Attached files
| file | filename |
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| EX-32 - CERTIFICATION - MAGELLAN GOLD Corp | magellan_ex32.htm |
| EX-31 - CERTIFICATION - MAGELLAN GOLD Corp | magellan_ex31.htm |
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 March 31, 2021
☐ 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) |
|
602 Cedar Street, Suite 205 Wallace, Idaho (Address of principal executive offices) |
83873 (Zip Code) |
Registrant's telephone number, including area code: (707) 291-6198
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
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 every Interactive Data File required to be submitted 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 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 ☒ | 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 May 6, 2021, there were 7,676,599 shares of the registrant’s common stock, $.001 par value, issued and outstanding.
MAGELLAN GOLD CORPORATION
Form 10-Q March 31, 2021
| 2 |
MAGELLAN GOLD CORPORATION
(Unaudited)
| March 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 85,088 | $ | – | ||||
| Prepaid expenses and other current assets | 6,251 | 2,168 | ||||||
| Total current assets | 91,339 | 2,168 | ||||||
| Mineral rights and properties | 1,000,000 | 1,000,000 | ||||||
| Development costs | 112,968 | 112,968 | ||||||
| Total assets | $ | 1,204,307 | $ | 1,115,136 | ||||
| LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 151,858 | $ | 195,951 | ||||
| Accounts payable - related party | 12,500 | 25,139 | ||||||
| Accrued liabilities | 530,547 | 618,480 | ||||||
| Convertible note payable, net - related party | 130,223 | 119,435 | ||||||
| Convertible note payable, net - third party | 539,160 | 420,978 | ||||||
| Accrued interest - related parties | 6,826 | 5,470 | ||||||
| Accrued interest | 45,852 | 35,015 | ||||||
| Advances payable - related party | 40,252 | 47,762 | ||||||
| Advances payable - third party | 48,223 | 10,000 | ||||||
| Derivative liability | 86,616 | – | ||||||
| Total current liabilities | 1,592,057 | 1,478,230 | ||||||
| Total liabilities | 1,592,057 | 1,478,230 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' deficit: | ||||||||
| Preferred shares, 25,000,000 shares Series A preferred stock - $10.00 stated value; 2,500,000 authorized; 192,269 shares issued and outstanding | 1,922,690 | 1,922,690 | ||||||
| Series B preferred stock - $1,250.00 stated value; 5,000 authorized; none shares issued and outstanding | – | – | ||||||
| Common shares, $0.001 par value; 1,000,000,000 shares authorized; 7,676,599 and 7,098,394 shares issued and outstanding, respectively | 7,678 | 7,099 | ||||||
| Additional paid-in capital | 14,336,857 | 13,540,086 | ||||||
| Accumulated deficit | (16,654,975 | ) | (15,832,969 | ) | ||||
| Shareholders' deficit: | (387,750 | ) | (363,094 | ) | ||||
| Total liabilities and shareholders' deficit | $ | 1,204,307 | $ | 1,115,136 | ||||
See accompanying notes to the unaudited consolidated financial statements
| 3 |
MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating expenses: | ||||||||
| General and administrative expenses | $ | 719,437 | $ | 169,985 | ||||
| Total operating expenses | 719,437 | 169,985 | ||||||
| Loss from continuing operations | 719,437 | 169,985 | ||||||
| Other income (expense): | ||||||||
| Interest expense | (63,601 | ) | (74,732 | ) | ||||
| Gain on change in derivative liability | 9,099 | – | ||||||
| Total other income (expense) | (54,502 | ) | (74,732 | ) | ||||
| Net loss from continuing operations | (773,939 | ) | (244,717 | ) | ||||
| Net loss from discontinued operations, net of tax | – | (29,693 | ) | |||||
| Net loss | (773,939 | ) | (274,410 | ) | ||||
| Series A preferred stock dividend | (48,067 | ) | (59,738 | ) | ||||
| Net loss attributable to common shareholders | (822,006 | ) | (334,148 | ) | ||||
| Other comprehensive income: | ||||||||
| Foreign currency translation | – | 68,636 | ||||||
| Total other comprehensive income | – | 68,636 | ||||||
| Net comprehensive loss | $ | (822,006 | ) | $ | (265,512 | ) | ||
| Basic and diluted net loss per common share: | ||||||||
| Continuing operations | $ | (0.11 | ) | $ | (0.07 | ) | ||
| Discontinued operations | $ | – | $ | (0.01 | ) | |||
| Net loss attributable to common shareholders | $ | (0.11 | ) | $ | (0.08 | ) | ||
| Basic and diluted weighted-average: | ||||||||
| Common shares outstanding | 7,402,083 | 3,651,042 | ||||||
See accompanying notes to the unaudited consolidated financial statements
| 4 |
MAGELLAN GOLD CORPORATION
Consolidated Statements of Shareholders' Deficit
For the three months ended March 31, 2021 and 2020
(Unaudited)
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated Other Comprehensive Income | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Par Value | Capital | (Loss) | Deficit | Total | |||||||||||||||||||||||||
| Balance, December 31, 2019 | 242,269 | $ | 2,422,690 | 3,651,042 | $ | 3,651 | $ | 8,383,929 | $ | (68,636 | ) | $ | (11,902,725 | ) | $ | (1,161,091 | ) | |||||||||||||||
| Common stock issued for services | – | – | – | – | 5,500 | – | – | 5,500 | ||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 76,650 | – | – | 76,650 | ||||||||||||||||||||||||
| Series A preferred stock dividend | – | – | – | – | – | – | (59,738 | ) | (59,738 | ) | ||||||||||||||||||||||
| Disposition of assets, related party | – | – | – | – | 206,860 | – | – | 206,860 | ||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | (274,410 | ) | (274,410 | ) | ||||||||||||||||||||||
| Other comprehensive loss | – | – | – | – | – | 68,636 | – | 68,636 | ||||||||||||||||||||||||
| Balance, March 31, 2020 | 242,269 | $ | 2,422,690 | 3,651,042 | $ | 3,651 | $ | 8,672,939 | $ | – | $ | (12,236,873 | ) | $ | (1,137,593 | ) | ||||||||||||||||
| Balance, December 31, 2020 | 192,269 | $ | 1,922,690 | 7,098,394 | $ | 7,099 | $ | 13,540,086 | $ | – | $ | (15,832,969 | ) | $ | (363,094 | ) | ||||||||||||||||
| Exercise of warrants | – | – | 50,000 | 50 | 9,950 | – | – | 10,000 | ||||||||||||||||||||||||
| Common stock issued for settlement liabilities | – | – | 261,538 | 262 | 135,738 | – | – | 136,000 | ||||||||||||||||||||||||
| Stock based compensation | – | – | 266,667 | 267 | 651,083 | – | – | 651,350 | ||||||||||||||||||||||||
| Series A preferred stock dividend | – | – | – | – | – | – | (48,067 | ) | (48,067 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | (773,939 | ) | (773,939 | ) | ||||||||||||||||||||||
| Balance, March 31, 2021 | 192,269 | $ | 1,922,690 | 7,676,599 | $ | 7,678 | $ | 14,336,857 | $ | – | $ | (16,654,975 | ) | $ | (387,750 | ) | ||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements
| 5 |
MAGELLAN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating activities: | ||||||||
| Net loss from continuing operations | $ | (773,939 | ) | $ | (244,717 | ) | ||
| Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: | ||||||||
| Accretion of discounts on notes payable | 49,685 | 34,371 | ||||||
| Stock based compensation | 651,350 | 82,150 | ||||||
| Gain on change in derivative liability | (9,099 | ) | – | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | (4,083 | ) | 13,250 | |||||
| Accounts payable and accrued liabilities | (26,204 | ) | 95,856 | |||||
| Accrued interest | 12,193 | 11,493 | ||||||
| Net cash used in operating activities from continuing operations | (100,097 | ) | (7,597 | ) | ||||
| Net cash used in operating activities from discontinued operations | – | (49,585 | ) | |||||
| Net cash used in operating activities | (100,097 | ) | (57,182 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from convertible debt from third parties | 175,000 | – | ||||||
| Proceeds from advances from related parties | – | 20,000 | ||||||
| Payments on advances from third parties | – | (41,084 | ) | |||||
| Payments on advances from related parties | (420 | ) | – | |||||
| Proceeds from advances from third parties | 605 | 10,000 | ||||||
| Proceeds from exercise of warrants | 10,000 | – | ||||||
| Net cash provided by (used in) financing activities from continuing operations | 185,185 | (11,084 | ) | |||||
| Net cash provided by financing activities from discontinued operations | – | – | ||||||
| Net cash provided by financing activities | 185,185 | (11,084 | ) | |||||
| Effect of foreign currency exchange | – | 68,636 | ||||||
| Net change in cash | 85,088 | 370 | ||||||
| Cash at beginning of period | – | 167 | ||||||
| Cash at end of period | $ | 85,088 | $ | 537 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 1,022 | $ | 3,250 | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
| Non-cash financing and investing activities: | ||||||||
| Series A preferred stock dividend | $ | 48,067 | $ | 59,738 | ||||
| Expenses paid on behalf of the Company | $ | 30,528 | $ | 38,928 | ||||
| Common stock issued for settlement liabilities | $ | 136,000 | $ | – | ||||
| Disposition of assets, related party | $ | – | $ | 206,860 | ||||
| Debt discount created by derivative liability | $ | 95,715 | $ | – | ||||
See accompanying notes to the unaudited consolidated financial statements
| 6 |
MAGELLAN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization, Basis of Presentation, and Nature of Operations
Organization 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.
Our primary focus is to explore and develop mineral properties in the United States. Effective March 31, 2020, we divested our subsidiary holding all of our international assets and plan to advance our recently acquired Idaho Gold 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.
Note 2 – Summary of Significant Accounting Policies
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 months ended March 31, 2021 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, 2020.
On July 1, 2020, the Company entered into a Stock Purchase Agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County, Idaho. The Company will be evaluating the historic mine data to assess the potential to develop a gold resource at Center Star. The project area is located 45 miles from Grangeville, Idaho and near the town of Elk City, Idaho.
On August 25, 2020, the Company, a new wholly owned subsidiary, M Gold Royalty (“M Gold”), to expand into the royalty business. M Gold Royalty will engage in organically generating royalties derived from a portfolio of mineral property interests in North America. Royalties from this portfolio will be complemented by royalties from selected acquisitions as well as income from other strategic investments.
Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Clearwater and M Gold. 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”).
| 7 |
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 months ended March 31, 2021, 72,000 of stock options, 1,808,635 of warrants, 192,269 shares issuable from Series A Preferred Stock and 1,236,527 shares issuable from convertible notes were considered for their dilutive effects. For the three months ended March 31, 2020, 72,000 of stock options, 335,000 of warrants, 242,269 shares issuable from Series A Preferred Stock and 430,978 shares issuable from convertible notes were considered for their dilutive effects.
Derivative Financial Instruments
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. The Company applies the guidance in ASC 815-40-35-12 to determine the order in which each convertible instrument would be evaluated for derivative classification. The Company’s sequencing policy is to evaluate for reclassification contracts with the earliest maturity date first.
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Recent Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Liquidity and Going Concern
Our 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 March 31, 2021 we had a working capital deficit of $1,500,718, we had not yet generated any significant revenues or achieved profitable operations and we have accumulated losses of $16,654,975. We expect to incur further losses in the development of our business, all of which raises substantial doubt as to 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 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.
| 8 |
Note 3 – Mineral Rights and Properties
Center Star Gold Mine
On July 1, 2020, the Company entered into a Stock Purchase Agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County, Idaho that include the historic Center Star Gold Mine (“Center Star”) near Elk City, Idaho. As a result of the Clearwater acquisition, Gregory Schifrin, the sole shareholder of Clearwater, was appointed to serve as a member of the Company’s Board on July 1, 2020. In consideration for 100% of the issued and outstanding shares of Clearwater, the Company has agreed to pay Clearwater’s sole shareholder 1,000,000 shares of Magellan common stock, $125,000 convertible note and $25,000 in cash. The 1,000,000 shares are to be issued to the shareholder on and under the terms as follows: 250,000 shares at the time of closing, 250,000 shares at the time the Center Mine receives its permit to reopen the main portal of the mine, 250,000 shares at the point the main portal has been reopened and 250,000 shares two-years from closing concurrent the pay-off of the $125,000 convertible note. As of March 31, 2021, the total purchase price for the Clearwater was determined to be $1,000,000 which consisted of $12,500 cash paid, $12,500 accrued in accounts payable – related party, a $125,000 convertible promissory note, and 1,000,000 shares of common stock with a fair value of $850,000. The Company concluded the transaction qualified as an asset acquisition and all such acquisition costs have been capitalized.
As of March 31, 2021 and December 31, 2020, the Company had $112,968 in capitalized development cost to develop gold resources at Center Star.
Note 4 – Disposition of Business
Mexico Operations
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 (“MV2”).
Effective March 31, 2020 the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with certain holders of Promissory Notes (the “Lenders”) due December 31, 2019 (the “Notes”) in the aggregate principal amount of $1.05 million. The Company is indebted under the Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of Magellan Acquisition Corporation and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. Magellan Acquisition Corp. and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Notes matured on December 31, 2019 and remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.
Silver District
On July 21, 2020, the Company entered into a Stock Purchase agreement with Tri Power Resources, LLC to sell 1,000 shares representing 100% ownership of Gulf+Western Industries, Inc (“Gulf+Western”) to Tri Power in consideration for the return and cancellation of 50,000 shares of the Company’s Series A Preferred Stock with a stated value of $10 per share. John Gibbs, a majority shareholder in the Company, is the Managing Member and Chief Executive Officer of Tri Power Resources, LLC.
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Due to the related party nature of the above transactions, the gain of $206,860 associated with the disposals were recorded to additional paid in capital.
Summary
The agreements qualify as a discontinued operation in accordance with U.S. GAAP. As a result, operating results and cash flows related to the Gulf+Western, MAC and MV2 operations have been reflected as discontinued operations in the Company’s consolidated statements of operations and comprehensive loss and consolidated statements of cash flows.
| March 31, 2021 | March 31, 2020 | |||||||
| Revenue | $ | – | $ | – | ||||
| Cost of sales | – | – | ||||||
| Exploration costs | – | – | ||||||
| General and administrative expenses | – | (29,693 | ) | |||||
| Operating loss | – | (29,963 | ) | |||||
| Other expense | – | – | ||||||
| Net loss from discontinued operations | $ | – | $ | (29,963 | ) | |||
Note 5 – 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.
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.
Fair Value Measurements
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy.
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The following table presents information about the Company’s liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of March 31, 2021 and December 31, 2020:
| Level 1 | Level 2 | Level 3 | Fair value at March 31, 2021 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability | $ | – | $ | – | $ | 86,616 | $ | 86,616 | ||||||||
| Level 1 | Level 2 | Level 3 | Fair value at December 31, 2020 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability | $ | – | $ | – | $ | – | $ | – |
There were no transfers between Level 1, 2 or 3 during the period.
The table below presents the change in the fair value of the derivative liability during the three months ended March 31, 2021:
| Fair value as of December 31, 2020 | $ | – | ||
| Fair value on the date of issuance recorded as a debt discount | 95,715 | |||
| Gain on change in fair value of derivatives | (9,099 | ) | ||
| Fair value as of March 31, 2021 | $ | 86,616 |
Note 6 – Advances
Unsecured advances – related party
During the three months ended March 31, 2021, a Director paid of expenses on behalf the Company of $30,252. As of March 31, 2021, the advances from related party balance were $40,252.
Unsecured advances –third party
During the three months ended March 31, 2021, the Company received $605 in cash advances, had expenses paid on behalf of $276 and made repayments on advances of $420. As of March 31, 2021, the advances from third party balance were $48,223.
Note 7 – Convertible Note Payable and Derivative Liability
Series 2019A 10% Unsecured Convertible Notes
In 2019, the Company sold $135,000 of Series 2019A 10% Unsecured Convertible Notes. The purchase price of the Note is equal to the principal amount of the Note. The Series 2019A Notes are convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. The lenders were issued 100,000 common stock warrants with an exercise price of $2.00 per share. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in August and December 2019. The $135,000 debt discount is amortized over the term of the loan. The Notes will accrue interest at the rate of 10% per annum, payable quarterly in arrears. The Notes mature twelve (12) months from the date of issue. The maturity date can be extended at the option of the Company for an additional one (1) year. There are two Series 2019A 10% Unsecured Convertible Notes that were due and payable in August 2020 and are currently past due and in default. The default interest rate on the notes is 12%. As of March 31, 2021, the balance due under these notes net of unamortized discount of $0, is $75,000, with accrued interest of $10,700.
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On October 1, 2019, the Company sold a 10% Unsecured Convertible Note for $145,978 due on demand to settle accounts payable. The purchase price of the 10% Unsecured Convertible Note is equal to the principal amount of the Note. The 10% Unsecured Convertible Note is convertible into shares of Common Stock at a conversion price of $1.00 during the life of the Note. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature as a debt discount and additional paid in capital in October 2019. The debt discount will be amortized over the term of the loan. The 10% Unsecured Convertible Note will accrue interest at the rate of 10% per annum payable quarterly, accruing from the date of issuance. As of March 31, 2021, the balance due under these notes net of unamortized discount of $0, is $145,978, with accrued interest of $21,837.
Series 2020A 8% Unsecured Convertible Notes
In 2020, the Company sold $285,000 of Series 2020A 8% Unsecured Convertible Notes with a maturity date of November 30, 2020. The purchase price of the Note is equal to the principal amount of the Note. The Series 2020A Notes are convertible into shares of Common Stock at a conversion price of $0.50 during the life of the Note. The lenders were issued 142,500 common stock warrants with an exercise price of $0.50 per share for a term of 5 years. Two related parties purchased $60,000 of the 2020A notes. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature as a debt discount and additional paid in capital as of December 31, 2020. The $237,263 debt discount will be amortized over the term of the loan. The Notes will accrue interest at the rate of 8% per annum, payable quarterly in arrears. In July 2020, $25,000 of Series 2020A 8% Unsecured Convertible Notes were converted into 50,000 shares of common stock at a conversion price of $0.50 per share. As of March 31, 2021, the balance due to a related party under these notes net of unamortized discount of $0, is $60,000, with accrued interest of $4,021. As of March 31, 2021, the balance due to a third party under these notes net of unamortized discount of $0, is $200,000, with accrued interest of $12,242.
3% Secured Convertible Note
On July 1, 2020, the Company issued a $125,000 Secured Convertible Note to a related party for the as part of the purchase of Clearwater Mining Corporation. The secured convertible note matures on July 1, 2022 and will accrue interest at the rate of 3% per annum, payable yearly in arrears beginning July 1, 2021. The Note is convertible into shares of Common Stock at a conversion price of $0.50 during the life of the Note. The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital in July 2019. The $87,500 debt discount will be amortized over the term of the loan. Amortization expense of $10,788 was recognized during the three months ended March 31, 2020. As of March 31, 2021, the balance due to a related party under this note net of unamortized discount of $54,777, is $70,223, with accrued interest of $2,805.
AJB Convertible Note
On February 10, 2021, the Company entered into a debt agreement to borrow $200,000. The secured note has an original issuance discount of $16,000 along with $9,000 in legal and finder fees recorded as a discount, which will be amortized over the life of the note. The loan bears interest at a rate of 10% and has a six-month maturity. The unpaid principal is convertible into shares of the Company’s common stock at the conversion price. The conversion price shall be the less of 90% of the lowest trading price during the previous twenty (20) trading day period ending on the issuance date, or during the previous twenty (20) trading day period ending on date of conversion of this note. The Company issued the debtholder 266,667 common shares as a commitment fee. Due to the variable conversion feature the note conversion feature was bifurcated from the note and recorded as a derivative liability. The day one derivative liability was $95,715 was recorded as a discount on the convertible notes payable. As of March 31, 2021, the balance on the loan, net of unamortized discount of $81,818, is $118,182, with accrued interest of $321.
As of March 31, 2021, the total derivative liability on the above note was adjusted to a fair value of $86,616. During the three months ended March 31, 2021, $38,897 of the discount was amortized leaving an unamortized balance of $81,818. The fair value of the conversion option was estimated using the Black-Scholes option pricing model and the following assumptions during the period: fair value of stock $0.92 1.03, volatility of 91.27% - 103.48% based on a comparable company peer group, expected term of 0.50 years, risk-free rate of 0.05% - 0.06% and a dividend yield of 0%.
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Note 8 – Stockholders’ Deficit
Common Stock
On February 10, 2021, the Company issued the 266,667 common shares as a commitment fee. The shares were valued at $0.92, the closing price of the Company’s stock on February 10, 2021. During the three months ended March 31, 2021, the Company recognized $245,334 of stock based compensation related to this issuance.
On August 6, 2020, the Company entered into a one-year investor relations consulting agreement. As consideration for its services under the Agreement, the Company agreed to pay to the consultant 261,538 restricted shares of the Company’s common stock. The shares were valued at $1.56, the closing price of the Company’s stock on August 6, 2020. As of December 31, 2020, the Company had not issued the shares and accrued $136,000 related to this agreement.
During the three months ended March 31, 2021, the Company issued the 261,538 shares related to this agreement, settled the prior year accrual of $136,000 for 2020 services and recognized $102,000 of stock based compensation for services provided in the first quarter of 2021.
During the three months ended March 31, 2021, the Company received net proceeds of $10,000 from the exercise of 50,000 warrants. On July 15, 2020, the Company issued 500,000 shares for services rendered pursuant to two investor relations agreements: 200,000 shares under a Services Agreement and 300,000 shares under a Consulting Agreement. The shares were valued at $1.29, the closing price of the Company’s stock on July 15, 2020. The Services Agreement is $7,500 per month and has a term of twelve months The Consulting Agreement is $7,500 per month and has an initial term of six months. If the Consulting Agreement is not terminated at least thirty days prior to the end of the initial term, the term will continue for an additional six months. During the three months ended March 31, 2020 the Company recognized $161,125 of expense related to these shares.
Preferred Stock
In September 2020, the Company established a Series B Convertible Preferred Stock (“Series B Preferred”) and authorized an aggregate of 5,000 shares with a par value of $0.001 per share and a stated value of $1,250.00 per share. The holders of outstanding Series B Preferred shall be entitled to receive dividends at the annual rate of 10% based on the stated value per share. Dividends on the share of Series B Preferred shall be cumulative.
During the three months ended March 31, 2021, the Company accrued $48,067 for the Series A preferred stock dividend.
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 200,000 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. As of March 31, 2021, the Company had 128,000 shares available for future grant.
On September 15, 2020, John Gibbs, a related party, transferred 330,000 warrants to purchase common stock back to the Company. Deepak Malhotra, a member of the board, received 300,000 of the transferred warrants as compensation for services to be performed over a one year term. The warrants were valued $386,764 and will recognized over the one year service period. During the three months ended March 31, 2021, the Company recognized $96,691 of expense related to the issuance of these warrants. The remaining 30,000 warrants were transferred to three 2018A 10% Unsecured Convertible noteholder as inducements to convert their notes. See Note 7 – Convertible Note Payable.
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Stock option activity within the 2017 Equity Incentive Plan and warrant activity outside the plan, for the nine months ended March 31, 2021 is as follows:
| Stock Options | Stock Warrants | |||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
| Outstanding at December 31, 2020 | 72,000 | $ | 2.00 | 1,858,635 | $ | 0.67 | ||||||||||
| Granted | – | – | – | – | ||||||||||||
| Cancelled | – | – | – | – | ||||||||||||
| Expired | – | – | – | – | ||||||||||||
| Exercised | – | – | (50,000 | ) | 0.20 | |||||||||||
| Outstanding at March 31, 2021 | 72,000 | $ | 2.00 | 1,808,635 | $ | 0.43 | ||||||||||
| Exercisable at March 31, 2021 | 72,000 | $ | 2.00 | 1,808,635 | $ | 0.43 | ||||||||||
As of March 31, 2021, the outstanding stock options have a weighted average remaining term of 6.58 years and has no intrinsic value, and the outstanding stock warrants have a weighted average remaining term of 0.43 years and an intrinsic value of $1,465,917.
Note 9 – Commitments and Contingencies
Mining Claims
As part of our acquisition of the Center Star gold mine project, we acquire 15 Bureau of Land Management (“BLM”) unpatented mining claims and subsequently staked another 16 unpatented mining claims. In order to maintain the BLM lode \ claims, annual payments are required before the end of August of each year. As of March 31, 2021, all of these claims are in good standing.
Note 10 – Executive Employment Agreement
Effective August 1, 2020, the Company and Michael Lavigne, executed a Restricted Stock Unit Agreement pursuant to which the Company agreed to grant to Mr. Lavigne, in consideration of services to be rendered as President, CEO and Director, restricted stock units consisting of 15,000 units for each month of service. The vested stock units will be settled in shares of common stock upon or as soon as practicable (a) upon written request any time after December 31, 2020 or (b) following the termination date, whichever occurs first. As of March 31, 2021, 120,000 restricted stock units may be settled in shares of common stock. During the three months ended March 31, 2021, the Company recognized $46,200 of stock based compensation related to the agreement.
Note 11 – Related Party Transactions
Conflicts of Interests
Athena Silver Corporation (“Athena”) is a company under common control. 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.
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Silver Saddle Resources, LLC is also a company under common control. 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.
As of March 31, 2021, Mr. Power and Dr. Carson are no longer considered related parties, and therefore all amounts due to them have been reclassified out of related party accounts.
Accrued Interest - Related Parties
Accrued interest due to related parties is included in our consolidated balance sheets as follows:
| March 31, 2021 | December 31, 2020 | |||||||
| Accrued interest payable – Mr. Gibbs | $ | 3,583 | $ | 2,597 | ||||
| Accrued interest payable – Dr. Carson | – | 752 | ||||||
| Accrued interest payable – Mr. Schifrin | 2,805 | 1,880 | ||||||
| Accrued interest payable – Mr. Malhotra | 438 | 241 | ||||||
| $ | 6,826 | $ | 5,470 | |||||
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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, 2020 , and our interim unaudited financial statements and notes thereto included with this report in Part I, Item 1.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in China. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak has now spread to the United States and infections have been reported globally.
The COVID-19 pandemic is rapidly evolving. The information in this Annual Report is based on data currently available to us and will likely change as the pandemic progresses. As COVID-19 continues to spread throughout areas in which we operate, we believe the outbreak has the potential to have a material negative impact on our operating results and financial condition. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our operators, employees and vendors, and the impact on the Company’s ability to obtain debt and equity financing to fund ongoing exploration activities, all of which are uncertain and cannot be predicted. Given these uncertainties, we cannot reasonably estimate the related impact to our business, operating results and financial condition.
We expect the trends highlighted above with respect to the impact of the COVID-19 pandemic to continue and, in some cases, accelerate. The extent of the COVID-19 pandemic’s continued effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift, the availability of government financial support to our business, tenants and operators and whether a resurgence of the outbreak occurs. Due to these uncertainties, we are not able at this time to estimate the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows but it could be material.
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 properties in the United States. We have not presently determined whether the properties to which we have mineral rights contain mineral reserves that are economically recoverable.
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We have only had exploration and project development 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.
Magellan entered into a stock purchase agreement to acquire Clearwater Gold Mining Corporation (“Clearwater”) which owns certain unpatented mining claims in Idaho County. Idaho that includes the historic Center Star Gold Mine near Elk City, Idaho. The Center Star Mine hosts high grade gold mineralization that was discovered in the early 1900’s. There was periodic historic production and development work done under different ownership through the 1980s. With the high-grade gold mineralization present, Magellan will be evaluating the historic mine data to assess the potential to develop a gold resource at Center Star. The project area is located 45 miles from Grangeville, Idaho and near the town of Elk City, Idaho.
In consideration for 100% of the issued and outstanding shares of Clearwater, Magellan has agreed to pay its sole shareholder 1,000,000 shares of Magellan common stock and $150,000. The 1,000,000 shares will be issued (i) 250,000 shares at closing (ii) 250,000 shares at the time the Center Mine receives its permit to reopen the main portal of the mine, (iv) 250,000 shares at the point the main portal has been reopened and (iv) 250,000 shares two years from the closing concurrent with the pay-off of the secured promissory note. The cash consideration of $25,000 will be paid within 30 days of closing and the balance of $125,000 to be evidenced by a secured promissory note due in two years. The Note will be secured by the Clearwater shares and assets. Magellan has issued 750,000 of the 1,000,000 shares and has paid $12,500 of the required $25,000 payment.
Effective March 31, 2020, we divested our subsidiary holding all of our international assets and plan to advance our Idaho gold 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.
Effective March 31, 2020 the Company entered into an Agreement to Accept Collateral in Full Satisfaction of Obligations (the “Agreement”) with certain holders of Promissory Notes (the “Lenders”) due December 31, 2019 (the “Notes”) in the aggregate principal amount of $1.05 million. The Company is indebted under the Notes to the Lenders and the Company’s obligations to the Lenders are secured by a Stock Pledge and Security Agreement covering 100 shares of common stock of Magellan Acquisition Corporation and one (1) share of MV2 (the “Collateral”) held under a Collateral Agent Agreement. Magellan Acquisition Corp. and MV2 own the SDA Mill and El Dorado prospect in Nayarit, Mexico. The Notes matured on December 31, 2019 and remain unpaid and in default. The Lenders have accelerated the Company’s indebtedness. Pursuant to terms set forth in the Agreement, the Lenders have agreed to accept the Collateral in full satisfaction of the Notes and unconditionally and irrevocably waive any entitlement or right to receive payment of (i) the initial 10% Financing Fee included in the principal amount of the Notes, (ii) the 5% Rollover Fee agreed to in an Allonge and Modification Agreement. The effective date of the Agreement was March 31, 2020.
On July 21, 2020, the Company entered into a Stock Purchase agreement with Tri Power Resources, LLC to sell 1,000 shares representing 100% ownership of Gulf+Western Industries, Inc (“Gulf+Western”) to Tri Power in consideration for the return and cancellation of 50,000 shares of the Company’s Series A Preferred Stock with a stated value of $10 per share. John Gibbs, a majority shareholder in the Company, is the Managing Member and Chief Executive Officer of Tri Power Resources, LLC.
As a result of these agreements, the assets, liabilities and operations of the Gulf+Western, MAC and MV2 have been reflected as discontinued operations in the Company’s consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flows and consolidated statements of other comprehensive income (loss) for the periods presented.
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Certain prior period amounts have been reclassified to conform to the current period financial statement presentation, including the discontinued operations presentation resulting from the disposition of the Company’s Gulf+Western, MAC and MV2 operations in 2020.
Results of Operations for the three months ended March 31, 2021 and 2020
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating expenses: | ||||||||
| General and administrative expenses | $ | 719,437 | $ | 169,985 | ||||
| Total operating expenses | 719,437 | 169,985 | ||||||
| Operating loss | (719,437 | ) | (169,985 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (63,601 | ) | (74,732 | ) | ||||
| Gain on change in derivative liability | 9,099 | – | ||||||
| Total other income (expense) | (54,502 | ) | (74,732 | ) | ||||
| Net loss from continuing operations | (773,939 | ) | (244,717 | ) | ||||
| Net loss from discontinued operation | – | (29,693 | ) | |||||
| Net loss | $ | (773,939 | ) | $ | (274,410 | ) | ||
Operating expenses
During the three months ended March 31, 2021, our total operating expenses included general and administrative expenses of $719,437 as compared to $169,985 during the three months ended March 31, 2020. The $549,452 increase is primarily associated with increases in investor relations, officer compensation, stock based compensation and offset with decreases in consulting expenses.
Other income (expense)
During the three months ended March 31, 2021, total other expense was $54,502 as compared to $74,732 during the three months ended March 31, 2020. The $20,230 change is related to the decrease in interest which was offset with gain on change in derivative liability.
Discontinued operations
The net loss from discontinued operations during the three months ended March 31, 2020 totaled $29,693. Net loss from discontinued operations represents the Mexico operations that were disposed of in March 2020.
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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 March 31, 2020, we had not yet generated sufficient revenues or achieved profitable operations and we have accumulated losses of $16,654,975. 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.
During the three months ended March 31, 2021, the Company entered into a debt agreement to borrow $200,000 and received $175,000 in cash proceeds.
Additionally, the Company received $10,000 of proceeds from the exercise of warrants.
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 that 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:
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities from continuing operations | $ | (100,097 | ) | $ | (7,597 | ) | ||
| Net cash used in operating activities from discontinued operations | – | (49,585 | ) | |||||
| Net cash used in operating activities | (100,097 | ) | (57,182 | ) | ||||
| Net cash provided by financing activities from continuing operations | 185,185 | (11,084 | ) | |||||
| Net cash provided by financing activities from discontinued operations | – | – | ||||||
| Net cash provided by (used in) financing activities | 185,185 | (11,084 | ) | |||||
| Effect of foreign currency exchange | – | 68,636 | ||||||
| Net change in cash and cash equivalents | 85,088 | 370 | ||||||
| Cash beginning of period | – | 167 | ||||||
| Cash end of period | $ | 85,088 | $ | 537 | ||||
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At March 31, 2021, we had $85,088 in cash and a $1,500,718 working capital deficit. This compares to cash of $0 and a working capital deficit of $1,476,062 at December 31, 2020.
Net cash used in operating activities from continuing operations during the three months ended March 31, 2021 was $100,097 and was mainly comprised of our $773,939 net loss during the period, adjusted by a non-cash charges of $651,350 of stock compensation, gain on change in derivative liability of $9,099 and accretion of discounts on notes payable of $49,685. In addition, it reflects changes in operating assets and liabilities of $18,094 .
During the three months ended March 31, 2021, net cash provided by financing activities from continuing operations was $185,185 comprised of $175,000 proceeds from convertible debt from third parties, $10,000 proceeds from exercise of warrants, $605 proceeds on advances from third parties, offset by $420 payments on advances from third parties.
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 subsidiary, Clearwater Gold Mining Corporation and M Gold Royalty. 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.
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.
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Concentrations of Credit Risk
Our financial instruments which potentially subject us to credit risk are our cash. We maintain our cash 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.
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.
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 months ended March 31, 2021 and 2020, 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 measures the cost of employee services received in exchange for an award of equity instruments (share-based payments, or SBP) based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the SBP award—the requisite service period (vesting period). For SBP awards subject to conditions, compensation is not recognized until the performance condition is probable of occurrence. The grant-date fair value of share options is estimated using the Black-Scholes-Merton option-pricing model. The Company adopted ASU 2018-07 which aligns the accounting for share-based payment awards issued to employees and nonemployees.
Recently Adopted Accounting Standards
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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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 Michael Lavigne, 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 and CFO, 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 and CFO 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, 2020.
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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None.
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, 2020.
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.
None.
|
Exhibit Number |
Exhibit Description | |
| 31 | * | Certification of the Chief Executive Officer and 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.
** To be filed by amendment
| 23 |
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.
Dated: May 17, 2021
|
MAGELLAN GOLD CORPORATION
By: /s/ Michael Lavigne Michael Lavigne Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer) |
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