000 during the year ended December 31, 2016.

 

On October 24, 2016, the Company entered into an agreement with Rio Silver, discussed in Note 3 – Mining Option Agreement, requiring the Company to spend $2,000,000 in exploration costs over the three-year period commencing with the execution of the Agreement. Effective December 31, 2017, the Company agreed with Rio Silver to terminate the option agreement, thereby terminating the requirement for exploration cost expenditures and the Company’s option to earn an interest in the Niñobamba Silver/Gold Project.

  

Note 13 – Executive Employment Agreement

 

On June 1, 2016 we executed an employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, and effective June 30, 2016, Dr. Carson was appointed a Director of Magellan. The term of the agreement covered the period from June 1, 2016 to May 31, 2017 and is subject to annual renewal. The agreement has subsequently been renewed each year and is currently effective from June 1, 2018 to May 31, 2019, with all terms of the original agreement remaining unchanged.

 

During the term of the agreement, Magellan agreed to pay Dr. Carson a base salary in equal semi-monthly installments less required withholding and other applicable taxes. Dr. Carson’s salary was set at $6,667 per month during the three-month period from June 1, 2016 through August 31, 2016, and thereafter at $10,000 per month. Until such time as Magellan is properly funded, Magellan may defer and accrue salary owed. If not properly funded before the end of the term, Magellan may at its option issue shares of Magellan common stock as settlement of the accrued salary liability.

 

Dr. Carson shall have the right to voluntarily terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through the date of termination, including any amount that may have been deferred and accrued.

 

At June 30, 2018 a total of $90,000 and $8,351 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities on the accompanying consolidated balance sheets.

 

At December 31, 2017 a total of $30,000 and $2,796 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities on the accompanying consolidated balance sheets.

 

 

 

 

 15 
 

 

Note 14 – Related Party Transactions

 

Conflicts of Interests

 

Athena Silver Corporation (“Athena”) is a company under common control. Mr. Power is also a director and CEO of Athena. Mr. Gibbs is a significant investor in both Magellan and Athena. Magellan and Athena are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

Silver Saddle Resources, LLC is also a company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle. Magellan and Silver Saddle are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

The existence of common ownership and common management could result in significantly different operating results or financial position from those that could have resulted had Magellan, Athena and Silver Saddle been autonomous.

 

Management Fees

 

The Company previously maintained a month-to-month management agreement with Mr. Power requiring a monthly payment, in advance, of $2,500 as consideration for his services as CFO to Magellan. Effective August 31, 2017, Mr. Power resigned as CFO and Secretary of the Company and was replaced by Michael P. Martinez on September 18, 2017 to serve as CFO, Secretary and Treasurer. Mr. Power continues to serve as a member of the Board of Directors.

 

Management fees to Mr. Power for the three months ended June 30, 2018 and 2017, are $-0- and $7,500, respectively. Management fees to Mr. Power for the six months ended June 30, 2018 and 2017, are $-0- and $15,000, respectively. These fees are included in general and administrative expenses in our statement of operations. At June 30, 2018 and December 31, 2017, $27,500 of the fees had not been paid and are included in accrued liabilities on the accompanying consolidated balance sheets.

 

Accrued Interest - Related Parties

 

Accrued interest due to related parties is included in our consolidated balance sheets as follows:

 

   June 30, 2018   December 31, 2017 
Accrued interest payable - Mr. Gibbs  $274,055   $221,103 
Accrued interest payable - Mr. Power   40,057    16,562 
Accrued interest payable - Dr. Carson   2,349    986 
           
   $316,461   $238,651 

 

During the six months ended June 30, 2018, we paid a total of $12,357 to Mr. Power representing unpaid accrued interest on notes payable. During the year ended December 31, 2017, we paid a total of $382 to Mr. Power representing unpaid accrued interest on notes payable.

 

 

 

 

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Advances Payable – Related Parties

 

We borrowed and repaid non-interest bearing advances from/to related parties as follows:

 

   Six Months Ended June 30, 2018 
   Advances   Repayments 
Mr. Power  $56,192   $ 
Mr. Carson   8,100     
Totals  $64,292   $ 

 

   Year Ended December 31, 2017 
   Advances   Repayments 
Mr. Power  $26,050   $26,050 
Mr. Carson   8,100     
Totals  $34,150   $26,050 

 

At June 30, 2018 and December 31, 2017 a total of $64,292 of short-term advances from related parties were outstanding and are included in advances payable, related party on the accompanying consolidated balance sheets.

 

In addition to the above, during the year ended December 31, 2017, Mr. Power loaned the Company $25,000 in a short term note that was subsequently transferred into the Series 2017 Notes.

 

Note 15 – Subsequent Events

 

On July 2, 2018, Auctus converted $3,500 of accrued interest and a $500 conversion fee totaling $4,000 into 200,000 shares of common stock at $0.02 per share.

 

On July 16, 2018, Auctus converted $7,500 of accrued interest and a $500 conversion fee totaling $8,000 into 400,000 shares of common stock at $0.02 per share.

 

On July 27, 2018, Auctus converted $9,482.19 of principal and $2,017.81 of accrued interest and a $500 conversion fee totaling $12,000 into 600,000 shares of common stock at $0.02 per share.

 

Effective July 24, 2018, the Company and W. Pierce Carson, President, executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued but unpaid executive compensation for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash advance of $8,100 made to the Company into an aggregate of 4,905,000 shares of Common Stock, valued at $0.02 per share.  On July 30, 2018, the Company filed a Current Report on Form 8-K in connection with the Agreement.

 

Effective July 24, 2018, the Company and W. Pierce Carson executed a Restricted Stock Award Agreement pursuant to which the Company granted to Carson a restricted stock award consisting of 4,000,000 shares of Common Stock, valued at $0.02 per share. 1,000,000 of the shares will vest upon the Company completing a milestone (this milestone was reached with the closing of the El Dorado agreement noted below and these shares were issued) , and the remaining 3,000,000 shares are subject to ratable vesting over an 18-month period.

 

Effective July 26, 2018 the Company sold a Convertible Note in the principal amount of $63,000 to an institutional investor. The Company has agreed to reserve an initial 24,852,071 shares from its authorized and unissued common stock in the event of full conversion of the note.

 

On August 13, 2018, Magellan announced it had concluded an agreement with Ingenieros Mineros, S.A. de C.V., giving the Company the right to acquire the El Dorado mining concession by making staged six-monthly option payments over two years towards an end purchase price of $800,000. The Company has made the initial option payment of $50,000. In addition, Magellan had agreed with a TSX.V-listed company to purchase a comprehensive El Dorado data package including diamond drill core and technical information for a price of $120,000, payable in cash and Magellan common stock upon finalization of the agreement. The El Dorado concession is located 50 kilometers south of the Company’s SDA processing plant at Acaponeta, Nayarit State. Magellan intends to advance El Dorado towards production and to process the ore through the SDA plant.

 

  

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

We use the terms “Magellan,” “we,” “our,” and “us” to refer to Magellan Gold Corporation.

 

The following discussion and analysis provides information that management believes is relevant for an assessment and understanding of our results of operations and financial condition. This information should be read in conjunction with our audited financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and our interim unaudited financial statements and notes thereto included with this report in Part I, Item 1.

 

Forward-Looking Statements

 

Some of the information presented in this Form 10-Q constitutes “forward-looking statements”. These forward-looking statements include, but are not limited to, statements that include terms such as “may,” “will,” “intend,” “anticipate,” “estimate,” “expect,” “continue,” “believe,” “plan,” or the like, as well as all statements that are not historical facts. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from current expectations. Although we believe our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from expectations.

 

All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

 

Overview

 

We were incorporated on September 28, 2010, in Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which we have mineral rights contain mineral reserves that are economically recoverable.

 

We have only had limited operations to date and we rely upon the sale of our securities and borrowings from officers, directors and other significant investors to fund our operations, as we have not generated any revenue.

 

In August 2012, we entered into an option agreement and subsequently purchased the “Silver District” project consisting of 85 unpatented lode mining claims, 4 patented lode claims, a Arizona State Exploration Permit of 154.66 acres and 23 unpatented mill site claims, totaling over 2,000 acres in La Paz County, Arizona. Since our acquisition, we have increased our land position in the Silver District by staking two unpatented lode mining claims, leased two additional patented claims and have increased our Arizona State Exploration Permit to 334.85 acres.

 

On September 30, 2014, we formed and organized a new wholly-owned subsidiary, Gulf + Western Industries, Inc., a Nevada corporation (“Gulf+Western” or “G+W”), to own our Silver District mining interests. On October 1, 2014 we completed the transfer of those assets from Magellan to G+W. At the time of the transfer, Magellan owned all the outstanding common stock of G+W. Effective December 31, 2014, Magellan pledged all its ownership interest in G+W to Mr. John D. Gibbs, a significant shareholder in the Company, as security for outstanding amounts under a line of credit agreement between Magellan and Mr. Gibbs. As of June 30, 2018, the total amount owed under the credit agreement was $1,073,195, which includes $832,500 of principal and $240,695 of accrued interest.

 

On June 1, 2015, we transferred 15% of our ownership interest in G+W to Dr. Pierce Carson in exchange for one year of service as President, Chief Executive Officer and Director of G+W. As a result of the transaction, Magellan’s ownership interest in G+W was reduced to 85%. The transaction was valued at $50,000 representing deferred compensation for the one-year period June 2015, through May 2016. On June 1, 2016 Magellan entered into a one-year employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan. As a result, Mr. John Power resigned his positions as President and Chief Executive Officer concurrent with the execution of Dr. Carson’s employment agreement. Mr. Power has retained the positions of Chief Financial Officer and Director of Magellan. Dr. Carson was appointed a Director of Magellan effective June 30, 2016.

 

In July 2016, the Company completed a share exchange with Dr. Carson in which Dr. Carson surrendered his 15% interest in G+W in exchange for 8,623,957 shares of Magellan Gold Corporation. As a result of this transaction, G+W became a wholly owned subsidiary of Magellan Gold Corporation.

 

 

 

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On October 24, 2016, the Company entered into a Mining Option Agreement (“Agreement”) between and among Rio Silver Inc., a Canadian company (“Rio Silver”), Minera Rio Plata S.A.C., a Peruvian company and subsidiary of Rio Silver (“Minera”), and Magellan Gold Peru S.A.C., a Peruvian company and wholly owned subsidiary of the Company (“Magellan Peru”) pursuant to which Rio Silver through Minera, granted to the Company the sole and exclusive option to acquire an undivided 50% interest in and to property located in central Peru. . Effective December 31, 2017, the Company agreed with Rio Silver to terminate the option agreement, thereby terminating the Company’s option to earn an interest in the Niñobamba Silver/Gold Project. The Company retained its ownership of Rio Silver stock and warrants, which have been pledged to secure a $125,000 loan from John Power.

 

On November 30, 2017, the Company purchased from Rose Petroleum plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA Mill”) as well as its associated assets, licenses and agreements. Magellan paid a $50,000 option payment, and an additional $100,000 option-to-purchase extension. The $100,000 option extension payment was applied against the cash portion of the purchase price.

 

The purchase price for the SDA Mill consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 for the option-to-purchase payment, and 14,200,834 shares of common stock (the “Shares”) with a fair value of $426,025 at the closing date. The note is non-interest bearing and was due on March 10, 2018 and paid in April 2018. The Shares will be held in escrow for a period of 12 months and the Company has the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months and $550,000 in months 7 to 12.

 

Prior to closing, all of the assets and operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2.

 

On October 17, 2017, the Company amended the agreement to include the acquisition of Minerales Vane Operaciones ("MVO") (the entity that provides labor to the Mill) for $2,500. In January 2018 the Company paid the purchase price and obtained legal control of MVO. MVO is the sister entity which was organized for the purpose of employing all personnel of the SDA mill. The acquisition of MVO did not result in the acquisition of any additional assets or liabilities.

 

Our primary focus with the acquisition of the SDA Mill in Mexico is to transform Magellan into a production company, to continue to advance our Arizona silver project towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities. Our mineral lease payments, permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any significant revenue.

 

Results of Operations for the three months Ended June 30, 2018 and 2017

 

   Three months ended June 30, 
   2018   2017 
Revenues, net  $122,829   $ 
           
Operating costs and expenses:          
Cost of Sales   315,227     
Exploration costs   3,255    33,905 
General and administrative expenses   172,851    131,399 
           
Total operating costs and expenses   491,333    165,304 
           
Operating loss   (368,504)   (165,304)
           
Other income (expense):          
Interest expense   (394,201)   (15,800)
Foreign currency exchange gain   343     
Loss on extinguishment of debt   (73,250)    
Gain (loss) on change in derivative liability   286,919    (713,306)
           
Net loss   (548,693)   (894,410)

 

 

 

 

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Revenues

 

During the three months ended June 30, 2018 our total revenues were $122,829 as compared to $-0- during the same period in 2017. Revenues were generated from the sale of tailings left from operations prior to our acquisition of the SDA Mill.

 

Operating expenses

 

During the three months ended June 30, 2018, our total operating cost and expenses were $491,333 as compared to $ 165,304 during the three months ended June 30, 2017.

 

During the three months ended June 30, 2018 our total cost of sales were $315,227 as compared to $-0- during the same period in 2017. Cost of sales were comprised primarily of labor and benefits, equipment depreciation, utilities and supplies.

 

During the three months ended June 30, 2018 we incurred $3,255 of exploration costs as compared to $33,905 during the same period in 2017. Exploration costs for the three months ended June 30, 2018 comprised of $3,255 for professional geologic fees associated with our Silver District claims. Exploration costs for the three months ended June 30, 2017 comprised of $5,882 for our consulting geologist, geochemical and maintenance expenses associated with our Silver District claims and $28,023 in various mining related expenses associated with our mining efforts in Peru.

 

General and administrative expenses for the three months ended June 30, 2018 totaling $172,851 as compared to $131,399 for the three months ended June 30, 2017. The $41,452 increase is primarily associated with increases in accounting and audit fees, officer compensation, investor relations, and travel expenses and which were offset by decreases in legal fees, management fees, administrative services and other costs. For the three months ended June 30, 2018, administrative expenses were comprised of investor relations fees of $58,495, officer compensation of $43,759, accounting and auditing fees of $43,728, legal fees of $17,221, and other administrative costs including travel, office, facility rents, and other expenses associated with our operations of the SDA Mill totaling $9,647.

 

On June 1, 2016 we executed an employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The term of the agreement covered the period from June 1, 2016 to May 31, 2017, subject to annual renewal. The agreement has subsequently been renewed each year and is currently effective from June 1, 2018 to May 31, 2019, with all terms of the original agreement remaining unchanged. A total of $32,796 representing Dr. Carson’s base salary and applicable payroll taxes was expensed and is included in general and administrative expenses for both three month periods ended June 30, 2018 and 2017, respectively.

 

For the three months ended June 30, 2017, general and administrative expenses were comprised of investor relations fees of $29,298, officer compensation of $32,795, accounting and auditing fees of $11,820, legal fees of $21,901, management fees to Mr. Power of $7,500, administrative service fees of $6,181, other administrative costs including travel, office and facility rents, and other expenses associated with our acquisition efforts of the SDA Mill totaling $21,891, and a $13 loss on foreign currency translations associated with our operations in Peru.

 

Interest expense for the three months ended June 30, 2018 and 2017 totaled $394,201 and $15,800, respectively. Interest expense for the current period is attributable primarily to our amortization of debt discounts, related party line of credit, related party notes payable, notes payable, and convertible notes.

 

On October 1, 2014, we issued a convertible promissory note to a provider of legal services in the original principal amount of $51,532. The note was issued to evidence the Company’s indebtedness for legal services previously rendered. Interest accrues quarterly on the outstanding principal and interest balance of the Note at 6% per annum. The note was unsecured and principal plus accrued and unpaid interest was due upon five days’ written demand of the note holder.

 

The note principal and accrued interest was convertible at any time into shares of common stock at a conversion price of $0.039, which represented the closing bid price of the common stock on the OTC Bulletin Board on the date of issuance.

 

 

 

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The Note contained certain anti-dilution provisions that would reduce the conversion price should the Company issue common stock equivalents at a price less than the Note conversion price. Accordingly, the conversion features of the Note were considered a discount to the Note. The Note was re-evaluated quarterly, and upon any quarterly valuations in which the value of the discount changes we recognized a gain or loss due to a decrease or increase, respectively, in the fair value of the derivative liability. As a result of this evaluation, for the three months ended June 30, 2017 we recorded a loss on the change in the derivative liability of $713,306. During the quarter ending June 30, 2018 the Company convertible instruments temporarily qualified for derivative treatment resulting in a gain on derivative liability of $286,919.

 

On November 1, 2016 the Company executed a Finder’s Agreement (“Agreement”), with a third party consultant to introduce the Company to potential investors beginning with its November 2016 private placement offering. The term of the Agreement is nine months, or until the Company informs the consultant it has located investors to purchase the securities. The consultant is to be compensated for the services by cash payments totaling $30,000, payable at or before the termination of the Agreement. As of June 30, 2018 the Company had paid approximately $23,000 to the consultant pursuant to the Agreement, including $-0- and $12,000 paid during the three months ended June 30, 2018 and 2017, respectively.

 

Results of Operations for the six months Ended June 30, 2018 and 2017

 

  Six months ended June 30, 
   2018   2017 
Revenues, net  $122,829   $ 
           
Operating costs and expenses:          
Cost of Sales   315,227     
Exploration costs   10,035    42,861 
General and administrative expenses   425,330    286,515 
           
Total operating costs and expenses   750,592    329,376 
           
Operating loss   (627,763)   (329,376)
           
Other income (expense):          
Interest expense   (477,950)   (30,993)
Foreign currency exchange gain   343     
Loss on extinguishment of debt   (73,250)    
Gain (loss) on change in derivative liability   286,919    (655,876)
           
Net loss  $(891,701)  $(1,016,245)

 

Revenues

 

During the six months ended June 30, 2018 our total revenues were $122,829 as compared to $-0- during the same period in 2017. Revenues were generated from the sale of tailings left from operations prior to our acquisition of the SDA Mill.

 

Operating expenses

 

During the six months ended June 30, 2018, our total operating costs and expenses were $750,592 as compared to $329,376 during the six months ended June 30, 2017.

 

During the six months ended June 30, 2018 our total cost of sales were $315,227 as compared to $-0- during the same period in 2017. Cost of sales were comprised primarily of labor and benefits, equipment depreciation, utilities and supplies.

 

 

 

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During the six months ended June 30, 2018 we incurred $10,035 of exploration costs as compared to $42,861 in 2017. Exploration costs for the six months ended June 30, 2018 are comprised of $10,035 for professional geologic fees associated with our Silver District claims.

 

Exploration costs for the six months ended June 30, 2017 are comprised of $13,316 for our consulting geologist, geochemical and maintenance expenses associated with our Silver District claims and $29,945 in various mining related expenses associated with our mining efforts in Peru.

 

General and administrative expenses for the six months ended June 30, 2018 totaling $425,330 as compared to $286,515 for the six months ended June 30, 2017. The $138,815 increase is primarily associated with increases in accounting and audit fees, officer compensation, investor relations, and travel expenses and which were offset by decreases in legal fees, management fees, administrative services and other costs. For the six months ended June 30, 2018, administrative expenses were comprised of investor relations fees of $106,581, officer compensation of $87,555, accounting and auditing fees of $100,884, legal fees of $33,644, and other administrative costs including travel, office, facility rents, and other expenses associated with our operations of the SDA Mill totaling $96,666.

 

For the six months ended June 30, 2017, general and administrative expenses comprised of investor relations fees of $71,337, officer compensation of $65,591, accounting and auditing fees of $39,470, legal fees of $43,891, management fees to Mr. Power of $15,000, administrative service fees of $9,419, other administrative costs including travel, office and facility rents, and other expenses associated without acquisition efforts of the SDA Mill totaling $41,564, and a $243 loss on foreign currency translations associated with our operations in Peru.

 

On November 1, 2016 the Company executed a Finder’s Agreement (“Agreement”), with a third party consultant to introduce the Company to potential investors beginning with its November 2016 private placement offering. The term of the Agreement is six months, or until the Company informs the consultant it has located investors to purchase the securities. The consultant is to be compensated for the services by cash payments totaling $30,000, payable at or before the termination of the Agreement. As of June 30, 2018 the Company had paid approximately $23,000 to the consultant pursuant to the Agreement, including $-0- and $12,800 paid during the six months ended June 30, 2018 and 2017, respectively, and which is included in investor relations expenses.

 

On June 1, 2016 we executed an employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The term of the agreement covered the period from June 1, 2016 to May 31, 2017, subject to annual renewal. The agreement has subsequently been renewed each year and is currently effective from June 1, 2018 to May 31, 2019, with all terms of the original agreement remaining unchanged. A total of $65,591 representing Dr. Carson’s base salary and applicable payroll taxes was expensed and is included in general and administrative expenses for both six-month periods ended June 30, 2018 and 2017, respectively.

 

Interest expense for the six months ended June 30, 2018 and 2017 totaled $477,950 and $30,993, respectively. Interest expense for the current period is attributable primarily to our amortization of debt discount, related party line of credit, related party notes payable, notes payable and convertible notes. In addition the Company recorded on loss on debt extinguishment of $73,250 and a gain on derivative liability of $286,919 during the six months ended June 30, 2018 with is discussed in detail in the footnotes.

 

Liquidity and Capital Resources:

 

Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At June 30, 2018, we had not yet generated any revenues or achieved profitable operations and we have accumulated losses of $4,951,589. We expect to incur further losses in the development of our business, all of which raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.

 

We have amended our credit agreement with Mr. Gibbs, a related party, on multiple occasions with the most recent amendment extending the maturity date for the line of credit to December 31, 2018. The current borrowing limit on the credit line is $1,000,000 with a borrowing availability of $167,500 remaining.

 

 

 

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During the six months ended June 30, 2018, we sold 12,500,000 units consisting of common stock and warrants and realized net proceeds of $250,000. Additionally, 4,000,000 warrants were exercised during the same period and net proceeds of $80,000 were realized. Proceeds from these transactions were generally used to fund working capital.

 

Additionally through various transactions with related parties during the year ended December 31, 2017, the Company realized approximately $1,075,000 which is primarily reflected in a series of promissory notes ("Series 2017 Notes"). The proceeds were generally used to fund the purchase of the SDA Mill in Mexico. The Series 2017 Notes are secured by a pledge of all the outstanding shares of Magellan Acquisition Corporation, a wholly-owned subsidiary that owns the SDA Mill through Minerales Vane 2.

 

We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure than any future financings will occur.

 

Cash Flows

 

A summary of our cash provided by and used in operating, investing and financing activities is as follows:

 

  Six Months Ended June 30, 
   2018   2017 
Net cash used in operating activities  $(306,346)  $(184,681)
Net cash used in investing activities       (208,297)
Net cash provided by financing activities   336,192    400,500 
Effect of foreign currency exchange   (28,237)   (520)
Net increase in cash and cash equivalents   1,609    7,002 
Cash and cash equivalents beginning of period   421    485 
Cash and cash equivalents end of period  $2,030   $7,487 

 

At June 30, 2018, we had $2,030 in cash and a $3,313,326 working capital deficit. This compares to cash of $421 and a working capital deficit of $2,827,255 at December 31, 2017.

 

Net cash used in operating activities during the six months ended June 30, 2018 was $306,346 and was mainly comprised of our $891,701 net loss during the period, adjusted by a non-cash charges of $366,795 for accretion of discounts on notes payable, $286,919 for gain on change in derivative liability, $81,250 for amortization of certain service contracts, and depreciation expense of $61,025. In addition, it reflects a decrease in Due from Rose Petroleum of $27,147, an increase in prepaid expenses and other assets totaling $72,005, as well as increases in accounts payable and accrued expenses totaling $236,918, and increases in accrued interest totaling $97,894 representing accrued interest on our related party line of credit, related party notes payable, convertible notes payable and other notes payable.

 

Net cash used in operating activities during the six months ended June 30, 2017 was $184,681 and was mainly comprised of our $1,016,245 net loss during the period, adjusted by a non-cash charge of $32,804 representing the amortization of certain service contracts, and the loss on a increase in our derivative liability of $655,876. In addition, it reflects an increase in prepaid expenses and other assets totaling $20,200, as well as increases in accounts payable and accrued expenses totaling $132,475, and increases in accrued interest totaling $30,609 representing accrued interest on our related party line of credit and related party and other notes payable.

 

During the six months ended June 30, 2018, our net cash used in investing activities was $-0-.

 

During the six months ended June 30, 2017, our net cash used in investing activities was $208,297. During the period we completed the second of two private placement unit financings in Rio Silver Inc. (“Rio Silver”), associated with our mining option agreement with Rio Silver. The private placement resulted in the Company obtaining an additional 1,250,000 units at a price of Cdn$0.06, which included one share of Rio Silver common stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.06 which expire on July 19, 2018. This warrant was subsequently extended for an additional period of 18 months. The cost of the units in the second private placement totaled USD $58,297. In addition we paid $150,000 related to our option to acquire the SDA Mill.

 

 

 

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During the six months ended June 30, 2018, net cash provided by financing activities was $336,192 comprised of the sale of stock and warrants, related party advances, the exercise of warrants and paydown on the note payable to Rose Petroleum. Funds were raised in conjunction with a private placement of equity securities in which we sold a total of 12,500,000 units priced at $0.02 per unit, resulting in total proceeds of $250,000. Each unit was comprised of one share of common stock, and one warrant entitling the holder to purchase one share of common stock at a price of $0.02 per share in cash, and expire June 30, 2018. The warrants were subsequently extended to expire on December 31, 2018. Related party advances from John Power contributed $56,192 in proceeds during the period while payments on the note payable to Rose Petroleum used $50,000. Finally, the exercise of 4,000,000 warrants at $0.02 per share during the period generated proceeds of $80,000.

 

During the six months ended June 30, 2017, net cash provided by financing activities was $400,500. During the quarter, Mr. Power, an executive and director, advanced the Company a total of $20,550 of which $20,050 was repaid. In addition, during the six months ended June 30, 2017 we completed a private placement of equity securities with two investors in which we sold a total of 1,250,000 units priced at $0.10 per unit, resulting in total proceeds of $125,000. Each unit was comprised of one share of common stock, and one warrant entitling the holder to purchase one share of common stock at a price of $0.10 per share in cash, and expire December 30, 2017.

 

During the six months ended June 30, 2017 we issued a total of $275,000 of related party promissory notes. On May 31, 2017 we executed three short-term notes with Mr. Gibbs, significant shareholder, and our two executive officers, Dr. Carson and Mr. Power in the principal amounts of $100,000, $25,000 and $25,000, respectively. The notes bear interest at 6% and mature on November 15, 2017. In addition, on June 30, 2017 we entered into an additional secured loan for advances from Mr. Power and evidenced by a $125,000 promissory note. The promissory note bears interest at 6% per annum and matures on December 31, 2017. The note is collateralized by our investment in Rio Silver shares and warrants.

 

Off Balance Sheet Arrangements

 

We do not have and have never had any off-balance sheet arrangements.

 

Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiaries, Gulf + Western Industries, Inc., Magellan Acquisition Corporation, Minerales Vane 2, S.A. de C.V., and Minerales Vane Operaciones, S.A de C.V. All intercompany transactions and balances have been eliminated. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the period presented.

 

We make our estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

 

Foreign Currency Translations

 

The Company maintains its accounting records in US Dollars. Our operating subsidiaries, Minerales Vane 2, S.A. de C.V., and Minerales Vane Operaciones, S.A de C.V., report in Mexican Pesos which is the functional currency for both entities. The subsidiaries’ transactions are recorded in their respective functional currencies and are reported to the Company in Mexican Pesos. For reporting, the Company translates the subsidiaries’ transactions and accounts to US Dollars at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recorded in the statements of income and comprehensive income. Assets and liabilities of the Company and its subsidiaries are translated into the U.S. dollars at exchange rates at the balance sheet date, equity accounts are translated at historical exchange rate and revenues and expenses are translated by using the average exchange rates. Translation adjustments are reported as a separate component of other comprehensive income in the consolidated statements of operations and comprehensive loss.

 

 

 

 24 

 

 

Fair Value of Financial Instruments

 

We value our financial assets and liabilities using fair value measurements. Our financial instruments primarily consist of cash and cash equivalents, accounts payable, accrued liabilities, amounts due to related parties and notes payable to related parties. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount of cash and cash equivalents, accounts payable, accrued liabilities, notes payable to related parties and other amounts due to related parties approximates fair value because of the short-term nature of these financial instruments.

 

Concentrations of Credit Risk

 

Our financial instruments which potentially subject us to credit risk are our cash and cash equivalents. We maintain our cash and cash equivalents at reputable financial institutions and currently, we are not exposed to significant credit risk.

 

Cash and Cash Equivalents

 

We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less to be cash equivalents at the date of purchase.

 

Mineral Rights

 

We have determined that our mineral rights meet the definition of mineral rights, as defined by accounting standards, and are tangible assets. As a result, our direct costs to acquire or lease mineral rights are initially capitalized as tangible assets. Mineral rights include costs associated with: leasing or acquiring patented and unpatented mining claims; leasing mining rights including lease signature bonuses, lease rental payments and advance minimum royalty payments; and options to purchase or lease mineral properties.

 

If we establish proven and probable reserves for a mineral property and establish that the mineral property can be economically developed, mineral rights will be amortized over the estimated useful life of the property following the commencement of commercial production or expensed if it is determined that the mineral property has no future economic value or if the property is sold or abandoned. For mineral rights in which proven and probable reserves have not yet been established, we assess the carrying values for impairment at the end of each reporting period and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

 

The net carrying value of our mineral rights represents the fair value at the time the mineral rights were acquired less accumulated depletion and any abandonment or impairment losses. Proven and probable reserves have not been established for mineral rights as of June 30, 2018. At June 30, 2018 mineral rights totaling $323,200 were net of $117,857 of impairment and abandonment charges. No impairment charges were recognized for either of the six months ended June 30, 2018 or 2017.

 

Impairment of Long-lived Assets and Mining Rights

 

We continually monitor events and changes in circumstances that could indicate that our carrying amounts of long-lived assets, including mineral rights, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flow. If the future undiscounted cash flow is less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

 

Notes Payable – Related Parties

 

Notes payable to related parties are classified as current liabilities as the note holders either have the ability to control the repayment dates of the notes or the notes are due within twelve months of the balance sheet date.

 

 

 

 25 

 

 

Exploration Costs

 

Mineral exploration costs are expensed as incurred. When it has been determined that it is economically feasible to extract minerals and the permitting process has been initiated, exploration costs incurred to further delineate and develop the property are considered pre-commercial production costs and will be capitalized and included as mine development costs in our balance sheets.

 

Income Taxes

 

We recognize deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements and the effect of net operating losses based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. At June 30, 2018, the Company had no uncertain tax positions.

 

Net Loss per Common Share

 

We compute basic net loss per common share by dividing our net loss attributable to common shareholders by our weighted-average number of common shares outstanding during the period. Computation of diluted net loss per common share adds the weighted-average number of potential common shares outstanding to the weighted-average common shares outstanding, as calculated for basic net loss per share, except for instances in which there is a net loss. For the three and six months ended June 30, 2018 and 2017, potential common shares associated with convertible notes payable and outstanding warrants to purchase common stock have been omitted from the net loss per common share computation as they are anti-dilutive due to the net loss for these periods.

 

Stock-based Compensation 

 

The Company determines the fair value of stock option awards granted to employees in accordance with FASB ASC Topic 718 – 10 and to non-employees in accordance with FASB ASC Topic 505 – 50. Compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.

 

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize 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. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The Company adopted the standard effective January 1, 2018 at which point it had no impact on the Company.

 

The Company recognizes revenue for all of its products upon transfer of control in an amount that reflects the consideration it expects to receive in exchange for those products. Transfer of control is in accordance with the terms of contracts, which is generally upon delivery of the product. While payment terms vary by contract, terms generally include payment to be made within 30 days. Revenue during the six months ended June 30, 2018, were related to the sale of concentrate to a local smelter following the processing of tailings at the SDA Mill.

 

 

 

 

 26 
 

 

New Accounting Standards

 

From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our financial statements upon adoption.

 

In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, "Leases: Topic 842 (ASU 2016-02)", to supersede nearly all existing lease guidance under GAAP. The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for the Company in the first quarter of our fiscal year ending December 31, 2019 using a modified retrospective approach with the option to elect certain practical expedients. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to management, including W. Pierce Carson, our President, and Michael P. Martinez, our Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

 

Our management, with the participation of our CEO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our CEO concluded that our disclosure controls and procedures were not effective as of such date as a result of material weaknesses in our internal control over financial reporting due to lack of segregation of duties, a limited corporate governance structure, and lack of a formal review process that includes multiple levels of review as discussed in Item 9A of our Form 10-K for the fiscal year ended December 31, 2017.

 

While we strive to segregate duties as much as practicable, there is an insufficient volume of transactions at this point in time to justify additional full time staff. We believe that this is typical in many exploration stage companies. We may not be able to fully remediate the material weakness until we commence mining operations at which time we would expect to hire more staff. We will continue to monitor and assess the costs and benefits of additional staffing.

 

Changes in Internal Control Over Financial Reporting:

 

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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PART II.  OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.  RISK FACTORS

 

There have been no material changes from the risk factors disclosed in Item 1A. to Part I. of our Annual Report on  Form 10-K for the year ended December 31, 2017.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

All sales of unregistered securities were reported on Form 8-K during the period.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 

ITEM 6. EXHIBITS

 

Exhibit

Number

  Exhibit Description
     
31.1 * Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2 * Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32 * Certification of the President,Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS * XBRL Instance Document
     
101.SCH * XBRL Taxonomy Extension Schema Document
     
101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF * XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB * XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed or furnished herewith.

 

 

 

 28 

 

 

SIGNATURE

 

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.

 

  MAGELLAN GOLD CORPORATION
   
   
  By:  /s/ W. Pierce Carson
         W. Pierce Carson
         President, Chief Executive Officer
         (Principal Executive Officer),
   
   
  By:  /s/ Michael P. Martinez
         Michael P. Martinez
         Chief Financial Officer
         (Principal Accounting Officer)

 

Date:  August 20, 2018

 

 

 

 

 

 29 

 

EX-31.1 2 magellan_ex3101.htm CERTIFICATION

Exhibit 31.1

 

CERTIFICATION

 

I, W. Pierce Carson, President and CEO (Principal Executive Officer), certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Magellan Gold Corporation;
   
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. The registrant's other certifying officer(s) and I are 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our 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 our 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. The registrant's other certifying officer(s) and I have disclosed, based on our 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:  August 20, 2018 /s/ W. Pierce Carson
  W. Pierce Carson, President and CEO (Principal Executive Officer)

EX-31.2 3 magellan_ex3102.htm CERTIFICATION

Exhibit 31.2

 

CERTIFICATION

 

I, Michael P. Martinez, Chief Financial Officer, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Magellan Gold Corporation;
   
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. The registrant's other certifying officer(s) and I are 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our 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 our 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. The registrant's other certifying officer(s) and I have disclosed, based on our 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:  August 20, 2018 /s/ Michael P. Martinez
  Michael P. Martinez, Chief Financial Officer

EX-32 4 magellan_ex3200.htm CERTIFICATION

Exhibit 32

 

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 of Magellan Gold Corporation (the "Company") on Form 10-Q for the period ended June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, W. Pierce Carson, President and CEO (Principal Executive Officer) and I, Michael P. Martinez, Chief Financial Officer (Principal Accounting Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/ W. Pierce Carson                             

W. Pierce Carson

President and CEO (Principal Executive Officer)

August 20, 2018

 

 

/s/ Michael P. Martinez                         

Michael P. Martinez

Chief Financial Officer (Principal Accounting Officer)

August 20, 2018

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Related Party Line of Credit - Related Party Notes Payable - Related Parties Notes Payable - Related Parties Debt Disclosure [Abstract] Notes payable Convertible Note Payable Equity [Abstract] Stockholders' Deficit Commitments and Contingencies Disclosure [Abstract] Commitments and Contingencies Executive Employment Agreement Executive Employment Agreement Related Party Transactions [Abstract] Related Party Transactions Subsequent Events [Abstract] Subsequent Events Basis of Presentation Revenue Recognition Reclassification Liquidity and Going Concern Pro forma results of operations Financial assets and liabilities measured on a recurring basis Schedule of stock option activity Minimum future lease payments Schedule of accrued interest payable Statement [Table] Statement [Line Items] Common stock and warrants issued Proceeds from sale of common stock and warrants Warrants exercised Proceeds from warrant exercises Proceeds from the issuance of promissory notes Impairment of investment Proceeds from sale of interest Loss on disposition Net sales pro forma Operating expenses Net loss pro forma Total purchase price Cash paid for acquisition Business acquisition promissory note issued Business acquisition, non-refundable option payment Business acquisition, option-to-purchase extension Business acquisition, common shares issued Business acquisition, common shares issued value Payment of note payable Investment in Rio Silver equities Line of credit issuance date Maximum borrowing capacity Line of credit expiration date Line of credit remaining borrowing availability Debt converted, amount converted Debt converted, shares issued Line of credit balance Accrued interest Debt issuance date Debt face amount Debt stated interest rate Note payable Payment of finance fees Proceeds from notes Debt maturity date Unamortized discount Amortization of debt discount Proceeds from convertible note payable Gain on change in derivative liability Loss on derivative liability Loss on extinguishment of debt Convertible note balance Number of Options Options outstanding, beginning balance Options granted Options expired Options exercised Options outstanding, ending balance Options exercisable Weighted Average Exercise Price Weighted average exercise price, beginning price Weighted average exercise price, granted Weighted average exercise price, cancelled Weighted average exercise price, expired Weighted average exercise price, exercised Weighted average exercise price, ending price Weighted average exercise price, exercisable Number of Warrants Warrants outstanding, beginning Warrants granted Warrants cancelled Warrants expired Warrants exercised Warrants outstanding, ending Warrants exercisable Weighted Average Exercise Price Weighted average exercise price, beginning price Weighted average exercise price, granted Weighted average exercise price, cancelled Weighted average exercise price, expired Weighted average exercise price, exercised Weighted average exercise price, ending price Weighted average exercise price, exercisable Shares authorized for issuance under plan Option grant price Options available for future grant Weighted average remaining term of optionx Intrinsic value of options Weighted average remaining term Intrinsic value of warrants Future minimum lease payment 2018 Future minimum lease payment 2019 Future minimum lease payment 2020 Future minimum lease payment 2021 Future minimum lease payment 2022 and thereafter Translation exchange rate Annual lease payment Lease expiration date Lease renewable term Consulting fees Accrued salary Accrued payroll taxes Accrued interest payable Advances from related parties Repayments to related parties Management fees Management fees payable Interest expense debt Accrued interest - related parties Unrealized loss on available-for-sale securities Conversion of line of credit to common stock Conversion of notes payable and accrued interest to common stock Reclassifications of derivative liability to APIC Reclassifications of convertible note payable and accrued interest to accounts payable Liquidity and Going Concern [Policy Text Block] Disclosure for mining option agreement [Text Block] Disclosure for Interim Toll Milling Agreement [Text Block] Line of Credit - Related Party disclosure [Text Block] Notes Payable - Related Parties disclosure [Text Block] Executive Employment Agreement disclosure [Text Block] The pro forma operating expenses for a period as if the business combination or combinations had been completed at the beginning of the period. Business acquisition, common shares issued Number of Warrants [Abstract] Warrants exercisable Weighted Average Exercise Price [Abstract] Weighted average exercise price, warrants expired Weighted average exercise price, warrants exercised Weighted average exercise price, warrants exercisable Options available for future grant Annual lease payment Advances from related parties Repayments to related parties SilverioMedina2Member Assets, Current Other Assets, Noncurrent Assets Liabilities, Current Liabilities Stockholders' Equity Attributable to Parent Liabilities and Equity Operating Costs and Expenses Operating Income (Loss) Interest Expense Debt Securities, Available-for-sale, Unrealized Loss Comprehensive Income (Loss), Net of Tax, Attributable to Parent Increase (Decrease) in Due from Other Related Parties, Current Increase (Decrease) in Prepaid Expense and Other Assets Increase (Decrease) in Interest Payable, Net Net Cash Provided by (Used in) Operating Activities Payments to Acquire Available-for-sale Securities Payments to Acquire Businesses and Interest in Affiliates Net Cash Provided by (Used in) Investing Activities Repayments of Related Party Debt Net Cash Provided by (Used in) Financing Activities Cash, Period Increase (Decrease) MiningOptionAgreementTextBlock InterimTollMillingAgreementTextBlock NotesPayableRelatedPartiesTextBlock ExecutiveEmploymentAgreementTextBlock Business Acquisition, Pro Forma Net Income (Loss) Assets, Fair Value Disclosure Notes Payable Extinguishment of Debt, Gain (Loss), Net of Tax Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price Class of Warrant or Right, Outstanding Class of Warrant or Right, Exercise Price of Warrants or Rights Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value WeightedAverageExercisePriceExpired WeightedAverageExercisePriceWarrantsExercised WeightedAverageExercisePriceWarrantExercisable EX-101.PRE 10 mage-20180630_pre.xml XBRL PRESENTATION FILE XML 11 R1.htm IDEA: XBRL DOCUMENT v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Aug. 13, 2018
Document And Entity Information    
Entity Registrant Name Magellan Gold Corporation  
Entity Central Index Key 0001515317  
Document Type 10-Q  
Document Period End Date Jun. 30, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? No  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   124,186,382
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2018  
Emerging Growth true  
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Balance Sheets (Unaudited) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Current Assets    
Cash $ 2,030 $ 421
Due from Rose Petroleum 0 27,147
Investment in Rio Silver equities 83,656 109,532
Prepaid expenses & other current assets 72,676 121,283
Total current assets 158,362 258,383
Mineral rights, net of impairment 323,200 323,200
Property, plant & equipment net of accumulated depreciation of $70,025 and $11,822, respectively 1,082,977 1,155,811
Other Assets:    
Prepaid expenses and other assets 255,513 216,151
Total other assets 255,513 216,151
Total assets 1,820,052 1,953,545
Current liabilities:    
Accounts payable 409,773 270,424
Accrued liabilities 157,865 60,296
Line of credit - related party 832,500 932,500
Notes payable - related parties 1,190,859 1,197,437
Note payable 105,354 100,783
Accrued interest - related parties 316,461 238,651
Convertible note payable 368,750 271,697
Accrued interest 25,834 5,750
Advances payable, related parties 64,292 8,100
Total current liabilities 3,471,688 3,085,638
Long term liabilities:    
Asset Retirement Obligation 114,462 115,914
Total liabilities 3,586,150 3,201,552
Shareholders' deficit:    
Preferred shares, $.001 par value, 25,000,000 shares authorized, no shares issued and outstanding 0 0
Common shares - $0.001 par value; 1,000,000,000 shares authorized, 117,081,382 and 95,581,382 shares issued and outstanding, respectively 117,081 95,581
Additional paid-in capital 3,220,451 2,803,870
Accumulated other comprehensive loss (152,041) (87,570)
Accumulated deficit (4,951,589) (4,059,888)
Shareholders' deficit (1,766,098) (1,248,007)
Total liabilities and shareholders' deficit $ 1,820,052 $ 1,953,545
XML 13 R3.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred stock, par value $ .001 $ .001
Preferred stock, shares authorized 25,000,000 25,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ .001 $ .001
Common stock, shares authorized 1,000,000,000 1,000,000,000
Common stock, shares issued 117,081,382 95,581,382
Common stock, shares outstanding 117,081,382 95,581,382
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Income Statement [Abstract]        
Revenues, net $ 122,829 $ 0 $ 122,829 $ 0
Operating costs and expenses:        
Cost of Sales 315,227 0 315,227 0
Exploration costs 3,255 33,905 10,035 42,861
General and administrative expenses 172,851 131,399 425,330 286,515
Total operating costs and expenses 491,333 165,304 750,592 329,376
Operating loss (368,504) (165,304) (627,763) (329,376)
Other income (expense):        
Interest expense (394,201) (15,800) (477,950) (30,993)
Foreign currency exchange gain 343 0 343 0
Loss on extinguishment of debt (73,250) 0 (73,250) 0
Gain (loss) on change in derivative liability 286,919 (713,306) 286,919 (655,876)
Net loss (548,693) (894,410) (891,701) (1,016,245)
Other comprehensive income (loss):        
Foreign currency translation (118,944) (390) (38,595) (520)
Unrealized loss on available-for-sale securities (23,041) 0 (25,876) 0
Net comprehensive loss $ (690,678) $ (894,800) $ (956,172) $ (1,016,765)
Basic and diluted net loss per common share $ (0.00) $ (0.01) $ (0.01) $ (0.01)
Basic and diluted weighted-average common shares outstanding 110,224,239 70,111,317 104,114,531 67,889,112
XML 15 R5.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Operating activities:    
Net loss $ (891,701) $ (1,016,245)
Adjustments to reconcile net loss to net cash used in operating activities:    
Accretion of discounts on notes payable 366,795 0
Amortization of service contracts 81,250 32,804
Depreciation expense 61,025 0
Loss on extinguishment of debt 73,250 0
(Gain) loss on change in derivative liability (286,919) 655,876
Changes in operating assets and liabilities:    
Due from Rose Petroleum 27,147 0
Prepaid expenses and other assets (72,005) (20,200)
Accounts payable and accrued liabilities 236,918 132,475
Accrued interest 97,894 30,609
Net cash used in operating activities (306,346) (184,681)
Investing activities:    
Purchase of Rio Silver equity securities 0 (58,297)
Payment of option to acquire SDA mill 0 (150,000)
Net cash used in investing activities 0 (208,297)
Financing activities:    
Proceeds from advances from related parties 56,192 20,550
Payments on advances from related parties 0 (20,050)
Proceeds from Notes payable - related parties 0 275,000
Payments of notes payable - related parties (50,000) 0
Proceeds from sale of common stock 250,000 125,000
Proceeds from sale of warrants 80,000 0
Net cash provided by financing activities 336,192 400,500
Effect of foreign currency exchange (28,237) (520)
Net increase in cash 1,609 7,002
Cash at beginning of period 421 485
Cash at end of period 2,030 7,487
Supplemental disclosure of cash flow information    
Cash paid for interest 12,357 382
Cash paid for income taxes 0 0
Non-cash financing and investing activities:    
Unrealized loss on available-for-sale securities 25,876 0
Conversion of line of credit to common stock 100,000 0
Conversion of notes payable and accrued interest to common stock 0 23,000
Reclassifications of derivative liability to APIC 8,081 442,076
Reclassifications of convertible note payable and accrued interest to accounts payable $ 0 $ 8,850
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.10.0.1
1. Organization, Basis of Presentation, and Nature of Operations
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Basis of Presentation, and Nature of Operations

Note 1 – Organization, Basis of Presentation, and Nature of Operations

 

Magellan Gold Corporation (“we” “our”, “us”, the “Company” or “Magellan”) was incorporated on September 28, 2010, under the laws of the State of Nevada. Our principal business is the acquisition and exploration of mineral resources. We have not presently determined whether the properties to which we have mining rights contain mineral reserves that are economically recoverable.

 

On November 30, 2017, the Company purchased from Rose Petroleum plc (“Rose”) a mineral processing mill operation located in the state of Navarit, Mexico (the “SDA Mill”) as well as its associated assets, licenses and agreements.

 

On October 17, 2017, the Company amended the agreement to include the acquisition of Minerales Vane Operaciones ("MVO") (the entity that provides labor to the Mill) for $2,500. In January 2018 the Company paid the purchase price and obtained legal control of MVO. MVO is the sister entity which was organized for the purpose of employing all personnel of the SDA mill. The acquisition of MVO did not result in the acquisition of any additional assets or liabilities.

 

Our primary focus with the acquisition of the SDA Mill in Mexico is to transform Magellan into a production company, to continue to advance our Arizona silver project towards resource definition and eventual development, and possibly to acquire additional mineral rights and conduct additional exploration, development and permitting activities. Our mineral lease payments, permitting applications and exploration and development efforts will require additional capital. We rely upon the sale of our securities as well as advances and loans from executive management and significant shareholders to fund our operations as we have not generated any significant revenue.

 

Basis of Presentation

 

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-months ended June 30, 2018 are not necessarily indicative of the results for the full year. While we believe that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto contained in our annual report on Form 10-K for the year ended December 31, 2017.

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiaries, Gulf + Western Industries, Inc., Magellan Acquistion Corporation, Minerales Vane 2, S.A. de C.V., and Minerales Vane Operaciones, S.A de C.V. All intercompany transactions and balances have been eliminated. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize 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. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The Company adopted the standard effective January 1, 2018 at which point it had no impact on the Company.

 

The Company recognizes revenue for all of its products upon transfer of control in an amount that reflects the consideration it expects to receive in exchange for those products. Transfer of control is in accordance with the terms of contracts, which is generally upon delivery of the product. While payment terms vary by contract, terms generally include payment to be made within 30 days. Revenue during the six months ended June 30, 2018, were related to the sale of concentrate to a local smelter following the processing of tailings at the SDA Mill.

 

Reclassification

 

Certain reclassifications have been made to the prior periods to conform to the current period presentation.

 

Recent Accounting Pronouncements

 

Accounting Standards Update No. 2014-09—Revenue from Contracts with Customers (Topic 606). On May 28, 2014, the FASB issued guidance that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU was further amended by ASU No. 2015-14, No. 2016-08, No. 2016-10, No. 2016-12 and No. 2016-20. The guidance provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. The Company has performed an assessment of the revised guidance and the impacts on the Company’s Consolidated Financial Statements and disclosures and has determined that the adoption of this guidance did not have an impact. The Company adopted the new guidance effective January 1, 2018 using the modified retrospective approach.

  

Liquidity and Going Concern

 

Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At June 30, 2018, we had not yet generated any revenues or achieved profitable operations and we have accumulated losses of $4,951,589. We expect to incur further losses in the development of our business, all of which raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.

 

During the six months ended June 30, 2018, we sold 12,500,000 units consisting of common stock and warrants and realized net proceeds of $250,000. Additionally, 4,000,000 warrants were exercised during the same period and net proceeds of $80,000 were realized. Proceeds from these transactions were generally used to fund working capital.

 

Additionally through various transactions with related parties during the year ended December 31, 2017, the Company realized approximately $1,075,000 which is primarily reflected in a series of promissory notes ("Series 2017 Notes"). The proceeds were generally used to fund the purchase of the SDA Mill in Mexico. The Series 2017 Notes are secured by a pledge of all the outstanding shares of Magellan Acquisition Corporation, a wholly-owned subsidiary that owns the SDA Mill through Minerales Vane 2.

 

We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure than any future financings will occur.

XML 17 R7.htm IDEA: XBRL DOCUMENT v3.10.0.1
2. Mineral Rights and Properties
6 Months Ended
Jun. 30, 2018
Extractive Industries [Abstract]  
Mineral Rights and Properties

Note 2 – Mineral Rights and Properties

 

Silver District

 

In August 2012, we entered into an option agreement with Columbus Exploration f/k/a Columbus Silver Corporation, which granted us the right to acquire all of Columbus’ interest in its Silver District properties located in La Paz County, Arizona. The properties acquired from Columbus were assigned into our subsidiary Gulf+Western Industries, Inc. and our total acquisition cost capitalized was $323,200.

 

The Silver District property consists of 110 unpatented lode and mill site mining claims, six patented lode claims, and an Arizona State Exploration Permit, all of which are held directly or under lease agreements, totaling over 2,000 acres. Certain of the claims are subject to third party net smelter royalties and/or net profits of varying percentages.

 

In August 2017, we renewed the BLM lode and mill site claims in La Paz County, Arizona with the Bureau of Land Management and these claims will remain in good standing through August 31, 2018. Additionally, in both August 2017 and 2016, we made advance minimum royalty payments of $10,000 to a third party landowner on the Red Cloud lease, which includes the Red Cloud Patented claim and two BLM lode claims. We also expanded the Arizona State Exploration Permit to approximately 334.85 acres on the Arizona State section that comprises part of our Silver District land package and are current on our obligations under this permit.

 

On July 9, 2015, G+W entered into two Lease and Purchase Agreements (“Agreements”) with an individual that grant the Company certain exploration and mining rights for two patented lode claims located in the Silver District, La Paz County, Arizona. The Agreements provide for scheduled variable annual advance minimum royalty payments to the lessor. In addition, the Agreements have an initial term of 20 years, and provide for the purchase of the properties for $125,000 each during the term of the lease, net of any advance royalty payments made up to the date of the purchase. The Company paid the initial advance royalty payments totaling $3,000 and advance royalty payments of $1,000 in July 2016 to maintain these Agreements. Due to an uncertainty associated with the clarification of the legal title for these two patented lode claims, these payments have not been capitalized as mining rights, and therefore are included in exploration costs during the period in which the obligation was due.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.10.0.1
3. Mining Option Agreement
6 Months Ended
Jun. 30, 2018
Mining Option Agreement  
Mining Option Agreement

Note 3 – Mining Option Agreement

 

On June 30, 2016 the Company signed a non-binding Letter of Intent (“LOI”) with Rio Silver Inc., and on October 24, 2016 the Company executed a definitive Mining Option Agreement (“Option Agreement), pursuant to which Magellan is granted the option to earn an undivided 50% interest in the Niñobamba Silver-Gold Property (“Property”), located 330 kilometers southeast of Lima in the Department of Ayacucho, Peru.

 

As a condition of the LOI, the Company had paid a refundable $12,000 deposit. This payment was recorded as a deposit and was subsequently used to maintain certain mining concessions on the property.

 

In addition to the deposit, the Company was obliged to subscribe to two private placement unit financings in Rio Silver, each for aggregate proceeds of Cdn$75,000. The Company completed the first unit private placement on August 23, 2016. The first placement included 1,500,000 units priced at Cdn$0.05, which included one share of Rio Silver common stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.05 preliminarily set to expire on February 23, 2018. The cost of the units in the first private placement totaled USD $59,753. The second placement included 1,250,000 units priced at Cdn$0.06, which was completed on January 19, 2017, and included one share of Rio Silver common stock and one warrant to purchase one share of Rio Silver common stock for Cdn$0.06 preliminarily set to expire on July 19, 2018. The cost of the units in the second private placement totaled USD $58,297. Each of these transactions were recorded as an investment in Rio Silver equity securities and included on the accompanying consolidated balance sheets at June 30, 2018 and December 31, 2017. During the six months ended June 30, 2018, we have recorded an unrealized loss of $25,876 to write-down the investment. The shares of common stock and warrants of Rio Silver have been pledged by the Company to John Power to secure repayment of a $125,000 loan.

 

Under the terms of the Agreement, the Company had the right to earn an undivided 50% interest in the Niñobamba Silver/Gold Project in central Peru. To earn its 50% interest, the Company was required to spend $2.0 million in exploration over three years. The Niñobamba project is comprised of five concessions that total 36.5 square kilometers (9,026 acres). The concessions include the original Rio Silver concession, three concessions recently acquired from a Peruvian company owned jointly by Newmont Mining Corporation and Southern Peru Copper Corporation, and one concession for which application was made, and which was granted in 2017.

 

On January 5, 2018, Magellan entered into a Termination Agreement, effective December 31, 2017, with Rio Silver Inc. to mutually terminate the Company’s option to earn an interest in Rio Silver’s Niñobamba exploration property in Peru. In connection with the termination of the agreement, Rio Silver agreed to apply to the TSX Venture Exchange for an 18-month extension of 2,750,000 warrants that Magellan holds in Rio Silver stock, which otherwise would expire in February and July 2018. The TSX Venture Exchange subsequently approved the extensions.

 

In connection with the termination of the agreement, Magellan agreed to grant Rio Silver a right of first refusal on any sale of the 2,750,000 shares of Rio Silver stock that Magellan currently holds.

 

Additionally effective in 2018, the Company sold its interest in Magellan Gold Peru S.A.C. for consideration of $1.00. The Company realized a loss on disposition of $567.

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.10.0.1
4. Acquisition of SDA Mill
6 Months Ended
Jun. 30, 2018
Business Combinations [Abstract]  
Acquisition of SDA Mill

Note 4 – Acquisition of SDA Mill

 

On March 3, 2017 the Company entered into a Memorandum of Understanding (“MOU”) with Rose Petroleum plc (“Rose”), a multi-asset natural resource business, to purchase an operating floatation plant that also includes a precious metals leach circuit and associated assets, licenses and agreements (together, the “SDA Mill”) located in the State of Nayarit, Mexico.

 

Prior to closing, all of the assets and operations related to the SDA Mill were transferred to a newly incorporated entity, Minerales Vane 2 S.A. de C.V. (“Minerales Vane 2”). Effective November 30, 2017, the Company’s newly incorporated wholly-owned subsidiary, Magellan Acquisition Corporation (“MAC”), acquired 100% of the issued and outstanding shares of Minerales Vane 2.

 

The total purchase price for the SDA Mill was determined to be $1,476,025 which consisted of $850,000 cash, a $50,000 promissory note, the $50,000 non-refundable option payment, the $100,000 paid for the option-to-purchase extension, and 14,200,834 shares of common stock (the “Shares”) with a fair value of $426,025. The note was non-interest bearing and was paid in full April 12, 2018. This note was grouped with Notes Payable Related Party due to Rose’s share ownership in the Company. The Shares will be held in escrow for a period of 12 months and the Company has the option to repurchase the Shares from Rose for the sum of $500,000 in the first six months and $550,000 in months 7 to 12.

 

On April 12, 2018, the Company satisfied its note payable in the amount of $50,000 in favor of Rose Petroleum, plc in respective of the purchase of the SDA Mill, as required under terms of the Stock Purchase Agreement.

 

Subsequent to the purchase of the SDA Mill, the Company and Rose Petroleum executed an IVA Agreement which implemented the provisions of the Stock Purchase Agreement with respect to the payment of the IVA Tax assessed by the Mexican taxing authorities on the sale and purchase of the IVA Mill. Under the terms of the IVA Agreement, Rose Petroleum advanced the IVA tax, in Mexican Pesos, for the payment of the IVA tax, approximately $260,000. The Company has agreed that all future tax credits or refunds that it receives from the Mexican taxing authority will be paid over to Rose until such time as Rose has recouped the advance, in full. Mr. Carson executed a Guaranty of the Company's obligations under the IVA Agreement effective March 8, 2018.

 

In March 2018, the Company and Rose Petroleum, plc satisfied their respective obligations for payment of Mexican VAT on purchase of the SDA Mill, as required under terms of the Stock Purchase Agreement.

 

Pro forma results of operations for the six months ended 2017 as though the Company had acquired the SDA Mill on the first day of the fiscal year of 2017 are set forth below:

 

  June 30, 
   2017 
  Pro Forma 
Net Sales  $227,793 
Operating Expenses   1,823,202 
Net Loss  $(1,595,409)

 

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.10.0.1
5. Interim Toll Milling Agreement
6 Months Ended
Jun. 30, 2018
Interim Toll Milling Agreement  
Interim Toll Milling Agreement

Note 5 – Interim Toll Milling Agreement

 

On November 7, 2017 the Company and Rose executed an Interim Milling Agreement (the “Agreement”), with an effective date of November 1, 2017, whereby, pending closing of the SDA Mill acquisition, Rose shall cause its subsidiary, Minerales Vane S.A. de C.V., a Mexico corporation (“Vane”), to reopen the SDA Mill and recommence operations on a toll milling basis for a third-party. Under the Agreement, the Company is required to provide the working capital to fund the operations and is entitled to all the positive cash flow after covering the related expenses.

 

The Agreement was completed and terminated during November 2017. The Company has an outstanding receivable from Rose of $-0- as of June 30, 2018 and $27,147 as of December 31, 2017, respectively.

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6. Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 6 - Fair Value of Financial Instruments

 

Financial assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:

 

Level 1— Quoted market prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2— Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

 

Level 3— Inputs reflecting management’s best estimates and assumptions of what market participants would use in pricing assets or liabilities at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

 

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

 

   Fair Value at   Fair Value Measurement at June 30, 2018 
   June 30, 2018   Level 1   Level 2   Level 3 
Investment in Rio Silver equities  $83,656   $83,656   $   $ 

 

  Fair Value at

   Fair Value Measurement at December 31, 2017 
  December 31, 2017   Level 1   Level 2   Level 3 
Investment in Rio Silver equities  $109,532   $109,532   $   $ 

 

The carrying values for cash and cash equivalents, prepaid assets, accounts payable and accrued liabilities, related party line of credit and notes payable approximate their fair value due to their short-term maturities.

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7. Line of Credit - Related Party
6 Months Ended
Jun. 30, 2018
Line Of Credit - Related Party  
Line of Credit - Related Party

Note 7 – Line of Credit – Related Party

 

Effective December 31, 2012, we entered into a line of credit arrangement with John D. Gibbs, a significant investor, to facilitate timely cash flows for the Company’s operations. The line of credit originally provided for a maximum balance of $250,000, accrued interest at 6% annually, and matured on December 31, 2014.

 

On December 31, 2013 we amended our credit agreement with Mr. Gibbs to increase the borrowing limit under the line of credit to $750,000. All other terms of the credit agreement, including the interest rate and maturity date remained unchanged.

 

On December 31, 2014, we again amended the credit agreement to increase the borrowing limit to $900,000 and extend the maturity date to December 31, 2015. As part of the 2014 amendment and the subsequent appointment of Dr. Pierce Carson as the President, CEO and Director of G+W effective June 1, 2015, we had pledged all of our 85% equity interest in G+W, which owns the Silver District properties, as security for all amounts outstanding under the credit agreement. In July 2016, we completed a share exchange with Dr. Carson to re-acquire the 15% interest in G+W, and therefore at September 30, 2017 our entire 100% interest in G+W remains pledged as security for outstanding amounts under this credit agreement.

 

On December 31, 2015 we again amended the credit agreement to increase the borrowing limit to $1,000,000 and extended the maturity date to December 31, 2016. Finally, on March 31, 2017 with an effective date of December 31, 2016 we again amended the credit agreement to extend the maturity date to December 31, 2018. All other terms of the agreement were unchanged. At June 30, 2018 the Company has $167,500 available under the credit line.

 

No draws were made during the six months ended June 30, 2018. During the same period Mr. Gibbs converted $100,000 of the outstanding balance on the line of credit into 5,000,000 shares of common stock at $0.02 per share. The outstanding balance under the line of credit was $832,500 and $932,500 at June 30, 2018 and December 31, 2017, respectively. In addition, a total of $240,695 and $213,657 of interest has been accrued on this obligation and is included in Accrued interest - related parties on the accompanying consolidated balance sheets at June 30, 2018 and December 31, 2017, respectively.

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8. Notes Payable - Related Parties
6 Months Ended
Jun. 30, 2018
Notes Payable - Related Parties  
Notes Payable - Related Parties

Note 8 – Notes Payable – Related Parties

 

In August 2011, we entered into an unsecured loan from John Power, the Company’s Director, evidenced by a $20,000 promissory note. The promissory note bears interest at 6% per annum and is payable on demand with thirty days’ notice from the lender. During 2014, the Company made payments totaling $5,000 to pay down the principal balance of the note. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At both June 30, 2018 and December 31, 2017, the note balance was $15,000. At June 30, 2018 and December 31, 2017, interest totaling $893 and $1,576, respectively, was accrued on this note payable and is included in Accrued interest – related parties on the accompanying consolidated balance sheets.

 

In January 2014, we entered into an additional unsecured loan from Mr. Power, evidenced by a $50,000 promissory note. The promissory note bears interest at 6.75% per annum and is payable on demand with thirty days’ notice from the lender. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. At June 30, 2018 and December 31, 2017, interest totaling $2,975 and $6,249, respectively, was accrued on this note payable and is included in Accrued interest – related parties on the accompanying consolidated balance sheets. At both June 30, 2018 and December 31, 2017, the note balance was $50,000.

 

On May 31, 2017 we entered into three short-term notes with Mr. Gibbs, Dr. Carson and Mr. Power in the principal amounts of $100,000, $25,000 and $25,000, respectively. The notes bear interest at 6% and matured on November 15, 2017. A total of $3,760 and $4,512 of interest is accrued on these notes as of June 30, 2018 and December 31, 2017, respectively. The note balances were subsequently rolled into the Series 2017 Notes.

 

On June 30, 2017 we entered into an additional secured loan for advances from Mr. Power and evidenced by a $125,000 promissory note. The promissory note bears interest at 6% per annum and matured on December 31, 2017 and is currently in default. Effective December 31, 2017, the interest rate on the note increased to 12% per annum. The note is collateralized by our investment in Rio Silver shares and warrants. At both June 30, 2018 and December 31, 2017, the note balance was $125,000. A total of $7,438 and $3,781 of interest is accrued on these notes as of June 30, 2018 and December 31, 2017, respectively and is included in Accrued interest – related parties on the accompanying consolidated balance sheets.

 

On November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.

 

Net proceeds on the issuance after reducing for the transfers previously listed total $900,000. The notes are secured by a stock pledge agreement covering 100% of the outstanding common stock of Magellan Acquisition Corporation, bear interest at 10% and mature on December 31, 2018.

 

The total of portion of the Series 2017 Notes from related parties totaled $1,045,000, including financing fees of $95,000 recorded as discount to the notes. Mr. Gibbs, Dr. Carson, and Mr. Power transferred $100,000, $25,000, and $25,000, respectively, from the May 31, 2017 short term related party notes into the Series 2017 Notes. As of June 30, 2018 the balance on the Series 2017 Notes from related parties, net of unamortized discount of $44,141, is $1,000,859 with accrued interest of $60,696. As of December 31, 2017, the balance on the Series 2017 Notes from related parties, net of unamortized discount of $87,563, is $957,437 with accrued interest of $8,875.

 

During the six months ended June 30, 2018 $43,422 of debt discount related to the above notes was amortized to interest expense.

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9. Notes payable
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Notes payable

Note 9 – Notes payable

 

As discussed in Note 8 – Notes Payable – Related Parties, on November 30, 2017 we entered into a series of secured promissory notes (“Series 2017 Notes”) with both related and unrelated parties in the aggregate amount of $1,155,000, including financing fees of $105,000 recorded as a discount to the notes.

 

The total of portion of the Series 2017 Notes from non-related parties totaled $110,000, including financing fees of $10,000 recorded as discount to the notes. As of June 30, 2018 the balance on the notes from non-related parties, net of unamortized discount of $4,646, is $105,354 with accrued interest of $6,389. As of December 31, 2017, the balance on the notes from non-related parties, net of unamortized discount of $9,217 is $100,783 with accrued interest of $934.

 

During the six months ended June 30, 2018 $4,571 of debt discount related to the above notes was amortized to interest expense.

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10. Convertible Note Payable
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Convertible Note Payable

Note 10 – Convertible Note Payable

 

On November 1, 2017, the Company sold a 10% Convertible Promissory Note (“Auctus Note”) in a principal amount of $170,000. After deducting the investor’s discount and legal fees, net proceeds to the Company were $153,650. The Note matures on November 1, 2018 and can be converted into the Company’s common stock after 180 days from the date the Note is issued. In early May 2018 when the note became convertible at a variable price the conversion feature was valued and recorded as a derivative liability. The conversion option continued to qualify for derivative treatment until the note was amended on June 8, 2018 (see below) and a minimum conversion price was added to the instrument. The derivative was initially valued at $176,860 which was allocated $170,000 as a debt discount and $6,860 as a loss on derivative liability. The debt discount was fully amortized and the derivative liability was adjusted to $0 as June 8, 2018 when the debt was amended. The result was $170,000 of amortization of debt discount included in interest expense and $176,860 of gain on change in derivative liability.

 

On November 2, 2017, the Company sold a 10% Convertible Promissory Note (“EMA Note”) in principal amount of $125,000. After deducting the investor’s discount and legal fees, net proceeds to the Company were $113,500. The Note matures on November 2, 2018 and can be converted into the Company’s common stock after 180 days from the date the Note is issued. In early May 2018 when the note became convertible at a variable price the conversion feature was valued and recorded as a derivative liability. The conversion option continued to qualify for derivative treatment until the note was amended on June 8, 2018 (see below) and a minimum conversion price was added to the instrument. The derivative was initially valued at $225,711 which was allocated $125,000 as a debt discount and $100,711 as a loss on derivative liability. The debt discount was fully amortized and the derivative liability was adjusted to $0 as June 8, 2018 when the debt was amended. The result was $125,000 of amortization of debt discount included in interest expense and $225,711 of gain on change in derivative liability.

 

The Company evaluated other convertible instruments and determined that the outstanding common stock warrants were required to be treated as a derivative during the period from May 1, 2018 through June 8, 2018 as a result of the variable conversion feature on the above notes. As a result an initial derivative liability of $62,569 was recorded and reclassified out of equity and a final derivative liability of $70,650 was reclassified back into equity at the point the common stock warrants no longer qualified as a derivative. The impact was the recording of a loss on derivative liability of $8,081.

 

Effective June 8, 2018 the Company and Auctus Fund, LLC (“Auctus”) signed an Amendment No. 1 to the Convertible Promissory Noted (the “Auctus Note”) dated November 1, 2017 (the “Auctus Amendment”). Under the terms of the Auctus Amendment, the principal outstanding balance of the Auctus Note has been increased from $170,000, to $212,500. Also, Auctus agreed to forbear from exercising rights arising from certain Events of Default (as defined in the Note) unless a new Event of Default occurs or the Company fails to become current in its required SEC filings by June 30, 2018. Auctus also agreed not to exercise its conversion privileges under the Auctus Note at prices below $0.02 per share until September 30, 2018. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting. It was then determined that no beneficial conversion feature existed at the time of debt issuance. The Company recorded the change in the debt instrument as an extinguishment and recorded the increase in principal balance of $42,500 as a loss on extinguishment of debt.

 

Effective June 8, 2018 the Company and EMA Financial, LLC (“EMA”) signed an Amendment No. 1 to the Convertible Promissory Noted (the “EMA Note”) dated November 2, 2017 (the “EMA Amendment”). Under the terms of the EMA Amendment, the principal outstanding balance of the EMA Note has been increased from $125,000, to $156,250. Also, EMA agreed to forbear from exercising rights arising from certain Events of Default (as defined in the Note) unless a new Event of Default occurs or the Company fails to become current in its required SEC filings by June 30, 2018. EMA also agreed not to exercise its conversion privileges under the EMA Note at prices below $0.02 per share until September 30, 2018. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting. It was then determined that no beneficial conversion feature existed at the time of debt issuance. The Company recorded the change in the debt instrument as an extinguishment and recorded the increase in principal balance of $31,250 as a loss on extinguishment of debt.

 

As of June 30, 2018 the balance on the notes, net of unamortized discount of $0, is $368,750 with accrued interest of $19,444. As of December 31, 2017, the balance on the notes, net of unamortized discount of $23,303 is $271,697 with accrued interest of $4,815. During the three and six months ended June 30, 2018, $6,867 and $18,024 of debt discount related to the above notes, respectively, was amortized to interest expense. The Company evaluated this conversion feature and determined that it did not qualify for derivative accounting. It was then determined that no beneficial conversion feature existed at the time of debt issuance.

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11. Stockholders' Deficit
6 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Stockholders' Deficit

Note 11 – Stockholders’ Deficit

 

Sales of common stock and warrants:

 

During the six months ended June 30, 2018, the Company raised $250,000 through the sale of 12,500,000 common stock and warrants (“Units”) at a price of $0.02 per Unit, each Unit consisting of one share of common stock and one warrant exercisable until June 30, 2018 to purchase one additional share of common stock at an exercise price of $0.02 per share. The expiration date of the warrants was subsequently extended to August 31, 2018. Of this raise $240,000 was purchased by directors or significant shareholders. A price protection feature of the offering provides that if at December 31, 2018, the Company has issued common stock at a price less than $0.02 per share, then the number of Units issuable to each investor shall be increased so as to reduce the Unit price to the lower price. The allocation of relative fair values of the equity instruments at the dates of the sale transactions was as follows: common stock at 61% and the warrants at 39%.

 

During the six months ended June 30, 2018, the Company received net proceeds of $80,000 from the exercise of 4,000,000 warrants at $0.02 per share.

 

Stock Options and the 2017 Equity Incentive Plan:

 

Under the 2017 Equity Incentive Plan, the Company is authorized to grant rights to acquire up to a maximum of 10,000,000 shares of common stock. The 2017 Plan provides for the grant of (1) both incentive and nonstatutory stock options, (2) stock bonuses, (3) rights to purchase restricted stock and (4) stock appreciation rights.

 

During the year ended December 31, 2017, the Company granted ten-year options to purchase 3,600,000 shares of common stock at an option exercise price of $0.04 per share, the closing price on the date of grant. As of June 30, 2018 the Company had 6,400,000 shares available for future grant.

 

Stock option activity within the 2017 Equity Incentive Plan and warrant activity outside the plan, for the six months ended June 30, 2018 is as follows:

 

   Stock Options   Stock Warrants 
       Weighted Average       Weighted Average 
   Shares   Exercise Price   Shares   Exercise Price 
Outstanding at December 31, 2017   3,600,000   $0.04    1,850,000   $0.10 
Granted           12,500,000   $0.02 
Cancelled                
Expired                
Exercised           (4,000,000)   (0.02)
Outstanding at June 30, 2018   3,600,000   $0.04    10,350,000   $0.03 
Exercisable at June 30, 2018   3,600,000   $0.04    10,350,000   $0.03 

 

As of June 30, 2018 the outstanding stock options have a weighted average remaining term of 9.33 years and no intrinsic value, and the outstanding stock warrants have a weighted average remaining term of 0.34 years and an intrinsic value of $85,000.

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12. Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 12 - Commitments and Contingencies

 

Mining Claims

 

As part of our acquisition of the Silver District properties from Columbus Exploration, we assumed the Red Cloud lease whose initial term expires in August 2026. The lease requires annual advance minimum royalty payments of $10,000 through the term of the lease due on the annual anniversary of the agreement. The lease is also subject to a 2% net production royalty to be paid to the lessor from the sale of precious metals extracted from the leased property. In order to maintain the BLM lode and mill site claims, annual payments are required before the end of August of each year. Payments are also due annually on two patented claims we leased in July 2015 and on our Arizona State Minerals Exploration Permit. As of June 30, 2018, all of these claims and leases are in good standing except for the two patented claims leased in 2015.

 

Leases

 

As part of our acquisition of MV2 in Mexico, we assumed the following leases payable in local currency as follows:

 

a)Ejido S.D.A, 10 year lease, 6 hectares, executed January 2016, expires December 2025. Annual payments 25,000 MX pesos. Renewable for 10 years.

 

b)Silverio Medina Ozuna, 3 year lease, 1 hectare, executed May 2017, expires April 2020. Annual payments 15,000 MX pesos. Renewable for 3 year periods.

 

c)Silverio Medina Ozuna, 10 year lease, 2 hectares, executed May 2010, expires April 2020. Payment 100,000 MX pesos paid in advance at lease execution. Renewable for 10 years.

 

The minimum future payments due on these leases are as follows for the next five years and thereafter and have been translated to US dollars using an exchange rate at June 30, 2018 of 19.92 MX pesos to US dollars:

 

Payment Due Date  Minimum Due ($) 
2018   1,255 
2019   2,008 
2020   1,255 
2021   1,255 
2022 and thereafter   5,020 

 

Other contractual arrangements

 

On November 1, 2016 the Company executed a Finder’s Agreement (“Agreement”), with a third party consultant to introduce the Company to potential investors beginning with its November 2016 private placement offering. The term of the Agreement is six months, or until the Company informs the consultant it has located investors to purchase the securities. The consultant is to be compensated for the services by cash payments totaling $30,000, payable at or before the termination of the Agreement. As of June 30, 2018, the Company paid approximately $23,500 in total to the consultant pursuant to the Agreement, including $12,500 paid during year ended December 31, 2017 and $11,000 during the year ended December 31, 2016.

 

On October 24, 2016, the Company entered into an agreement with Rio Silver, discussed in Note 3 – Mining Option Agreement, requiring the Company to spend $2,000,000 in exploration costs over the three-year period commencing with the execution of the Agreement. Effective December 31, 2017, the Company agreed with Rio Silver to terminate the option agreement, thereby terminating the requirement for exploration cost expenditures and the Company’s option to earn an interest in the Niñobamba Silver/Gold Project.

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13. Executive Employment Agreement
6 Months Ended
Jun. 30, 2018
Executive Employment Agreement  
Executive Employment Agreement

Note 13 – Executive Employment Agreement

 

On June 1, 2016 we executed an employment agreement with Dr. Carson in which he assumed the positions of President and Chief Executive Officer of Magellan Gold Corporation. The agreement also provided that Dr. Carson be appointed a Director of Magellan Gold Corporation, and effective June 30, 2016, Dr. Carson was appointed a Director of Magellan. The term of the agreement covered the period from June 1, 2016 to May 31, 2017 and is subject to annual renewal. The agreement has subsequently been renewed each year and is currently effective from June 1, 2018 to May 31, 2019, with all terms of the original agreement remaining unchanged.

 

During the term of the agreement, Magellan agreed to pay Dr. Carson a base salary in equal semi-monthly installments less required withholding and other applicable taxes. Dr. Carson’s salary was set at $6,667 per month during the three-month period from June 1, 2016 through August 31, 2016, and thereafter at $10,000 per month. Until such time as Magellan is properly funded, Magellan may defer and accrue salary owed. If not properly funded before the end of the term, Magellan may at its option issue shares of Magellan common stock as settlement of the accrued salary liability.

 

Dr. Carson shall have the right to voluntarily terminate his employment with Magellan during the term. To effect such voluntary termination, Dr. Carson shall provide Magellan at least 60 days advanced written notice of such termination. Upon termination, Dr. Carson shall be paid his base salary through the date of termination, including any amount that may have been deferred and accrued.

 

At June 30, 2018 a total of $90,000 and $8,351 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities on the accompanying consolidated balance sheets.

 

At December 31, 2017 a total of $30,000 and $2,796 of salary and associated payroll tax obligations, respectively, is accrued in connection with the agreement and included in accrued liabilities on the accompanying consolidated balance sheets.

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14. Related Party Transactions
6 Months Ended
Jun. 30, 2018
Related Party Transactions [Abstract]  
Related Party Transactions

Note 14- Related Party Transactions

 

Conflicts of Interests

 

Athena Silver Corporation (“Athena”) is a company under common control. Mr. Power is also a director and CEO of Athena. Mr. Gibbs is a significant investor in both Magellan and Athena. Magellan and Athena are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

Silver Saddle Resources, LLC is also a company under common control. Mr. Power and Mr. Gibbs are significant investors and managing members of Silver Saddle. Magellan and Silver Saddle are both exploration stage companies involved in the business of acquisition and exploration of mineral resources.

 

The existence of common ownership and common management could result in significantly different operating results or financial position from those that could have resulted had Magellan, Athena and Silver Saddle been autonomous.

 

Management Fees

 

The Company previously maintained a month-to-month management agreement with Mr. Power requiring a monthly payment, in advance, of $2,500 as consideration for his services as CFO to Magellan. Effective August 31, 2017, Mr. Power resigned as CFO and Secretary of the Company and was replaced by Michael P. Martinez on September 18, 2017 to serve as CFO, Secretary and Treasurer. Mr. Power continues to serve as a member of the Board of Directors.

 

Management fees to Mr. Power for the three months ended June 30, 2018 and 2017, are $-0- and $7,500, respectively. Management fees to Mr. Power for the six months ended June 30, 2018 and 2017, are $-0- and $15,000, respectively. These fees are included in general and administrative expenses in our statement of operations. At June 30, 2018 and December 31, 2017, $27,500 of the fees had not been paid and are included in accrued liabilities on the accompanying consolidated balance sheets.

 

Accrued Interest - Related Parties

 

Accrued interest due to related parties is included in our consolidated balance sheets as follows:

 

   June 30, 2018   December 31, 2017 
Accrued interest payable - Mr. Gibbs  $274,055   $221,103 
Accrued interest payable - Mr. Power   40,057    16,562 
Accrued interest payable - Dr. Carson   2,349    986 
           
   $316,461   $238,651 

 

During the six months ended June 30, 2018, we paid a total of $12,357 to Mr. Power representing unpaid accrued interest on notes payable. During the year ended December 31, 2017, we paid a total of $382 to Mr. Power representing unpaid accrued interest on notes payable.

 

Advances Payable – Related Parties

 

We borrowed and repaid non-interest bearing advances from/to related parties as follows:

 

   Six Months Ended June 30, 2018 
   Advances   Repayments 
Mr. Power  $56,192   $ 
Mr. Carson   8,100     
Totals  $64,292   $ 

 

   Year Ended December 31, 2017 
   Advances   Repayments 
Mr. Power  $26,050   $26,050 
Mr. Carson   8,100     
Totals  $34,150   $26,050 

 

At June 30, 2018 and December 31, 2017 a total of $64,292 of short-term advances from related parties were outstanding and are included in advances payable, related party on the accompanying consolidated balance sheets.

 

In addition to the above, during the year ended December 31, 2017, Mr. Power loaned the Company $25,000 in a short term note that was subsequently transferred into the Series 2017 Notes.

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15. Subsequent Events
6 Months Ended
Jun. 30, 2018
Subsequent Events [Abstract]  
Subsequent Events

Note 15 – Subsequent Events

 

On July 2, 2018, Auctus converted $3,500 of accrued interest and a $500 conversion fee totaling $4,000 into 200,000 shares of common stock at $0.02 per share.

 

On July 16, 2018, Auctus converted $7,500 of accrued interest and a $500 conversion fee totaling $8,000 into 400,000 shares of common stock at $0.02 per share.

 

On July 27, 2018, Auctus converted $9,482.19 of principal and $2,017.81 of accrued interest and a $500 conversion fee totaling $12,000 into 600,000 shares of common stock at $0.02 per share.

 

Effective July 24, 2018, the Company and W. Pierce Carson, President, executed an Agreement to Convert Debt, pursuant to which Carson agreed to convert $90,000 in accrued but unpaid executive compensation for the fiscal quarters ended December 31, 2017, March 31, 2018 and June 30, 2018 and a cash advance of $8,100 made to the Company into an aggregate of 4,905,000 shares of Common Stock, valued at $0.02 per share.  On July 30, 2018, the Company filed a Current Report on Form 8-K in connection with the Agreement.

 

Effective July 24, 2018, the Company and W. Pierce Carson executed a Restricted Stock Award Agreement pursuant to which the Company granted to Carson a restricted stock award consisting of 4,000,000 shares of Common Stock, valued at $0.02 per share. 1,000,000 of the shares will vest upon the Company completing a milestone (this milestone was reached with the closing of the El Dorado agreement noted below and these shares were issued) , and the remaining 3,000,000 shares are subject to ratable vesting over an 18-month period.

 

Effective July 26, 2018 the Company sold a Convertible Note in the principal amount of $63,000 to an institutional investor. The Company has agreed to reserve an initial 24,852,071 shares from its authorized and unissued common stock in the event of full conversion of the note.

 

On August 13, 2018, Magellan announced it had concluded an agreement with Ingenieros Mineros, S.A. de C.V., giving the Company the right to acquire the El Dorado mining concession by making staged six-monthly option payments over two years towards an end purchase price of $800,000. The Company has made the initial option payment of $50,000. In addition, Magellan had agreed with a TSX.V-listed company to purchase a comprehensive El Dorado data package including diamond drill core and technical information for a price of $120,000, payable in cash and Magellan common stock upon finalization of the agreement. The El Dorado concession is located 50 kilometers south of the Company’s SDA processing plant at Acaponeta, Nayarit State. Magellan intends to advance El Dorado towards production and to process the ore through the SDA plant.

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1. Organization, Basis of Presentation, and Nature of Operations (Policies)
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

Basis of Presentation

 

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-months ended June 30, 2018 are not necessarily indicative of the results for the full year. While we believe that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto contained in our annual report on Form 10-K for the year ended December 31, 2017.

 

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiaries, Gulf + Western Industries, Inc., Magellan Acquistion Corporation, Minerales Vane 2, S.A. de C.V., and Minerales Vane Operaciones, S.A de C.V. All intercompany transactions and balances have been eliminated. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Revenue Recognition

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize 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. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The Company adopted the standard effective January 1, 2018 at which point it had no impact on the Company.

 

The Company recognizes revenue for all of its products upon transfer of control in an amount that reflects the consideration it expects to receive in exchange for those products. Transfer of control is in accordance with the terms of contracts, which is generally upon delivery of the product. While payment terms vary by contract, terms generally include payment to be made within 30 days. Revenue during the six months ended June 30, 2018, were related to the sale of concentrate to a local smelter following the processing of tailings at the SDA Mill.

Reclassification

Reclassification

 

Certain reclassifications have been made to the prior periods to conform to the current period presentation.

Liquidity and Going Concern

Liquidity and Going Concern

 

Our unaudited consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to meet our obligations and continue our operations during the next fiscal year. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. At June 30, 2018, we had not yet generated any revenues or achieved profitable operations and we have accumulated losses of $4,951,589. We expect to incur further losses in the development of our business, all of which raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due.

 

During the six months ended June 30, 2018, we sold 12,500,000 units consisting of common stock and warrants and realized net proceeds of $250,000. Additionally, 4,000,000 warrants were exercised during the same period and net proceeds of $80,000 were realized. Proceeds from these transactions were generally used to fund working capital.

 

Additionally through various transactions with related parties during the year ended December 31, 2017, the Company realized approximately $1,075,000 which is primarily reflected in a series of promissory notes ("Series 2017 Notes"). The proceeds were generally used to fund the purchase of the SDA Mill in Mexico. The Series 2017 Notes are secured by a pledge of all the outstanding shares of Magellan Acquisition Corporation, a wholly-owned subsidiary that owns the SDA Mill through Minerales Vane 2.

 

We anticipate that additional funding will be in the form of additional loans from officers, directors or significant shareholders, or equity financing from the sale of our common stock but cannot assure than any future financings will occur.

XML 32 R22.htm IDEA: XBRL DOCUMENT v3.10.0.1
4. Acquisition of SDA Mill (Tables)
6 Months Ended
Jun. 30, 2018
Business Combinations [Abstract]  
Pro forma results of operations
  June 30, 
   2017 
  Pro Forma 
Net Sales  $227,793 
Operating Expenses   1,823,202 
Net Loss  $(1,595,409)
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.10.0.1
6. Fair Value of Financial Instruments (Tables)
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Financial assets and liabilities measured on a recurring basis
   Fair Value at   Fair Value Measurement at June 30, 2018 
   June 30, 2018   Level 1   Level 2   Level 3 
Investment in Rio Silver equities  $83,656   $83,656   $   $ 

 

  Fair Value at

   Fair Value Measurement at December 31, 2017 
  December 31, 2017   Level 1   Level 2   Level 3 
Investment in Rio Silver equities  $109,532   $109,532   $   $ 
XML 34 R24.htm IDEA: XBRL DOCUMENT v3.10.0.1
11. Stockholders' Deficit (Tables)
6 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Schedule of stock option activity
   Stock Options   Stock Warrants 
       Weighted Average       Weighted Average 
   Shares   Exercise Price   Shares   Exercise Price 
Outstanding at December 31, 2017   3,600,000   $0.04    1,850,000   $0.10 
Granted           12,500,000   $0.02 
Cancelled                
Expired                
Exercised           (4,000,000)   (0.02)
Outstanding at June 30, 2018   3,600,000   $0.04    10,350,000   $0.03 
Exercisable at June 30, 2018   3,600,000   $0.04    10,350,000   $0.03 
XML 35 R25.htm IDEA: XBRL DOCUMENT v3.10.0.1
12. Commitments and Contingencies (Tables)
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Minimum future lease payments
Payment Due Date  Minimum Due ($) 
2018   1,255 
2019   2,008 
2020   1,255 
2021   1,255 
2022 and thereafter   5,020 
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.10.0.1
14. Related Party Transactions (Tables)
6 Months Ended
Jun. 30, 2018
Related Party Transactions [Abstract]  
Schedule of accrued interest payable
   June 30, 2018   December 31, 2017 
Accrued interest payable - Mr. Gibbs  $274,055   $221,103 
Accrued interest payable - Mr. Power   40,057    16,562 
Accrued interest payable - Dr. Carson   2,349    986 
           
   $316,461   $238,651 

 

During the six months ended June 30, 2018, we paid a total of $12,357 to Mr. Power representing unpaid accrued interest on notes payable. During the year ended December 31, 2017, we paid a total of $382 to Mr. Power representing unpaid accrued interest on notes payable.

 

Advances Payable – Related Parties

 

We borrowed and repaid non-interest bearing advances from/to related parties as follows:

 

   Six Months Ended June 30, 2018 
   Advances   Repayments 
Mr. Power  $56,192   $ 
Mr. Carson   8,100     
Totals  $64,292   $ 

 

   Year Ended December 31, 2017 
   Advances   Repayments 
Mr. Power  $26,050   $26,050 
Mr. Carson   8,100     
Totals  $34,150   $26,050 
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.10.0.1
1. Organization, Basis of Presentation, and Nature of Operations (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Accumulated deficit $ (4,951,589) $ (4,059,888)
Warrants exercised 4,000,000  
Proceeds from warrant exercises $ 80,000  
Proceeds from the issuance of promissory notes   $ 1,075,000
Common stock and warrants [Member]    
Common stock and warrants issued 12,500,000  
Proceeds from sale of common stock and warrants $ 250,000  
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.10.0.1
3. Mining Option Agreement (Details Narrative) - USD ($)
6 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Investment in Rio Silver equities $ 83,656 $ 109,532
Rio Silver [Member]    
Investment in Rio Silver equities 83,656  
Impairment of investment 25,876  
Magellan Gold Peru [Member]    
Proceeds from sale of interest 1  
Loss on disposition $ (567)  
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.10.0.1
4. Acquisition of SDA Mill (Details - Pro forma)
6 Months Ended
Jun. 30, 2017
USD ($)
Business Combinations [Abstract]  
Net sales pro forma $ 227,793
Operating expenses 1,823,202
Net loss pro forma $ (1,595,409)
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.10.0.1
4. Acquisition of SDA Mill (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Nov. 30, 2017
Payment of note payable $ 50,000 $ 0    
Rose Petroleum [Member]        
Payment of note payable $ 50,000      
SDA Mill [Member]        
Total purchase price     $ 1,476,025  
Cash paid for acquisition     850,000  
Business acquisition promissory note issued       $ 50,000
Business acquisition, non-refundable option payment       50,000
Business acquisition, option-to-purchase extension       $ 100,000
Business acquisition, common shares issued       14,200,834
Business acquisition, common shares issued value     $ 426,025  
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.10.0.1
5. Interim Toll Milling Agreement (Details Narrative) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Interim Toll Milling Agreement    
Due from Rose Petroleum $ 0 $ 27,147
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.10.0.1
6. Fair Value of Financial Instruments (Details) - Fair Value Measurements Recurring [Member] - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Investment in Rio Silver equities $ 83,656 $ 109,532
Fair Value Inputs Level 1 [Member]    
Investment in Rio Silver equities 83,656 109,532
Fair Value Inputs Level 2 [Member]    
Investment in Rio Silver equities 0 0
Fair Value Inputs Level 3 [Member]    
Investment in Rio Silver equities $ 0 $ 0
XML 43 R33.htm IDEA: XBRL DOCUMENT v3.10.0.1
7. Line of Credit - Related Party (Details Narrative) - Line of Credit - Gibbs [Member] - USD ($)
6 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Line of credit issuance date Dec. 31, 2012  
Maximum borrowing capacity $ 1,000,000  
Line of credit expiration date Dec. 31, 2018  
Line of credit remaining borrowing availability $ 167,500  
Debt converted, amount converted $ 100,000  
Debt converted, shares issued 5,000,000  
Line of credit balance $ 832,500 $ 932,500
Accrued interest $ 240,695 $ 213,657
XML 44 R34.htm IDEA: XBRL DOCUMENT v3.10.0.1
8. Notes Payable - Related Parties (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Series 2017 Notes [Member]    
Debt issuance date   Nov. 30, 2017
Debt face amount   $ 1,155,000
Debt stated interest rate   10.00%
Payment of finance fees   $ 105,000
Proceeds from notes   $ 900,000
Debt maturity date   Dec. 31, 2018
Amortization of debt discount $ 43,422  
Gibbs, Carson and Power [Member]    
Debt issuance date May 31, 2017  
Debt face amount $ 150,000  
Debt stated interest rate 6.00%  
Accrued interest $ 3,760 $ 4,512
Related Party Portion [Member] | Series 2017 Notes [Member]    
Note payable 1,000,859 957,437
Accrued interest 60,696 8,875
Unamortized discount 44,141 87,563
John Power [Member]    
Accrued interest $ 40,057 16,562
John Power [Member] | Promissory Note 1 [Member]    
Debt issuance date Aug. 31, 2011  
Debt face amount $ 20,000  
Debt stated interest rate 12.00%  
Note payable $ 15,000 15,000
Accrued interest $ 893 1,576
John Power [Member] | Promissory Note 2 [Member]    
Debt issuance date Jan. 31, 2014  
Debt face amount $ 50,000  
Debt stated interest rate 12.00%  
Note payable $ 50,000 50,000
Accrued interest $ 2,975 6,249
John Power [Member] | Promissory Note 3 [Member]    
Debt issuance date Jun. 30, 2017  
Debt face amount $ 125,000  
Debt stated interest rate 12.00%  
Note payable $ 125,000 125,000
Accrued interest $ 7,438 $ 3,781
XML 45 R35.htm IDEA: XBRL DOCUMENT v3.10.0.1
9. Notes payable (Details Narrative) - Series 2017 Notes [Member] - USD ($)
6 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Amortization of debt discount $ 43,422  
Unrelated Parties [Member]    
Unamortized discount 4,646 $ 9,217
Note payable 105,354 100,783
Accrued interest 6,389 $ 934
Amortization of debt discount $ 4,571  
XML 46 R36.htm IDEA: XBRL DOCUMENT v3.10.0.1
10. Convertible Note Payable (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 30, 2018
Dec. 31, 2017
Auctus Note [Member]      
Debt issuance date   Nov. 01, 2017  
Debt face amount $ 170,000 $ 170,000  
Debt stated interest rate 10.00% 10.00%  
Proceeds from convertible note payable     $ 153,650
Debt maturity date   Nov. 01, 2018  
Amortization of debt discount   $ 170,000  
Gain on change in derivative liability   176,860  
Loss on extinguishment of debt   $ (42,500)  
EMA Note [Member]      
Debt issuance date   Nov. 02, 2017  
Debt face amount $ 125,000 $ 125,000  
Debt stated interest rate 10.00% 10.00%  
Proceeds from convertible note payable     113,500
Amortization of debt discount   $ 125,000  
Gain on change in derivative liability   225,711  
Loss on extinguishment of debt   $ (31,250)  
Auctus Amendment [Member]      
Debt issuance date   Jun. 08, 2018  
Debt face amount $ 212,500 $ 212,500  
EMA Amendment [Member]      
Debt issuance date   Jun. 08, 2018  
Debt face amount 156,250 $ 156,250  
Convertible Notes Payable [Member]      
Amortization of debt discount 6,867 18,024  
Loss on derivative liability   8,081  
Unamortized discount 0 0 23,303
Convertible note balance 368,750 368,750  
Accrued interest $ 19,444 $ 19,444 $ 4,815
XML 47 R37.htm IDEA: XBRL DOCUMENT v3.10.0.1
11. Stockholders' Deficit (Details - Options) - Options [Member] - $ / shares
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Number of Options    
Options outstanding, beginning balance 3,600,000  
Options granted 0 3,600,000
Options expired 0  
Options exercised 0  
Options outstanding, ending balance 3,600,000 3,600,000
Options exercisable 3,600,000  
Weighted Average Exercise Price    
Weighted average exercise price, beginning price $ .04  
Weighted average exercise price, granted $ .04
Weighted average exercise price, cancelled  
Weighted average exercise price, expired  
Weighted average exercise price, exercised  
Weighted average exercise price, ending price 0.04 $ .04
Weighted average exercise price, exercisable $ 0.04  
XML 48 R38.htm IDEA: XBRL DOCUMENT v3.10.0.1
11. Stockholders' Deficit (Details - Warrants)
6 Months Ended
Jun. 30, 2018
$ / shares
shares
Number of Warrants  
Warrants exercised (4,000,000)
Warrants [Member]  
Number of Warrants  
Warrants outstanding, beginning 1,850,000
Warrants granted 12,500,000
Warrants cancelled 0
Warrants expired 0
Warrants exercised (4,000,000)
Warrants outstanding, ending 10,350,000
Warrants exercisable 10,350,000
Weighted Average Exercise Price  
Weighted average exercise price, beginning price | $ / shares $ 0.10
Weighted average exercise price, granted | $ / shares 0.02
Weighted average exercise price, cancelled | $ / shares
Weighted average exercise price, expired | $ / shares
Weighted average exercise price, exercised | $ / shares (0.02)
Weighted average exercise price, ending price | $ / shares 0.03
Weighted average exercise price, exercisable | $ / shares $ 0.03
XML 49 R39.htm IDEA: XBRL DOCUMENT v3.10.0.1
11. Stockholders' Deficit (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Warrants exercised 4,000,000  
Proceeds from warrant exercises $ 80,000  
Options [Member]    
Options granted 0 3,600,000
Option grant price $ .04
Weighted average remaining term of optionx 9 years 3 months 29 days  
Intrinsic value of options $ 0  
Warrants [Member]    
Warrants exercised 4,000,000  
Weighted average remaining term 4 months 2 days  
Intrinsic value of warrants $ 85,000  
2017 Equity Incentive Plan [Member]    
Shares authorized for issuance under plan 10,000,000  
Options available for future grant 6,400,000  
Common stock and warrants [Member]    
Common stock and warrants issued 12,500,000  
Proceeds from sale of common stock and warrants $ 250,000  
XML 50 R40.htm IDEA: XBRL DOCUMENT v3.10.0.1
12. Commitments and Contingencies (Details)
Jun. 30, 2018
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Future minimum lease payment 2018 $ 1,255
Future minimum lease payment 2019 2,008
Future minimum lease payment 2020 1,255
Future minimum lease payment 2021 1,255
Future minimum lease payment 2022 and thereafter $ 5,020
XML 51 R41.htm IDEA: XBRL DOCUMENT v3.10.0.1
12. Commitments and Contingencies (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2018
Dec. 31, 2017
Translation exchange rate 19.92 MX pesos to US dollars  
Consulting fees $ 23,500 $ 12,500
Red Cloud Lease [Member]    
Annual lease payment $10,000  
Lease expiration date Aug. 31, 2026  
Ejido SDA [Member]    
Annual lease payment 25,000 MX pesos  
Lease expiration date Dec. 31, 2025  
Lease renewable term 10 years  
Silverio Medina Ozuma [Member]    
Annual lease payment 15,000 MX pesos  
Lease expiration date Apr. 30, 2020  
Lease renewable term 3 years  
Silverio Medina Ozuma [Member]    
Annual lease payment 100,000 MX pesos  
Lease expiration date Apr. 30, 2020  
Lease renewable term 10 years  
XML 52 R42.htm IDEA: XBRL DOCUMENT v3.10.0.1
13. Executive Employment Agreement (Details Narrative) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Executive Employment Agreement    
Accrued salary $ 90,000 $ 30,000
Accrued payroll taxes $ 8,351 $ 2,796
XML 53 R43.htm IDEA: XBRL DOCUMENT v3.10.0.1
14. Related Party Transactions (Details - Accrued interest) - USD ($)
Jun. 30, 2018
Dec. 31, 2017
Accrued Interest [Member]    
Accrued interest payable $ 316,461 $ 238,651
John D. Gibbs [Member]    
Accrued interest payable 274,055 221,103
John Power [Member]    
Accrued interest payable 40,057 16,562
Dr. Carson [Member]    
Accrued interest payable $ 2,349 $ 986
XML 54 R44.htm IDEA: XBRL DOCUMENT v3.10.0.1
14. Related Party Transactions (Details - Advances) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Advances from related parties $ 64,292 $ 34,150  
Repayments to related parties 0 $ 26,050  
John Power [Member]      
Advances from related parties 56,192   $ 26,050
Repayments to related parties 0   26,050
Dr. Carson [Member]      
Advances from related parties 8,100   8,100
Repayments to related parties $ 0   $ 0
XML 55 R45.htm IDEA: XBRL DOCUMENT v3.10.0.1
14. Related Party Transactions (Details Narrative) - John Power [Member] - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Management fees $ 0 $ 7,500 $ 0 $ 15,000  
Management fees payable $ 27,500   27,500   $ 27,500
Interest expense debt     $ 12,357   $ 382
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