INCEPTION MINING, INC. 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
On
We are a mining company engaged in the production, acquisition, exploration, and development of mineral properties, primarily for gold, from owned mining properties. Inception Resources has acquired two projects, as described below. Our target properties are those that have been the subject of historical exploration.
UPand Burlington Gold Mine
On
On
Clavo Rico Mine
On
The Company's primary mine is located on the 200-hectare Clavo Rico Concession,
located in southern
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Mining operations begin by crushing extracted material to approximately 3/8-inch
size pebbles, which is then mixed with additional material and loaded on the
recovery pad for processing. The pebble material is sprinkled with a solution
that leaches the gold from the rock, and the solution is collected and processed
on-site at Clavo Rico's own ADR plant. The doré bars that result from this
process are shipped to the
Prior to the expansion, the mine had only been processing approximately less
than 500 tons of extracted material per day. The current recovery operational
increase has been sized to handle from 500 to 750 tons of extracted material per
day on a recovery bed that has the capacity to receive up to 750,000 tons of
material. The Company commenced full operations on
The Company has engaged in preliminary drilling of this area and the resulting assays of samples indicate that the material should have grades in the range of 0-5 grams of gold per ton.
Results of Operations
Year ended
We had a net loss of
Year Ended December 31, Increase/
2021 2020 (Decrease)
Revenues $ 4,725,778 $ 4,143,908 $ 581,870
Cost of Sales 3,286,010 2,826,448 459,562
Gross Profit 1,439,768 1,317,460 122,308
General and Administrative 1,167,986 1,272,523 (104,537 )
Depreciation and Amortization
Expenses 8,248 8,036 212
Total Operating Expenses 1,176,234 1,280,559 (104,325 )
Income from Operations 263,534 36,901 (226,633 )
Other Income (expense) (1,213,817 ) 21,113 1,234,930
Gain on Sale of Mine Property - 471,083 471,083
Gain on Forgiveness of PPP loan 31,667 - (31,667 )
Change in Derivative Liabilities 3,515,657 6,657,628 3,141,971
Change in Marketable Securities 328,970 479,051 150,081
Loss on Extinguishment of Debt (1,783,593 ) (531,194 ) 1,252,399
Interest Expense (3,453,994 ) (4,793,005 ) (1,339,011 )
Income (Loss) from Operations Before
Taxes (2,311,576 ) 2,341,577 4,653,153
Provision for Income Taxes (529,638 ) - 529,638
Net Income (Loss) $ (2,841,214 ) $ 2,341,577 $ 5,182,791
Revenues
We had
Cost of Sales
We had
Operating Expenses
Operating expenses for the years ended
Other Income (Expenses)
Other income (expenses) for the years ended
Net Loss
Net loss for the year ended
Liquidity and Capital Resources
Our balance sheet as of
Working Capital
December 31, 2021 December 31, 2020
Current assets $ 543,008 $ 923,424
Current liabilities 30,658,748 28,897,520
Working capital deficit $ (30,115,740 ) $ (28,064,096 ) We anticipate generating losses and, therefore, may be unable to continue operations in the future. If we require additional capital, we would have to issue debt or equity or enter into a strategic arrangement with a third party.
24 Going Concern Consideration
As reflected in the accompanying financial statements, the Company has an
accumulated deficit of
Cash Flows
Year Ended December 31,
2021 2020
(276,205 ) (814,401 )
Effects of Exchange Rate Changes on Cash (261 ) 424
Net Increase (Decrease) in Cash $ 20,915 $ (13,638 )
Operating Activities
Net cash flow used in operating activities during the year ended
Investing Activities
Cash provided by investing activities during the year ended
Financing Activities
Financing activities during the year ended
Critical Accounting Policies
Going Concern - The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As shown
in the accompanying consolidated financial statements during year ended
The Company's existence is dependent upon management's ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company's financing efforts will result in profitable operations or the resolution of the Company's liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
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Management is currently working to make changes that will result in profitable operations and to obtain additional funding sources to meet the Company's need for cash during the next twelve months and beyond.
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of
Basis of Presentation - The Company prepares its consolidated financial
statements in accordance with accounting principles generally accepted in
Fair Value Measurements - The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the party's own credit risk.
Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The carrying value of the Company's cash, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.
Long-Lived Assets - We review the carrying amount of our long-lived assets for impairment whenever there are negative indicators of impairment. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flows.
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Properties, Plant and Equipment - We record properties, plant and equipment at historical cost. We provide depreciation and amortization in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives or productive value. We capitalize expenditures for improvements that significantly extend the useful life of an asset. We charge expenditures for maintenance and repairs to operations when incurred. Depreciation is computed using the straight-line method over estimated useful lives as follows:
Building 7 to 15 years Vehicles and equipment 3 to 7 years Processing and laboratory 5 to 15 years Furniture and fixtures 2 to 3 years
Reclamation Liabilities and Asset Retirement Obligations - Minimum standards for site reclamation and closure have been established for us by various government agencies. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site.
Revenue Recognition - Effective
The Company generates revenue by selling gold and silver produced from its mining operations. The majority of the Company's sales come from the sale of refined gold; however, the end product at the Company's gold operations is generally doré bars. Doré is an alloy consisting primarily of gold but also containing silver and other metals. Doré is sent to refiners to produce bullion that meets the required market standard of 99.95% gold. Under the terms of the Company's refining agreements, the doré bars are refined for a fee, and the Company's share of the refined gold and silver is credited to its bullion account.
The Company recognizes revenue for gold and silver from doré production when it satisfies the performance obligation of transferring gold and silver inventory to the customer, which generally occurs upon transfer of gold and silver bullion credits as this is the point at which the customer obtains the ability to direct the use and obtain substantially all of the remaining benefits of ownership of the asset.
The Company generally recognizes the sale of gold bullion credits at the prevailing market price when gold bullion credits are delivered to the customer. The transaction price is determined based on the agreed upon market price and the number of ounces delivered. Payment is due upon delivery of gold bullion credits to the customer's account
All accounts receivable amounts are due from a single customer. Substantially all mining revenues recorded in the current period also related to the same customer. As gold can be sold through numerous gold market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product.
Derivative Liabilities - Derivatives liabilities are recorded at fair value when issued and the subsequent change in fair value each period is recorded in other income (expense) in the consolidated statements of operations. We do not hold or issue any derivative financial instruments for speculative trading purposes.
Income Taxes - The Company's income tax expense and deferred tax assets and liabilities reflect management's best assessment of estimated future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company's ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent with the plans and estimates that the Company is using to manage the underlying businesses. The Company provides a valuation allowance for deferred tax assets for which the Company does not consider realization of such deferred tax assets to be more likely than not.
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Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company's results of operations, cash flows or financial position.
Operating Lease - The Company leases its corporate headquarters and
administrative offices in
The Company incurred rent expense of
Non-Controlling Interest Policy - Non-controlling interest (NCI) is the portion of equity ownership in a subsidiary not attributable to the parent company, who has a controlling interest and consolidates the subsidiary's financial results with its own. The amount of equity relating to the non-controlling interest is separately identified in the equity section of the balance sheet and the amount of the net income (loss) relating to the non-controlling interest is separately identified on the statement of operations.
Recent Accounting Pronouncements
For recent accounting pronouncements, please refer to the notes to the financial statements section of this Annual Report.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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