Forward Looking Statements

The statements contained in the following MD&A and elsewhere throughout this Quarterly Report on Form 10-Q, including any documents incorporated by reference, that are not historical facts, including statements about our beliefs and expectations, are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include the words "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "estimate," "target," "project," "intend" and similar words or expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements, which reflect our management's beliefs, objectives, and expectations as of the date hereof, are based on the best judgement of our management. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following: economic, social and political conditions, global economic downturns resulting from extraordinary events such as the COVID-19 pandemic and other securities industry risks; interest rate risks; liquidity risks; credit risk with clients and counterparties; risk of liability for errors in clearing functions; systemic risk; systems failures, delays and capacity constraints; network security risks; competition; reliance on external service providers; new laws and regulations affecting our business; net capital requirements; extensive regulation, regulatory uncertainties and legal matters; failure to maintain relationships with employees, customers, business partners or governmental entities; the inability to achieve synergies or to implement integration plans and other consequences associated with risks and uncertainties detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Q.

We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws.

This discussion should be read in conjunction with our financial statements on our 2021 Form 10-K, and our financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.

Introduction to Interim Consolidated Financial Statements.

The interim consolidated financial statements included herein have been prepared by Inception Mining Inc. ("Inception Mining" or the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in this filing.

In the opinion of management, all adjustments have been made consisting of normal recurring adjustments and consolidating entries, necessary to present fairly the consolidated financial position of the Company and subsidiaries as of March 31, 2022, the results of its consolidated statements of operations and comprehensive loss for the three month periods ended March 31, 2022 and 2021, and its consolidated cash flows for the three-month periods ended March 31, 2022 and 2021. The results of consolidated operations for the interim periods are not necessarily indicative of the results for the full year.

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.





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Overview and Plan of Operation

We are a mining company that was formed in Nevada on July 2, 2007. As a mining company, we are engaged in the production of precious metals. Our activities are not limited to production and they also include production, acquisition, exploration, and development of mineral properties, primarily for gold, from owned mining properties.

Clavo Rico Mine

On October 2, 2015, the Company consummated a merger with Clavo Rico Ltd. ("Clavo Rico"). Clavo Rico is a privately held Turks and Caicos company with principal operations in Honduras, Central America. Clavo Rico operates the Clavo Rico mining concession through its subsidiaries Compañía Minera Cerros del Sur, S.A de C.V. and Compañía Minera Clavo Rico, S.A. de C.V. and holds other mining concessions. Its workings include several historical underground mining operations dating back to the early Mayan and Spanish occupation.

The Company's primary mine is located on the 200-hectare Clavo Rico Concession, located in southern Honduras. This mine was originally explored and exploited in the 16th century by the Spanish, and more recently has been operated by Compañía Minera Cerros del Sur, S. de R.L. as a small family business. In 2003, Clavo Rico's predecessor purchased a 20% interest and later increased its ownership to 99.9%. This company has since invested over five million dollars in the expansion and development of the mine and surrounding properties. Today, the Company operates this mine through exploration of surface-level material.

Mining operations begin by crushing extracted material to approximately 3/8-inch size pebbles, which is then mixed with additional material and loaded on the recovery pad for processing. The pebble material is sprinkled with a solution that leaches the gold from the rock, and the solution is collected and processed on-site at Clavo Rico's own ADR plant. The doré bars that result from this process are shipped to the USA for refining.

Prior to the expansion, the mine had only been processing approximately less than 500 tons of extracted material per day. The current recovery operational increase has been sized to handle from 500 to 750 tons of extracted material per day on a recovery bed that has the capacity to receive up to 750,000 tons of material. The Company commenced full operations on January 1, 2012 and believes that sufficiently high gold content ore bodies have been located and blocked out to load the leach pad to capacity by the end of December 31, 2022.

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

Three months ended March 31, 2022 compared to the three months ended March 31, 2021

We had net loss of $882,215 for the three-month period ended March 31, 2022, and a net loss of $5,406,135 for the three-month period ended March 31, 2021. This change in our results over the two periods is primarily the result of the change in derivative liabilities during the current period. The following table summarizes key items of comparison and their related increase (decrease) for the three-month periods ended March 31, 2022 and 2021:





                                                 Three Months Ended March 31,         Increase/
                                                    2022                2021         (Decrease)
Revenues                                       $      895,189       $  1,529,329     $  (634,140 )
Cost of Sales                                         728,899          1,241,648        (512,749 )
Gross Profit                                          166,290            287,681        (121,391 )
General and Administrative                            328,604            290,104          38,500
Depreciation and Amortization Expenses                  1,459              2,028            (569 )
Total Operating Expenses                              330,063            292,132          37,931
Income (Loss) from Operations                        (163,773 )           (4,451 )      (159,322 )
Other Income (expense)                                  5,885             12,402          (6,517 )
Gain on Forgiveness of PPP loan                        31,667                  -          31,667
Change in Derivative Liabilities                       45,607         (3,419,052 )     3,464,659
Change in Marketable Securities                             -            328,970        (328,970 )
Loss on Extinguishment of Debt                       (124,158 )       (1,096,752 )       972,594
Interest Expense                                     (650,061 )       (1,069,562 )      (419,501 )
Loss from Operations Before Taxes                    (854,833 )       (5,248,445 )     4,393,612
Provision for Income Taxes                            (27,382 )         (157,690 )       130,308
Net Income (Loss)                              $     (882,215 )     $ (5,406,135 )   $ 4,523,920




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Revenues decreased because of lower grade ore being processed and difficulties getting parts needed for the machine used to grind the ore before placing it on the leach pad.

Cost of sales were different in the three-month period ended March 31, 2022 because of the lower amounts of ore placed on the leach pad. Cost of sales increased as a percentage of revenue from 81.19% in the three-month period ended March 31, 2021 to 81.42% in the three-month period ended March 31, 2022 but was relatively the same percentages.

General and administrative expenses have increased for the three-month period ended March 31, 2022 because of an increase in legal expenses, compared to the three-month period ended March 31, 2021.

Changes in derivative liabilities was because of the lower valuation of the derivative liabilities in the current year.

Interest expense decreased in 2022 because of the decrease of amortization of existing debt discounts.

Liquidity and Capital Resources

Our balance sheet as of March 31, 2022 reflects assets of $1,211,439. We had cash in the amount of $95,922 and working capital deficit in the amount of $25,501,305 as of March 31, 2022. Thus, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.





Working Capital



                           March 31, 2022       December 31, 2021
Current assets            $        593,147     $           543,008
Current liabilities             26,094,452              25,279,768
Working capital deficit   $    (25,501,305 )   $       (24,736,760 )

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





Going Concern Consideration

As reflected in the accompanying unaudited condensed consolidated financial statements, the Company and has an accumulated deficit of $38,390,486. In addition, there is a working capital deficit of $25,501,305 as of March 31, 2022. 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.





                                                          Three Months Ended March 31,
                                                           2022                  2021

Net Cash Provided by (Used in) Operating Activities $ (46,006 ) $ 66,755 Net Cash Provided by (Used in) Investing Activities

            (3,983 )             423,659
Net Cash Provided by (Used in) Financing Activities            90,594              (441,576 )
Effects of Exchange Rate Changes on Cash                           44                   133
Net Increase (Decrease) in Cash                       $        40,649       $        48,971




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Operating Activities

Net cash flow used in operating activities during the three months ended March 31, 2022 was $46,006, a decrease of $112,761 from the $66,755 net cash provided during the three months ended March 31, 2021. This decrease in the cash provided by operating activities was primarily due to the decrease in production and sale of materials during the quarter.





Investing Activities

Investing activities during the three months ended March 31, 2022 used ($3,983), a decrease of $427,642 from the $426,659 provided by investing activities during the three months ended March 31, 2021. The decrease was due to the proceeds of $447,136 from the sale of the marketable securities received in 2021 compared to $0 in 2022.





Financing Activities

Financing activities during the three months ended March 31, 2022 provided cash of $90,594, an increase of $532,170 from the $441,576 used in financing activities during the three months ended March 31, 2021. During the three months ended March 31, 2022, the Company received $423,900 in proceeds from notes payable - related parties. The Company made $304,900 in payments on notes payable - related parties and $28,406 in payments on notes payable.

Critical Accounting Policies

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

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

The Company capitalizes costs for mining properties by individual property and defers such costs for later amortization only if the prospects for economic productions are reasonably certain. Capitalized costs are expensed in the period when the determination has been made that economic production does not appear reasonably certain.





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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.

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