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EX-31.2 - INCEPTION MINING INC.ex31-2.htm
EX-32.1 - INCEPTION MINING INC.ex32-1.htm
EX-31.1 - INCEPTION MINING INC.ex31-1.htm
EX-32.2 - INCEPTION MINING INC.ex32-2.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2015

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________.

 

Commission File No. 000-1416090

 

Inception Mining, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   35-2302128
(State or Other Jurisdiction of
Incorporation or Organization)
  (IRS Employer
Identification Number)
     

5320 South 900 East, Suite 260

Murray, Utah

  84107
(Address of Principal Executive Offices)   (Zip Code)

 

801-428-9703

(Registrant’s telephone number, including area code)

 

Copies to:

Brunson Chandler & Jones, PLLC

175 South Main Street

Fifteenth Floor

Salt Lake City, Utah 84111

(801) 303-5721

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-3 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of June 15, 2015, there were 20,764,008 shares of the registrant’s common stock issued and outstanding.

 

 

 

 
 

 

INCEPTION MINING, INC.

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION    
Item 1. Financial Statements   F-1
  Condensed Consolidated Balance Sheets as of April 30, 2015 and July 31, 2014   F-1
  Condensed Consolidated Statements of Operations for the three and nine months ended April 30, 2015 and 2014   F-2
  Condensed Consolidated Statements of Cash Flows for the three and nine months ended April 30, 2015 and 2014   F-3
  Notes to Condensed Consolidated Financial Statements   F-4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   3
Item 3. Quantitative and Qualitative Disclosures About Market Risk   6
Item 4. Controls and Procedures   6
       
PART II – OTHER INFORMATION    
Item 1. Legal Proceedings   7
Item 1 A. Risk Factors   7
Item 2. Unregistered Sales of Equity Securities and use of Proceeds   7
Item 3. Defaults Upon Senior Securities   7
Item 4. Mine Safety Disclosures   7
Item 5. Other Information   8
Item 6. Exhibits   8
Signature Page   9

 

2
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Inception Mining, Inc.

Condensed Consolidated Balance Sheets

 

   April 30, 2015   July 31, 2014 
   (Unaudited)     
ASSETS          
Current Assets          
Cash  $-   $5,695 
Prepaid expenses and other assets   657,955    135,090 
Total Current Assets   657,955    140,785 
           
Land and mineral rights   950,160    950,160 
Total Assets  $1,608,115   $1,090,945 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current Liabilities          
Accounts payable and accrued expenses  $364,151   $158,499 
Accrued interest payable   60,453    26,178 
Advances, related party   -    286,446 
Note payable   -    18,000 
Convertible note payable - related party, net of debt discount of $151,222 and $0 as of April 30, 2015 and July 31, 2014, respectively   465,037    - 
Convertible notes payable, net of debt discount of $89,540 and $124,103 as of April 30, 2015 and July 31, 2014, respectively   181,960    558,397 

Derivative and warrant liability

   479,513    112,851 
Total Current Liabilities   1,551,114    1,160,371 
Total Liabilities   1,551,114    1,160,371 
           
Stockholders’ Equity (Deficit)          
Preferred stock, $0.00001 par value; 10,000,000 shares authorized, none issued and outstanding   -    - 
Common stock, $0.00001 par value; 500,000,000 shares authorized, 20,764,008 and 21,770,681 shares issued and outstanding as of April 30, 2015 and July 31, 2014, respectively   208    218 
Additional paid-in capital   8,929,036    5,968,852 
Stockholder subscriptions   -    44,842 
Accumulated deficit   (8,872,245)   (6,083,338)
Total Stockholders’ Equity (Deficit)   57,001    (69,426)
           
Total Liabilities and Stockholders’ Equity (Deficit)  $1,608,115   $1,090,945 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F-1
 

 

Inception Mining, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   For the Three Months Ended April 30,   For the Nine Months Ended April 30, 
   2015   2014   2015   2014 
Revenues  $-   $-   $-   $- 
                     
Operating Expenses                    
Exploration costs   (24,188)   14,645    158,542    53,644 
General and administrative   688,041    233,873    2,424,511    434,690 
Total Operating Expenses   663,853    248,518    2,583,053    488,334 
                     
Loss from Operations   (663,853)   (248,518)   (2,583,053)   (488,334)
                     
Other Income/(Expenses)                    
Change in derivative liability   237,781    (12,267)   575,621    (12,267)
Gain (loss) on forgiveness of debt   -    -    161,750    (147,778)
Interest expense   (191,733)   (350,960)   (943,224)   (718,828)
Total Other Income/(Expenses)   46,048   (363,227)   (205,853)   (878,873)
                     
Loss from Operations before Income Taxes   (617,805)   (611,745)   (2,788,906)   (1,367,207)
Provision for Income Taxes   -    -    -    - 
NET LOSS  $(617,805)  $(611,745)  $(2,788,906)  $(1,367,207)
                     
Net loss per share - Basic and Diluted  $(0.03)  $(0.03)  $(0.13)  $(0.07)
                     
Weighted average number of shares outstanding during the period – Basic and Diluted   20,309,718    21,559,063    21,552,185    20,883,379 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F-2
 

 

Inception Mining, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   For the Nine Months Ended April 30, 
   2015   2014 
Cash Flows From Operating Activities:          
Net Loss  $(2,788,906)  $(1,367,207)
Adjustments to reconcile net loss to net cash used in operations          
Stock issued for services   -    136,750 
Gain on derivative and warrant liability   (575,685)   12,267 
Loss on settlement of accounts payable   -    147,778 
Gain on forgiveness of debt   (161,750)   - 
Amortization of debt discount   470,757    639,451 
Initial value of derivative liabilities   383,517    42,369 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   1,960,067    72,988 
Accounts payable and accrued expenses   205,652    103,675 
Accrued interest   34,275    29,507 
Net Cash Used In Operating Activities   (472,073)   (182,422)
           
Cash Flows From Investing Activities:          
Net Cash Used In Investing Activities   -    - 
           
Cash Flows From Financing Activities:          
Repayment of notes payable-related party   -    (28,000)
Repayment of note payable   (92,500)   (130,000)
Proceeds from notes payable-related party   329,813    71,000 
Expenses paid by shareholder on Company’s behalf   -    25,055 
Proceeds allocated to derivative liability   -    75,000 
Proceeds from notes payable   229,000    - 
Proceeds from issuance of common stock   -    168,500 
Net Cash Provided by Financing Activities   466,313    181,555 
           
Net Increase/(Decrease) in Cash   (5,695)   (867)
Cash at Beginning of Period   5,695    31,125 
Cash at End of Period  $0   $30,258 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $23,000   $28,000 
Cash paid for taxes  $-   $- 
           
Supplemental disclosure of non-cash investing and financing activities:          
Common stock surrendered or cancelled  $1   $95,000 
Common stock issued for prepaid expenses  $2,487,874   $178,500 
Conversion of debt in common stock  $433,665   $130,000 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F-3
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A) Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared by the Company in accordance with Article 8 of U.S. Securities and Exchange Commission Regulation S-X and with the instructions to Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at April 30, 2015 and 2014 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. Management suggests these condensed financial statements be read in conjunction with the July 31, 2014 audited financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended April 30, 2015 and 2014 are not necessarily indicative of the operating results for the full year.

 

On May 1, 2013, the Company filed Articles of Merger with the Secretary of State of the State of Nevada pursuant to which its wholly-owned subsidiary, Inception Mining Inc., a Nevada Corporation, was merged into the Company effective May 1, 2013. As a result of the filing of the Articles of Merger, the Company’s corporate name was changed from Gold American Mining Corp. to Inception Mining Inc.

 

(B) Going Concern

 

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company is in the exploration stage with minimal operations, has an accumulated deficit of $8,872,245. In addition, there is a working capital deficiency (excess of current liabilities over current assets) of $893,160 as of April 30, 2015. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

(C) Derivative Instrument Liability

 

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value.

 

(D) Fair Value of Financial Instruments

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

  Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
     
  Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
     
  Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.

 

F-4
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Items recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items as of April 30, 2015:

 

   Level 1   Level 2   Level 3   Total 
Long-term investments  $-   $-   $-   $- 
Total   -    -    -    - 
Warrant liability   -    13,444    -    13,444 
Debt Derivative   -    466,069    -    466,069 
Total  $-   $479,513   $-   $479,513 

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 2 financial liabilities (derivative liability) for the nine months ended April 30, 2015.

 

Nine months ended April 30, 2015:

 

   Derivative
Liabilities
   Warrant
Liability
 
Balance, July 31, 2014  $112,851   $- 
Transfers in upon initial fair value of derivative liabilities   889,652    81,281 
Change in fair value of derivative liabilities and warrant liability   (507,848)   (67,837)
Transfers to permanent equity upon conversion of note   (28,585)   - 
Balance, April 30, 2015  $466,069   $13,444 
Net gain for the period included in earnings relating to the liabilities held at April 30, 2015  $507,848   $67,837 

 

Level 2 Liabilities were comprised of our bifurcated convertible debt features on our convertible debenture.

 

Fluctuations in the Company’s stock price relative to the conversion prices are a primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price decreased approximately 87% from July 31, 2014 to April 30, 2015. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.

 

The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in a higher fair value measurement.

 

(E) Loss Per Share

 

Basic loss per common share is computed by dividing losses attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the period.

 

Diluted loss per common share is computed by dividing losses attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding convertible notes and warrants.

 

For the nine months ended April 30, 2015, the Company’s potentially dilutive securities (convertible notes and warrants) were 28,790,401.

 

F-5
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 2 CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable were comprised of the following as of April 30, 2015 and July 31, 2014:

 

    4/30/2015   7/31/2014
UP and Burlington convertible note payable  $10,000   $500,000 
Iconic Holdings convertible note payable   20,000    82,500 
Dave Waverek convertible note payable   70,000    100,000 
Typenex convertible note payable   57,500    - 
KBM Worldwide convertible note payable   54,000    - 
JMJ Financial convertible note payable   60,000    - 
Total Convertible notes payable   271,500    682,500 
Less unamortized discount   (89,540)   (124,103)
Total notes payable net of unamortized debt discount  $181,960   $558,397 

 

UP and Burlington Gold Mine

 

On February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of $0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and $150,000 and the assignment of a 3% net royalty. The Asset Purchase Agreement closed on February 25, 2013. On November 1, 2013, one of the notes was renegotiated with the note holder. The original note was restructured and treated as an extinguishment and as such is now convertible into shares of the Company’s common stock at $0.45 per share. All the other points of the note remained the same. A beneficial conversion feature on the new note was recorded for $630,000. On February 11, 2014, the Company converted $130,000 of principal into 288,889 shares of common stock. On December 10, 2014, the note holder elected to convert $41,250 of the principle balance of the note into 91,666 shares of common stock at $0.45 per share. On December 17, 2014, the note holder elected to convert $300,000 of the principle balance of the note into 666,666 shares of common stock at $0.45 per share. On December 17, 2014, the note holder elected to forgive $148,750 of the principle balance of the note. As of April 30, 2015, the outstanding balance on this note was $10,000.

 

Iconic Holdings

 

On February 18, 2014, the Company entered into an unsecured Note Purchase Agreement for the sale of a 10% convertible promissory note in which the Company will receive advances up to the principal amount of $220,000 with an original issue discount of 10% of loaned funds. The Company has received funds totaling $75,000 and recorded additional principal due to the original issue discount totaling $7,500. The note bears interest at the rate of 10% per annum and all interest and principal must be repaid on February 18, 2015. The note is convertible into common stock, at the holder’s option, at the lower of $0.45 or 60% of the lowest three daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days prior to the date of conversion. If the Company is placed on “chilled” status with the Depository Trust Company, the discount will be increased by 10% until such chill is remedied. The note may not be prepaid in whole or in part by the Company. The Company has identified the embedded derivatives related to the note. The embedded derivatives relate to conversion features.

 

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the notes and to fair value as of each subsequent reporting date, which at April 30, 2015 was $0. At the inception of the notes, the Company determined the aggregate fair value of $124,871 of the embedded derivatives.

 

The fair value of the embedded derivatives were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 131.64% to 156.78%, (3) weighted average risk-free interest rate of 0.05% to 0.12%, (4) expected lives of 0.31 to 0.97 years, and (5) estimated fair value of the Company’s common stock from $0.80 to $0.94 per share based upon quoted market price. The initial fair value of the embedded debt derivatives of $124,871 were allocated as a debt discount up to the proceeds of the notes ($82,500) with the remainder ($42,371) charged to current period operations as interest expense. On September 2, 2014, the note holder elected to convert $15,000 of the principle balance of the note into common stock at $0.45 per share. Accordingly, the Company issued 33,333 shares of common stock. The Company moved the related portion of the derivative liability for the $15,000 converted of $24,530 to permanent equity. On January 19, 2015, the note holder elected to convert $10,000 of the principle balance of the note into common stock at $0.13336 per share. Accordingly, the Company issued 74,985 shares of common stock. The Company moved the related portion of the derivative liability for the $10,000 converted of $3,531 to permanent equity. On February 9, 2015, the note holder elected to convert $15,000 of the principle balance of the note into common stock at $0.14848 per share. Accordingly, the Company issued 101,023 shares of common stock. The Company moved the related portion of the derivative liability for the $15,000 converted of $589 to permanent equity. On March 10, 2015, the note holder elected to convert $7,500 of the principle balance of the note into common stock at $0.08472 per share. Accordingly, the Company issued 88,526 shares of common stock. On March 16, 2015, the note holder elected to convert $7,500 of the principle balance of the note into common stock at $0.0605 per share. Accordingly, the Company issued 123,967 shares of common stock. On April 2, 2015, the note holder elected to convert $7,500 of the principle balance of the note into common stock at $0.05904 per share. Accordingly, the Company issued 127,032 shares of common stock. For the nine months ended April 30, 2015, the Company amortized $50,191 of debt discount to current period operations as interest expense. As of April 30, 2015 the gross balance of the note was $20,000 and accrued interest was $7,473.

 

F-6
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Dave Waverek

 

On June 7, 2014, the Company entered into an unsecured Note Purchase Agreement for the sale of a 20% convertible promissory note in which the Company will receive the principal amount of $100,000. The note bears interest at the rate of 20% per annum and all interest and principal must be repaid on December 31, 2015. The note is convertible, at the holder’s option into shares of the Company’s common stock at $0.45 per share. A beneficial conversion feature on the new note was recorded for $100,000. For the nine months ended April 30, 2015, the Company amortized $73,913 of debt discount to current period operations as interest expense. As of April 30, 2015 the gross balance of the note was $70,000 and accrued interest was $14,282.

 

Typenex

 

On September 25, 2014, the Company issued an unsecured Convertible Promissory Note (“Note”) to Typenex Co-Investment LLC (“Typenex”), in the principal amount of $115,000 (the “Note”) due on June 24, 2015 and bears 10% per annum interest, due at maturity. The total net proceeds the Company received was $100,000 (less an original issue discount (“OID”) of $10,000 and legal fees reimbursement of $5,000).

 

The Note is convertible into common stock, at holder’s option, at a 40% discount to the average of the three lowest bid prices of the common stock during the 20 trading day period prior to conversion. However, should the average of the three lowest bid prices as described above fall below $0.60, then the applicable discount increases to 45%. In addition, the conversion price is to subject to be reduced should the Company issue or grant common stock or equivalents (as defined) at a lower issuance price (dilutive issuance).

 

In connection with the issuance of the Note, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 113,453 shares of the Company’s common stock at $1.40 per share. The warrants expire on September 30, 2019. The warrants contain certain reset (anti-dilutive) provisions.

 

The Company has identified the embedded derivatives related to the above described note and detached warrants. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.

 

At the inception of the Note, the Company determined the fair value of $118,091 and $81,282 of embedded derivatives related to the Note and warrants, respectively. The fair value of the embedded derivatives were determined using the Binominal Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 119.21% (3) weighted average risk-free interest rate of 0.11% to 1.82%, (4) expected life of 0.75 to 5.02 years, and (5) the quoted market price of the Company’s common stock of $0.91 per share.

 

The determined fair value of the aggregate derivatives of $199,373 were charged as a debt discount up to the net proceeds of the note with the remainder $84,373 charged to current period operations as non-cash interest expense. On March 25, 2015, the Company made a payment of $34,679 ($28,750 of the principle balance of the note and $5,929 of accrued interest). The Company moved the related portion of the derivative liability for the $28,750 repaid of $35,826 to permanent equity. On April 27, 2015, the Company made a payment of $29,496 ($28,750 of the principle balance of the note and $746 of accrued interest). The Company moved the related portion of the derivative liability for the $28,750 repaid of $21,650 to permanent equity.

 

For the nine months ended April 30, 2015, the Company amortized $103,416 of debt discount to current period operations as interest expense. As of April 30, 2015 the gross balance of the note was $57,500 and accrued interest was $48.

 

F-7
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

JMJ Financial Services

 

On November 19, 2014, the Company issued an unsecured Convertible Promissory Note (“Note”) to JMJ Financial Services (“JMJ”), in the principal amount of $60,000 (the “Note”) due on November 19, 2016 and bears 12% per annum interest, due at maturity. The total net proceeds the Company received was $54,000 (less an original issue discount (“OID”) of $6,000).

 

The Note is convertible into common stock, at holder’s option, at the lesser of $0.59 or a 40% discount of the lowest trading price of the common stock during the 25 trading day period prior to conversion.

 

For the nine months ended April 30, 2015, the Company amortized $13,297 of debt discount to current period operations as interest expense. As of April 30, 2015 the gross balance of the note was $60,000 and accrued interest was $0.

 

KBM Worldwide

 

On January 5, 2015, the Company issued an unsecured Convertible Promissory Note (“Note”) to KBM Worldwide, Inc. (“KBM”), in the principal amount of $54,000 (the “Note”) due on October 5, 2015 and bears 8% per annum interest, due at maturity. The total net proceeds the Company received was $50,000 (less legal fees reimbursement of $4,000).

 

The Note is convertible into common stock, at holder’s option, at a 49% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion.

 

For the nine months ended April 30, 2015, the Company amortized $22,747 of debt discount to current period operations as interest expense. As of April 30, 2015 the gross balance of the note was $54,000 and accrued interest was $1,361.

 

F-8
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 3 DERIVATIVE LIABILITIES

 

Debt derivatives

 

As described in Note 2, the Company issued a convertible promissory note which is are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.

 

At April 30, 2015, the Company marked to market the fair value of the debt derivatives and determined a fair value of $466,068. The Company recorded a gain from change in fair value of debt derivatives of $507,848 for the nine months ended April 30, 2015. The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 186.56% to 246.05%, (3) weighted average risk-free interest rate of 0.01 to 0.58% (4) expected life of 0 to 1.56 years, and (5) the quoted market price of the Company’s common stock of $0.1185 per share.

 

Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.

 

Warrant liability

 

As described in Note 2, the Company issued warrants in conjunction with the issuance with the Typenex Convertible Promissory Note. These warrants contain certain reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date (issuance date) and to fair value as of each subsequent reporting date.

 

At April 30, 2015, the Company marked to market the fair value of the warrant liability and determined a fair value of $13,444. The Company recorded a gain from change in fair value of warrant liability of $67,837 for the nine months ended April 30, 2015. The fair value of the warrant liability was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 740.09%, (3) weighted average risk-free interest rate of 1.43%, (4) expected life of 4.42 years, and (5) the quoted market price of the Company’s common stock of $0.1185 per share.

 

NOTE 4 CONVERTIBLE NOTE PAYABLE, RELATED PARTY

 

The Company entered into an unsecured convertible note payable agreement with MDL Ventures, LLC, which is 100% owned by a stockholder, effective October 1, 2014, due on October 1, 2015 and bears 15% per annum interest, due at maturity. Principal on the convertible note is convertible into common stock at the holder’s option at a price of $0.36 per share if converted prior to January 1, 2015 or at the lower of $0.18 or 50% of the lowest three daily volume weighted average prices of the Company’s common stock during the 20 consecutive days prior to the date of conversion.

 

For the nine months ended April 30, 2015, the Company amortized $207,194 of debt discount to current period operations as interest expense. As of April 30, 2015 the gross balance of the note was $616,260 and accrued interest was $34,901.

 

F-9
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 5 COMMON STOCK

 

(A) Common Stock Issuances

 

In July 2014, the Company issued 300,000 shares for services valued at $270,000. The number of shares issued was based on quoted market price. The services are being provided over a twelve month period.

 

In August 2014, the Company issued 472,503 shares for services valued at $534,554. The number of shares issued was based on quoted market price. The services are being provided over a twelve month period.

 

In September 2014, the Company issued 271,250 shares for services valued at $310,428. The number of shares issued was based on quoted market price. The services are being provided over a twelve month period.

 

On September 2, 2014, the Company issued 33,333 shares of common stock upon the conversion of $15,000 of note payable principle.

 

In October 2014, the Company issued 100,000 shares for service valued at $88,000. The number of shares issued was based on quoted market price. The services are being provided over a twelve month period.

 

On October 14, 2014, 142,707 shares originally issued for legal services were cancelled, which the Company re-purchased for no value.

 

In November 2014, the Company issued 1,170,833 shares for services valued at $841,958. The value for shares issued was based on quoted market prices. The services are being provided over a twelve month period.

 

On December 10, 2014, the Company issued 91,666 shares of common stock upon the conversion of $41,250 of note payable principle.

 

On December 12, 2014, 5,520,000 shares originally issued for an asset purchase were cancelled upon negotiations by the Company for these shares to be returned for no value.

 

On December 17, 2014, the Company issued 666,666 shares of common stock upon the conversion of $300,000 of note payable principle.

 

In December 2014, the Company issued 280,833 shares for services valued at $76,708. The value for shares issued was based on quoted market prices. The services are being provided over a twelve month period.

 

On January 19, 2015, the Company issued 74,985 shares of common stock upon the conversion of $10,000 of note payable principle.

 

In January 2015, the Company issued 181,250 shares for services valued at $46,221. The value for shares issued was based on quoted market prices. The services are being provided over a twelve month period.

 

On February 9, 2015, the Company issued 101,023 shares of common stock upon the conversion of $15,000 of note payable principle.

 

On February 18, 2015, 592,000 shares originally issued for an asset purchase were cancelled upon negotiations by the Company for these shares to be returned for no value.

 

In February 2015, the Company issued 181,250 shares for services valued at $42,033. The value for shares issued was based on quoted market prices. The services are being provided over a twelve month period.

 

On March 10, 2015, the Company issued 88,526 shares of common stock upon the conversion of $7,500 of note payable principle.

 

On March 16, 2015, the Company issued 123,967 shares of common stock upon the conversion of $7,500 of note payable principle.

 

In March 2015, the Company issued 381,250 shares for services valued at $49,924. The value for shares issued was based on quoted market prices. The services are being provided over a twelve month period.

 

On April 2, 2015, the Company issued 127,032 shares of common stock upon the conversion of $7,500 of note payable principle.

 

In April 2015, the Company issued 181,250 shares for services valued at $20,928. The value for shares issued was based on quoted market prices. The services are being provided over a twelve month period.

 

F-10
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

(B) Warrants

 

The following tables summarize the warrant activity during the nine months ended April 30, 2015:

 

Stock Warrants  Number of
Warrants
   Weighted Average
Exercise Price
 
Balance at July 31, 2014   345,695    0.90 
Granted   162,322    0.42 
Exercised   -    - 
Forfeited   -    - 
Balance at April 30, 2015   508,017   $0.75 

 

Outstanding Warrants  Warrants Exercisable 
Range of
Exercise Price
  Number
Outstanding at
April 30, 2015
   Weighted
Average
Remaining
Contractual Life
   Weighted
Average
Exercise Price
   Number
Exercisable at
April 30, 2015
   Weighted
Average
Exercise Price
 
$ 0.11 - 0.90   508,017    1.89 years    $0.75    508,017   $0.75 

 

F-11
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 6 RELATED PARTY TRANSACTIONS

 

(A) Acquisition of Mining Rights

 

On February 25, 2013, the Company, its majority shareholder, and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement with Inception Resources, LLC, a Utah corporation, pursuant to which the Company purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock valued at $160 (valued at par value of $0.00001 because of the entities being under common control), the assumption of promissory notes in the amount of $800,000 and $150,000 and the assignment of a 3% net royalty. The Asset Purchase Agreement closed on February 25, 2013. As of October 31, 2014, the outstanding balances on these notes were $500,000 and $13,000, respectively. On November 1, 2013, one of the notes was renegotiated with the note holder. The original note was restructured and treated as an extinguishment and as such is now convertible into shares of the Company’s common stock at $0.45 per share. All the other points of the note remained the same. A beneficial conversion feature on the new note was recorded for $630,000. At July 31, 2014 the beneficial conversion feature was fully amortized, thus there is no amortization expense for the nine month period ending April 30, 2015.

 

(B) Consulting Agreement

 

In January 2014, the Company entered into a consulting agreement with a stockholder/director. The Company agreed to pay $18,000 per month for twelve months. As of April 30, 2015, the Company owed $288,000 to the stockholder/director in accrued consulting fees and recorded $162,000 as consulting expense, for the nine months ended April 30, 2015.

 

(C) Employment Agreements

 

On February 25, 2013, the Company entered into an employment agreement with Michael Ahlin pursuant to which he was appointed as the Chief Executive Officer, President, Treasurer, Secretary and Director of the Company. Under the terms of his employment agreement, Mr. Ahlin will become eligible to receive an annual salary, bonus and stock option upon the Company achieving positive earnings before interest, taxes, depreciation, and amortization (“EBITDA”) in two consecutive quarters as reflected in its filings with the Securities and Exchange Commission (“SEC”). No expense has been recognized since inception of the contract.

 

On February 25, 2013, the Company entered into an employment agreement with Whit Cluff pursuant to which he was appointed as the Chief Financial Officer and Director of the Company. Under the terms of his employment agreement, Mr. Cluff will become eligible to receive an annual salary, bonus and stock option upon the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with the SEC. No expense has been recognized since inception of the contract.

 

On February 25, 2013, the Company entered into an employment agreement with Brian Brewer pursuant to which he was appointed as the Chief Operating Officer and Director of the Company. Under the terms of his employment agreement, Mr. Brewer would only become eligible to receive an annual salary, bonus and stock options upon the Company achieving positive EBITDA in two consecutive quarters as reflected in its filings with the SEC. No expense has been recognized since inception of the contract, as these conditions have not occurred. As of February 10, 2015, Mr. Brewer is not an officer or director of the Company.

 

NOTE 7 AGREEMENTS AND COMMITMENTS

 

David Rees Agreement

 

On January 31, 2014, the Company entered into a Consulting Agreement with David Rees pursuant to which Mr. Rees will receive 50,000 shares of common stock of the Company, which such shares have been registered on a Registration Statement File No. 333-191244 in consideration of providing general corporate advisory and merger and acquisition services. The term of the Agreement is for 1 year. A total of $12,855 has been recognized in expense for the nine months ended April 30, 2015.

 

Chienn Consulting Agreement

 

On January 31, 2014, the Company entered into a Consulting Agreement with Chienn Consulting Company, LLC (“Chienn”) pursuant to which Chienn will receive 100,000 shares of restricted common stock of the Company in consideration of providing marketing, sales and business development services for a period of one year. A total of $25,710 has been recognized in expense for the nine months ended April 30, 2015.

 

F-12
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 7 AGREEMENTS AND COMMITMENTS (CONTINUED)

 

Elliott Foxcroft Agreement

 

On March 27, 2014, the Company entered into an Advisory Agreement with Elliott Foxcroft (“Foxcroft”) pursuant to which Foxcroft received 300,000 shares of restricted common stock of the Company in consideration for providing/assist the Company with general legal, corporate advisory and M&A matters. Mr. Foxcroft will help the Company source, identify and evaluate potential acquisition targets (the “Target Acquisitions”) for a period of 90 days. A total of $214,173 was recognized as expense related to the Advisory Agreement for the nine months ending April 30, 2015.

 

Desert Bloom Capital Agreement

 

On August 1, 2014, the Company entered into an Advisory Agreement with Desert Bloom Capital, Ltd. (“Desert Bloom”) pursuant to which Desert Bloom will receive 1,400,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with identifying strategic alliances and with the Company’s business development activities for the period of one year. Per the agreement, 500,000 shares of common stock were issued upon signing, 100,000 shares of common stock will be issued on the first day of the month for the next four months and 500,000 shares of common stock will be issued on the first day of the sixth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of April 30, 2015, the value of the services was $740,000. As of April 30, 2015, $565,437 was recognized in consulting expense related to the agreement.

 

Golden State Securities Agreement

 

On August 29, 2014, the Company entered into an Advisory Agreement with Golden State Securities, Inc. (“Golden State”) pursuant to which Golden State will receive 1,090,003 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. Per the agreement, 272,503 shares of common stock were issued upon signing and 90,833 shares of common stock will be issued on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of April 30, 2015, the value of the services was $453,343. As of April 30, 2015, $444,475 was recognized in consulting expense related to the agreement.

 

In January 2015, the Company paid Golden State $5,400 in cash and will issue warrants for 48,869 shares of common stock with a value of $5,400 for a finder’s fee for financing that was brought to the Company by Golden State.

 

SSGH Agreement

 

On September 3, 2014, the Company entered into an Advisory Agreement with SSGH, LLC. (“SSGH”) pursuant to which SSGH will receive 651,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. Per the agreement, 162,750 shares of common stock were issued upon signing and 54,250 shares of common stock will be issued on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of April 30, 2015, the value of the services was $231,105. As of April 30, 2015, $230,400 was recognized in consulting expense related to the agreement.

 

JFS Investments Agreement

 

On September 5, 2014, the Company entered into an Advisory Agreement with JFS Investments PR, LLC. (“JFS”) pursuant to which JFS will receive 434,003 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. Per the agreement, 108,500 shares of common stock were issued upon signing and 36,167 shares of common stock will be issued on the first day of the fourth month through the twelfth month. Expense will be recognized ratably over the period of the agreement based upon the quoted market value of the shares at the time of issuance. As of April 30, 2015, the value of the services was $157,325. As of April 30, 2015, $156,542 was recognized in consulting expense related to the agreement.

 

F-13
 

 

Inception Mining, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Oria Development, LLC Agreement

 

On November 1, 2014, the Company entered into an Advisory Agreement with Oria Development, LLC. (“Oria”) pursuant to which Oria will receive 1,000,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. On November 1, 2014, the value of the services for shares issued was $720,000. As of April 30, 2015, $357,041 was recognized in consulting expense related to the agreement.

 

Stonegate Securities, Inc. Agreement

 

On March 17, 2015, the Company entered into an Advisory Agreement with Stonegate Securities, Inc. (“Stonegate”) pursuant to which Stonegate will receive 200,000 shares of restricted common stock of the Company in consideration for providing/assisting the Company with developing, studying and evaluating a financing plan, strategic and financial alternatives and merger and acquisition proposals and will assist in negotiations and discussions pertaining thereto for the period of one year. On March 17, 2015, the value of the services for shares issued was $30,000. As of April 30, 2015, $3,616 was recognized in consulting expense related to the agreement.

 

NOTE 8 CONCENTRATION OF RISK

 

Financial instruments that potentially subject the Company to credit risk consist principally of cash. The cash balance identified in the balance sheet is held in an account with a financial institution and insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At times, cash maintained on deposit may be in excess of FDIC limits. Cash may also be maintained at commercial financial institutions which are not insured by the FDIC.

 

NOTE 9 SUBSEQUENT EVENTS

 

In Accordance with ASC 855-10, Company management reviewed all material events through the date of this report and found the following items to report:

 

F-14
 

 

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

 

Forward Looking Statements

 

Except for historical information, the following Management’s Discussion and Analysis contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) discussions about mineral resources and mineralized material, (b) our projected sales and profitability, (c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, (f) our anticipated needs for working capital, (g) our lack of operational experience and (h) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business,” as well as in this Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.

 

Overview (Plan of Operation)

 

On February 25, 2013, Inception Mining, Inc. (“Inception” or the “Company”) and its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Inception Resources, LLC, a Utah corporation (“Inception Resources”), pursuant to which Inception purchased the U.P. and Burlington Gold Mine in consideration of 16,000,000 shares of common stock of Inception, the assumption of promissory notes in the amount of $950,000 and the assignment of a 3% net royalty. Inception Resources was an entity owned by and under the control of a shareholder. This transaction is deemed an asset purchase by entities under common control. The Asset Purchase Agreement closed on February 25, 2013 (the “Closing”). We were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately prior to our acquisition of the gold mine pursuant to the terms of the Assert Purchase Agreement. As a result of such acquisition, our operations are now focused on the ownership and operation of the mine acquired from Inception Resources. Consequently, we believe that acquisition has caused us to cease to be a shell company as we no longer have nominal operations.

 

We are a mining exploration stage company engaged in the acquisition, exploration, and development of mineral properties, primarily for gold, from owned mining properties. Inception Resources has acquired one project, as described below. Our target properties are those that have been the subject of historical exploration. We have not generated revenue from mining operations.

 

On February 25, 2013, the Company acquired certain real property and the associated exploration permits and mineral rights commonly known as the U.P. and Burlington Gold Mine (“UP & Burlington” or the “Mine”) pursuant to that certain asset purchase agreement entered between the Company, its majority shareholder (the “Majority Shareholder”), and its wholly-owned subsidiary, Inception Development Inc. (the “Subsidiary”) on one hand, and Inception Resources on the other hand, dated February 25, 2013 (the “Asset Purchase Agreement”). We are presently in the exploration stage at UP & Burlington. UP & Burlington contains two Federal patented mining claims which Inception Resources acquired for the purpose of the exploration and potential development of gold on the 40 acres which comprises UP & Burlington.

 

UP & Burlington is a private gold property which was discovered in 1892 which has been held unused in a family trust for the past 75 years. UP & Burlington is located in County of Lemhi, Northwest of Salmon, Idaho, at an elevation of 7,994 feet. The UP & Burlington site is located six miles from the city of Salmon; is 0.6 miles away from the closest major road (Ridge Rd.); and is 1.56 miles away from the closest major power line. We believe Salmon, along with the surrounding County of Lemhi, provides an excellent infrastructure for our mine. Salmon has a population of 3,122 and Lemhi County has a population of 7,806. In September 2011, heavy maintenance and right-of-way repair was completed and a new road to UP & Burlington was constructed.

 

UP & Burlington’s two gold mining claims were brought to patent in 1900, which covers the Mine’s 40 acres. Subsequently, in 1989, a U.S. Forest Survey was performed on the UP & Burlington site confirming that the patented claims cover an area which is six hundred feet by three thousand feet (600’x3000’). The Mine’s patented claims remove the challenges associated when working on U.S. Forest lands, Bureau of Land Management (“BLM”), state or other property types. With our purchase of UP & Burlington, we have the benefit of working on private land, which requires only a hauling / road permit to commence significant operations.

 

3
 

 

As part of our initial Plan of Operations, we have compiled a two-phase plan in which we intend to fund underground mining with operating profits from surface mining, if any. During Phase I, we plan to obtain the necessary permitting, make additional access road and surface improvements, implement surface mining on a 2,500 foot per day-lighted vein to depths of 40 – 60 feet, and achieve Confirmatory Core Drilling (NI43-101), Vein Definition and Ore Valuation. In Phase II, we plan to contract an underground mining and operations plan, expand portal development leveraging existing underground access and implement underground mining to a depth based on optimizing costs versus processed ore value. There is no guarantee that we will be successful in implementing either Phase I or Phase II.

 

Our Tactical Plan includes obtaining a Lemhi County Conditional Use Permit, an Idaho Department of Lands Surface Reclamation Bond and permitting for the U.S. Forest Service Access Road, as well as obtaining major contracts such as geotechnical contracts, surface mining contracts, toll processing contracts and underground mine plan contracts.

 

The Company and its independent consultants have developed a detailed exploration drilling program to confirm and expand mineralized zones in the Mine and collect additional environmental and technical data. The first phase of metallurgical testing, engineering and environmental programs and studies began in 2013 and soon thereafter updated the historic feasibility study and environmental permit applications.

 

We also plan to review opportunities and acquire additional mineral properties with current or historic precious and base metal mineralization with meaningful exploration potential.

 

On February 3, 2015 (the “Effective Date”), we entered into a Stock Exchange Agreement with Clavo Rico Ltd., a Turks and Caicos company (“Clavo Rico”) and the majority of the shareholders of Clavo Rico (the “CV Shareholders”). Pursuant to the terms of the Agreement, the Company will acquire 100% of the issued and outstanding common stock of Clavo Rico in exchange for the issuance of 66,391,160 shares of the Company’s common stock to the CV Shareholders on a pro rata basis. Certain conditions must be met prior to the closing of the Agreement (the “Closing”), including the Company’s obligation to raise $11,000,000 in a debt or equity offering. Following the Closing of the Agreement, Clavo Rico will become a wholly-owned subsidiary of the Company.

 

Clavo Rico is engaged in processing a significant historical tailings body along with several open pit ore bodies in Honduras, Central America. It has two subsidiaries and holds four other mining concessions. Its workings include several historical underground operations dating back to the early Mayan and Spanish occupation. As of the date of this filing, we have not yet closed the transaction with Clavo Rico.

 

On February 19, 2015, the Company entered into a Letter of Intent to enter into a Joint Venture Agreement with Intermont Resources LLC (“Intermont”), a mining exploration company that has been conducting greenfields mineral exploration in Nevada since 2010, concentrating on pediment targets. According to the terms of the Letter of Intent, the parties have proposed a joint venture related to twelve mineral properties in Nevada. For ninety days following the execution of the Letter of Intent (unless terminated before then), while due diligence is completed and while definitive documents are drafted and negotiated, the parties have agreed to exclusively work together regarding the mineral properties.

 

Results of Operations

 

Three-months ended April 30, 2015 compared to the three-months ended April 30, 2014

 

We had a net loss of $617,805 for the three-months ended April 30, 2015, and a net loss of $611,745 for the three-months ended April 30, 2014. This change in our results over the two periods is primarily the result of the new professional and consulting agreements, where the Company utilizes the expertise, professional relationships, and knowledge of said consultants, are classified as general and administrative expenses that have been entered into as well as the increase in exploration costs, changes in derivatives and the changes in debt discounts which are included in other income/expense. The following table summarizes key items of comparison and their related increase (decrease) for the three months ended April 30, 2015 and 2014:

 

   Three-Months Ended April 30,    Increase/ 
   2015   2014   (Decrease) 
Revenues  $-   $-   $- 
Exploration Costs   (24,188)   14,645    (38,833)
General and Administrative   688,041    233,873    454,168 
Total Operating Expenses   663,853    248,518    415,335 
(Loss) from Operations   (663,853)   (248,518)   415,335 
Total Other Income/(Expense)   46,048   (363,227)   (909,275)
Loss from Operations Before Taxes   (617,805)   (611,745)   6,060 
Net Loss  $(617,805)  $(611,745)  $6,060 

 

The Company had no revenues in both periods.

 

4
 

 

Nine-months ended April 30, 2015 compared to the nine-months ended April 30, 2014

 

We had a net loss of $2,788,908 for the nine-months ended April 30, 2015, and a net loss of $1,367,207 for the nine-months ended April 30, 2014. This change in our results over the two periods is primarily the result of the new professional and consulting agreements, where the Company utilizes the expertise, professional relationships, and knowledge of said consultants, are classified as general and administrative expenses that have been entered into as well as the increase in exploration costs, changed in derivatives and the changes in debt discounts which are included in other income/expense. The following table summarizes key items of comparison and their related increase (decrease) for the nine months ended April 30, 2015 and 2014:

 

   Nine-Months Ended April 30,   Increase/  
   2015   2014   (Decrease) 
Revenues  $-   $-   $- 
Exploration Costs   158,542    53,644    104,898 
General and Administrative   2,424,511    434,690    1,989,821 
Total Operating Expenses   2,583,053    488,334    2,094,719 
(Loss) from Operations   (2,583,053)   (488,334)   2,094,719 
Total Other Income/(Expense)   (205,853)   (878,873)   (673,020)
Loss from Operations Before Taxes   (2,788,908)   (1,367,207)   1,421,701 
Net Loss  $(2,788,908)  $(1,367,207)  $1,421,701 

 

The Company had no revenues in both periods.

 

Liquidity and Capital Resources

 

Our balance sheet as of April 30, 2015 reflects assets of $657,955. We had cash in the amount of $0 and working capital deficit in the amount of $899,835 as of April 30, 2015. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months. We will need to raise approximately $2,000,000 in order to fully implement our business plan.

 

Working Capital

 

   April 30, 2015   July 31, 2014 
Current assets  $657,955   $140,785 
Current liabilities   1,551,115    1,160,371 
Working capital deficit  $(893,160)  $(1,019,586)

 

We anticipate generating losses and, therefore, may be unable to continue operations in the future, if we don’t acquire additional capital and issue debt or equity or enter into a strategic arrangement with a third party.

 

Going Concern Consideration

 

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company is in the exploration stage with no revenue generating operations and has an accumulated deficit of $8,872,245. In addition, there is a working capital deficit of $899,835 as of April 30, 2015. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

   Nine-months Ended April 30, 
   2015   2014 
Net Cash Used in Operating Activities  $(473,075)  $(182,422)
Net Cash Used in Investing Activities   -    - 
Net Cash Provided by Financing Activities   466,313    181,555 
Net Increase (Decrease) in Cash  $(5,695)  $(867)

 

5
 

 

Operating Activities

 

Net cash flow used in operating activities during the nine months ended April 30, 2015 was $472,008, an increase of $289,586 from the $182,422 net cash outflow during the nine months ended April 30, 2014. This increase in the cash used in operating activities was primarily due to increased consulting agreements entered into by the Company.

 

Financing Activities

 

Financing activities during the nine months ended April 30, 2015 provided $466,313, an increase of $284,758 from the $181,555 provided by financing activities during the nine months ended April 30, 2014. During the nine months ended April 30, 2015, the company received $329,813 in proceeds from convertible notes with related parties and $229,000 in proceeds from convertible notes. The Company also made $92,500 in payments on notes payable.

 

We are currently seeking up to $2,000,000 in equity financing in order to fully implement our business plan.

 

Critical Accounting Policies

 

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.

 

Costs of acquiring mining properties and any exploration and development costs are expensed as incurred unless proven and probable reserves exist and the property is a commercially mineable property. Mine development costs incurred either to develop new gold and silver deposits, expand the capacity of operating mines, or to develop mine areas substantially in advance of current production are capitalized. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates, at least quarterly, the carrying value of capitalized mining costs and related property, plant and equipment costs, if any, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value.

 

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain. As of January 31, 2015, none of our properties have proven reserves.

 

Recent Accounting Pronouncements

 

For recent accounting pronouncements, please refer to the notes to financial statements in Part I, Item 1 of this quarterly report.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to include disclosure under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective as of April 30, 2015.

 

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Management has identified control deficiencies regarding the lack of segregation of duties, tax compliance issues and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff and reliance on outside consultants for external reporting. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

 

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and outside accounting consultants. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

 

These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any filed or pending legal proceedings against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances. Our former COO and director, Brian Brewer, has threatened legal action against us as a result of a dispute about amounts owed to him during his tenure with the Company. However, but we are working to resolve the matter with him directly.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to include disclosure under this item.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

Exhibit No.   Description
     
3.1   Articles of Incorporation (1)
     
3.2   Certificate of Amendment, effective March 5, 2010 (2)
     
3.3   Certificate of Amendment, effective June 23, 2010 (3)
     
3.4   Articles of Merger, effective May 17, 2013 (4)
     
3.5   Bylaws (1)
     
4.1   Form of Subscription Agreement entered by and between Inception Mining Inc. and Accredited Investors (5)
     
4.2   Letter Amendment dated November 1, 2013 to Promissory Note dated January 17, 2013 between Inception Resources, LLC and U.P and Burlington Development, LLC (8)
     
4.3   Note Purchase Agreement by and among the Company and the Iconic Holdings, LLC, dated February 18, 2014 (9)
     
4.4   Convertible Promissory Note issued to Iconic Holdings, LLC (9)
     
4.5   Securities Purchase Agreement by and among the Company and Typenex Co-Investment, LLC, dated September 24, 2014 (10)
     
4.6   Convertible Promissory Note issued to Typenex Co-Investment, LLC (10)
     
4.7   Warrant to Purchase Shares of Common Stock issued to Typenex Co-Investment, LLC (10)
     
10.1   Asset Purchase Agreement dated February 25, 2013, by and between Gold American, its majority shareholder Brett Bertolami, and its wholly-owned subsidiary, Inception Development Inc. on one hand, and Inception Resources, LLC on the other hand (6)
     
10.2   Employment Agreement by and between the Company and Michael Ahlin dated February 25, 2013 (6)
     
10.3   Employment Agreement by and between the Company and Whit Cluff dated February 25, 2013 (6)
     
10.4   Employment Agreement by and between the Company and Brian Brewer dated February 25, 2013 (6)
     
10.5   Consulting Agreement by and between the Company and Jeff Pike dated February 25, 2013 (6)
     
10.6   Consulting Agreement by and between the Company and First Trust Management Inc. dated February 25, 2013 (6)
     
10.7   Consulting Agreement by and between the Company and Danzig Ltd. dated February 25, 2013 (6)
     
10.8   Consulting Agreement by and between the Company and BKBK Holding LLC dated February 25, 2013 (6)
     
10.9   Consulting Agreement by and between the Company and Highland Ventures LLC dated February 25, 2013 (6)
     
10.10   Consulting Agreement by and between the Company and Monte Carlo LLC dated February 25, 2013 (6)
     
10.11   Consulting Agreement by and between the Company and Powder Moon Corporation dated February 25, 2013 (6)
     
10.12   Consulting Agreement by and between the Company and Lee Kimball dated February 25, 2013 (6)
     
10.13   Consulting Agreement by and between the Company and Mitch Cohen dated February 25, 2013 (6)
     
10.14   Debt Exchange Agreement by and between Gold American Mining Corp. and Brett Bertolami dated February 25, 2013 (6)
     
10.15   Agreement by and between Crawford Cattle Company LLC, as seller, and, Inception Mining Inc., as Buyer dated as of August 30, 2013 (7)
     
21.1   List of Subsidiaries (11)
     
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
     
32.1*   Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32 .2*   Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

* Filed herewith.
(1) Incorporated by reference from Form SB-2 filed with the SEC on October 31, 2007.
(2) Incorporated by reference from Form 8-K filed with the SEC on March 10, 2010.
(3) Incorporated by reference from Form 8-K filed with the SEC on June 28, 2010.
(4) Incorporated by reference from Form 10-Q filed with the SEC on May 20, 2013.
(5) Incorporated by reference from Form 8-K filed with the SEC on August 5, 2013.
(6) Incorporated by reference from Form 8-K filed with the SEC on March 1, 2013.
(7) Incorporated by reference from Form 8-K filed with the SEC on September 6, 2013.
(8) Incorporated by reference from Form 10-Q filed with the SEC on March 17, 2014.
(9) Incorporated by reference from Form 8-K filed with the SEC on March 12, 2014.

(10)

(11)

Incorporated by reference from Form 8-K filed with the SEC on October 7, 2014.

Incorporated by reference from Form 8-K filed with the SEC on March 1, 2013.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  INCEPTION MINING, INC.
     
Date: June 22, 2015 By: /s/ Michael Ahlin
  Name: Michael Ahlin
  Title: Chief Executive Officer (Principal Executive Officer)
     
  By: /s/ Whit Cluff
  Name: Whit Cluff
  Title: Chief Financial Officer (Principal Financial and Accounting Officer)

 

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